w/ Oren Charnoff, Fondue
Here's how I shop from a new brand. I see an ad on Facebook, I click through, if the site is on Shopify and looks legit, maybe I'll buy. When I do buy, I'm going to wait until I'm on my desktop so that I can use a browser extension to painlessly check for coupon codes and apply the best one. Every single time. The bigger the discount, the bigger the dopamine hit, the more likely I am to buy. That's the truth.
I can only do this because I know brands are just as addicted to coupon codes as Iam.
We're joined by Oren Charnoff, Cofounder and CEO, at Fondue based in Tel Aviv.
Fondue just raised $11m to replace every coupon code with CashBack.
Prior to cofounding Fondue, Oren was on the founding team at Hanaco Ventures, a now $1.5B VC fund based in TLV and NY.
Oren is a long time listener, first time caller into the podcast!
The Unofficial Shopify Podcast
Kurt Elster: Hello again, my friends. I want to tell you a story of an eCommerce purchase. Okay, so here’s how I shop from a new brand. This is generally how it goes. I see an ad on Facebook. Maybe it catches my eye. I’m gonna stare at it. And after I’ve seen it like the tenth time, I might click through. And if the site is on Shopify and it looks legit but not too good to be true, maybe I’m gonna buy. But when I do buy, I’m gonna wait until I’m on my desktop so that I can use a nefarious browser extension to painlessly check for coupon codes, right? And apply the best one. Every single time. That is just how I operate now. And the bigger the discount, because it’s like watching a slot machine as it’s rolling through coupon codes it’s testing, so the bigger the discount it comes back with, it’ll be like, “You saved!” The bigger the dopamine hit, which means the more likely I am to buy. That is the honest truth. I’m not necessarily proud of this fact, but that’s the truth. And I can only do this because I know brands are just as addicted to coupon codes as I am, and that’s what we’re gonna discuss today.
This is The Unofficial Shopify Podcast and I’m your host, Kurt Elster.
Ezra Firestone Sound Board Clip: Tech Nasty!
Kurt Elster: And we are joined today by Oren Charnoff, Co-Founder and CEO at Fondue. Fondue just raised $11 milly to replace every coupon code with cash back. Now, clearly he’s biased here, but prior to co-founding Fondue, Oren was on the founding team at Hanaco Ventures, a one-and-a-half billion dollar VC fund based in Tel Aviv and New York, and I’m told he is a longtime listener, first time caller. Oren, welcome.
Oren Charnoff: This is stage fright. I’m trembling at my knees, Kurt. Thanks for having me on.
Kurt Elster: That’s, you know, generally not the preferred way to conduct an interview. I don’t like to add a lot of terror to the show. eCommerce, it’s a business topic, inherently not super exciting, so we try to make it fun, not terrifying.
Oren Charnoff: Okay. I’m now relaxed. You have liberated me. Thank you.
Kurt Elster: Just let my dulcet tones wash over you.
Oren Charnoff: Awesome. Happy to be here. Thanks so much for having me on.
Kurt Elster: Oh, my pleasure. So, okay, coupon, I hear discount code and coupon code used interchangeably. Let’s set our terms right. Are those the same thing?
Oren Charnoff: No. Thank you so much for asking. So, I am of the opinion, and we’ve got some juicy, juicy data behind it, that there’s a difference between discounts and coupon codes. Discounts are a purchase incentive, and they can come in many forms. Coupon codes are a discount type. You can have buy one, get one, free gift with purchase, free shipping, a coupon code, a markdown, a cash back, so I think a coupon code is by far the most prevalent discount type, but it is certainly a type of discount. It is a form factor.
Kurt Elster: The other thing we hear about is we refer to it as the sugar high of discounting. What’s the fundamental difference here? What is your issue between a straight discount and a coupon code?
Oren Charnoff: So, discounts are an experience for shoppers, right? It’s a dopamine hit. This is a great opportunity to help me buy the product. A coupon code is a way of giving the shopper the discount. But not every shopper who’s seeking the dopamine hit of savings actually has this financial need to save money is number one. And number two, coupon codes are extraordinarily problematic and they’re super prevalent, because it’s like one of the stalest types of tech out there to help convert shoppers. So, discounts are an experience. Coupon codes are like a financial product, a type of discount.
I hope that makes sense.
Kurt Elster: As eCommerce merchants, we’re all pretty addicted to coupon codes. And I think as shoppers, as a shopper I’m definitely addicted to those coupon codes. Oh my gosh. I love it. Are we saying coupon codes are evil and bad?
Oren Charnoff: It’s a great question. I’ve actually never been asked it in such like a deep, philosophical way. What I’ll say is when brands are using a coupon code, it’s kind of under the assumption that they’re trading off profit for revenue, meaning they’re willing to less margin because this coupon code is why the shopper is converting. It’s part of the relationship with the shopper, which is you will convert because you get to get it at a better price. Now, the brands are willing to do coupon codes in order to get that revenue, right? That they’re willing to take that margin hit.
But coupon codes don’t always do that. So, let’s say for example you see an ad, or an email, or an influencer says something about why this sweater is comfortable, and then it’s also 10% off with this coupon code. Even if you’re not price sensitive, you’re not not gonna copy and paste that code.
Kurt Elster: Exactly.
Oren Charnoff: It is so damn easy.
Kurt Elster: I have no business using these coupon codes and I can’t stop.
