This is one in a series of Anti-Churn Tactic articles detailing ways to reduce churn and improve customer retention. In this installment, we'll talk about using gifts to increase good will and inspire social reciprocity.

For this series, let's assume we have an invoicing application named InvoiceViz and customers are signing up like mad because the app is beautiful and the prices enticing. But we're finding that those users aren't sticking around as long as we'd like. Something has to be done about churn.

The first thing we should do is find out why they're leaving and focus on any actionable feedback. That much goes without saying. But let's say we've done that and now are left with otherwise happy users who just need a little prodding and support to stay.

One way to support a user is to give them a gift.

Everybody loves gifts. So why not give our users gifts? Of course, we have to make sure we don't give them more in gifts than they give us in money. And we have to make sure we don't give so many gifts that they user comes to expect them as a perk. But, even with those caveats, the occasional gift can be really useful for keeping users.

Just make sure the gift is actually meaningful.

We can shoot ourselves in the foot by looking like clueless hacks handing out useless, cheap swag. So we want to consider our gifts carefully. We want to think about the purpose of the gift: get the user to associate the good feelings the gift implicitly inspires with our product and its experience.

Giving meaningful gifts trigger social reciprocity.

Social reciprocity is the lingering feeling we leave in the gift recipient that they want to pay us back somehow. It's not quite a total feeling of obligation or debt (which is, after all, actually a stressful and negative feeling) but rather is a general feeling of "yeah, these guys are a-OK. If I ever have an easy opportunity to let them know, I totally will."

We want to trigger social reciprocity in our users.

Gifts can take many forms.

The key to a good gift is something that doesn't cost us too much, but that feels like a million bucks to the recipient. For this reason, just handing out cash is not a good gift. The cost of cash to us and the perceived value of cash to the recipient are too close to each other.

So, we might try any of these alternatives:

  • Schwag (ie. physical good)
  • Public recognition, like on a leader board or "valued customer" board
  • Tickets to an event (bought in bulk, they have a higher perceived value than actual value)
  • Discount to some other venue like a hotel (can be bartered for and not cost any money)
  • Discount for signing up for an affiliated/partner service (also potentially doesn't cost us anything)

A gift can feel valuable to the recipient while having minimal cost to the giver.

We can be clever about acquiring all of the above gifts. If we're clever enough about it, then the gifts might not cost us anything at all. But, more likely, we'll be able to acquire the gifts in bulk at a significant discount. Or we'll be able to barter for them in return for extending our own services to partners.

The timing of the gift can matter.

Lots of research shows the timing and order of gifts can matter. We'll get a nice boost if we give a gift up front. And our gift will feel more genuine if it's in response to passing some kind of milestone. Or it might save a leaving customer if given right before they decide to leave.

We can give more than one gift, but shouldn't get carried away.

Over the lifetime of a customer, we should keep our gifts to 2-3 maximum. Any more, and users will start feeling entitled to the gifts instead of grateful. But just a handful of gifts over their lifetime will still make a user feel special and will have their maximum impact.

All of the gifts should be a surprise.

Studies show that surprise gifts are more pleasing and more powerful for triggering feelings of social reciprocity. So we'll want the gifts to be a surprise. If they're not a surprise (e.g. "stay three months and get a free koala teddy bear!") then the gift will feel more like a business transaction and not a special surprise.

All of the gifts should be difficult to value independently.

To maximize good feelings about our gifts, we need to make sure they are difficult to compare to cold cash. Otherwise, our user might be tempted to think, "Ok, that's a nice gift. Hmm, it probably cost them a few bucks. Wait, that's about as much as I just spent on coffee. Yeah, whatever."

For example, a subscription to a beer of the month club is better than a dollar-denominated gift certificate to BevMo.

All of our gifts should be anchored to something else valuable.

Rather than giving a gift that can be compared to cash, we should give a gift that begs comparison to something fancier. If we're giving gift certificates to restaurants, the restaurants had better be fancy. If giving away physical goods, something electronic is better than a bunch of housewares of equal value. If giving away subscriptions to services, make sure they are the premium service in their category.

The first gift should come immediately after sign up.

Ahmed Rahman from Brooklyn College CUNY found in a study that giving customers a little gift when they enter a store results in a 46% increase in spending. Forty. Six. Percent.

In a SaaS app, we have a similar opportunity. Right when a user subscribes to our service, why not drop a nice, unexpected gift on them? It will take a little sting out of the money they just spent and possibly leave them with lingering warm feelings about us (and a willingness to spend more on upgrades later). Just make sure to remember about it being a surprise, otherwise they'll price the gift in as part of the net cost of the service.

The second gift should come after a milestone.

Pick an arbitrary milestone that most users will hit. In our InvoiceViz example, we might give users a gift when they've sent their 20th invoice. Gifts work better when they are tied to an outcome, so passing an achievable milestone is a perfect excuse to shoot a gift out to our pleasantly-surprised user.

The third should be saved as a hail-mary pass when a user is going to leave.

We've only got one more chance left to send a gift before our user experiences gift fatigue. So let's save it for when we know we need it. Assuming we have prediction models that will tell us a user is at-risk and about to churn, let's send the third gift just before the user churns. Maybe it will be just enough to turn them around. Did I mention that this kind of prediction is what we do?

Like this article? Read the next in the series about using in-app chat to reduce churn.