Oren Charnoff: Or you’re at checkout and then you say, “You know what? Screw it. I’m gonna Google it and I’m gonna see if there’s a coupon code out there.” Now, maybe that shopper deserves the coupon code because they put in some effort. Or then you have the injection of Rakuten, Honey, Capital One Savings, where the shopper literally does nothing. And so, for the shopper, maybe they care about the savings. Maybe they don’t. But for the brand, it hurts their business. It hurts their margin. It’s like social contract between the brand and the shopper. The coupon code is a horrible way to do that. The shoppers who actually need savings, they’re not getting the subsidy that they require because some shoppers who are willing to pay a full price get the flat old technology of coupon codes where brands don’t know who needs it and who doesn’t, so they just give a little bit to as many people as possible.
And this is a really unsustainable way to grow a business, because the brand gets addicted, the shopper gets addicted, and it’s this vicious cycle. It’s nonstop.
Kurt Elster: The other thing I’ve suspected is once I have made the purchase and was successful with the coupon code, if I make a subsequent purchase and I cannot get a similar discount, I am now disincentivized from purchasing at full price. So, long term on CLTV, not only am I just straight getting less revenue, it’s impacting future conversions. I am predicting my psychology here, but I know I operate in this way. And obviously, it’s anecdotal, but…
Oren Charnoff: For some shoppers who like the gamification of shopping, for some shoppers who just based on their budget, this is essential to what they do, but there’s a lot of shoppers who will purchase from a brand because they connect to the brand story. They have that relationship. They like that the product was sourced in a moral way. They like that the sweater is comfortable or they like the way they look in the clothing. And then they’re willing to buy throughout the year at any price. And of course, there are shoppers who like the dopamine hit like the old junkies, and then you’ve got the people who simply because of their budget can’t afford otherwise. The challenge with coupon codes is it has no way to differentiate between those shoppers and that crushes the brand margin every single time.
Coupon codes are some of the best technology to make less profit, guaranteed.
Kurt Elster: That’s a good line. Coupon codes are the best technology to make less profit.
Oren Charnoff: Look, discounts really matter. One out of six transactions online from what we’ve seen are done with some sort of discount. Now, who’s to say that it’s one out of every six shoppers actually needs that savings or desires it to convert? But because coupon codes are just so damn easy, you’re not not gonna use it. And that hurts brands, especially today, where brands are extremely oriented to focus on profitability. We think that the call to focus on discounting is speaking to brands in a real way, just like I think returns used to during corona. Brands had to grow intentional about that. But I won’t get ahead of myself.
Kurt Elster: But I think brands bear the responsibility here, like I didn’t go in anybody’s store and make the coupon code, right?
Oren Charnoff: Totally.
Kurt Elster: And plenty of tools will dynamically generate one-time use coupon codes that then cannot be practically leaked to coupon code sites. When I set up a coupon for a client in a Shopify store, even if it’s a regular coupon code, not dynamic generated, I say, “Hey, no matter what, set an end date on it.” Even if the end date is a year from now, you just don’t want this thing out there forever. And so, where’s the responsibility here? Am I finding loopholes that I shouldn’t be?
Oren Charnoff: No, no. You’re optimizing within the constraint as a brand and you’re optimizing within the constraint as a shopper.
Kurt Elster: So, we’re playing to the rules.
Oren Charnoff: Yeah. 100%. It’s within the right of the brand and within the right of the shopper to set the terms of these discounts in the way that they see fit.
Kurt Elster: I get why I, as a shopper, keep doing it, right? Because I’m like, “Why would I not want to save the money?” Especially when it’s not a ton of effort. My wife will go through more effort and I’m so proud of her for this. She’ll be like, “Oh, yeah. I’ll Google it. I’ll find a coupon code that’s like HELLO15, and then I’ll be like all right, well, if it’s HELLO15, let me try HELLO20, HELLO25, HELLO30.” And you would be surprised at how often that works.
Oren Charnoff: Totally.
Kurt Elster: On the brand side, why do they keep exposing themselves to this?
Oren Charnoff: Because there’s no better alternative. What else is there other than coupon codes for this, right? If you’re a first time shopper, you said HELLO15, right? So, if you look at that as an example, that probably is from the welcome series, and if you say to the shopper, “I’ll give you 10,000 points to my store,” I don’t care. I’m a first time shopper. I don’t know you yet, right?
Kurt Elster: Yeah. It’s with the first time purchase that I’m most likely to engage in this behavior. Because it’s derisking it for me.
Oren Charnoff: It was not random that you said HELLO15. The welcome series is an incredible place to discount. It just works really well. But brands just don’t have a better alternative. They would love it. They’ve accepted this as a cost of business. This is status quo. And even if you ignore the leakage and the injection, which are a fundamental flaw of coupon codes, we even gave the example of it appearing in like an influencer says why this is a great product, and it’s 10% off. You’re not not gonna copy and paste it every single time. So, brands are addicted, shoppers are addicted. It’s this vicious cycle because there’s just no better alternatives.
Kurt Elster: We heard over the summer about Target stores had so much inventory, they had run out of places to put it. All right. Well, when you have so much inventory you don’t know what to do with it, this is now distressed inventory, and so in that instance, okay, intentionally… Using coupon codes in an intentional manner, and even overlooking the fact that maybe we didn’t set this one up quite right and it’s gonna get abused a little bit and leaked, maybe we turn a blind eye to it. We want that to happen so that we can just get the distressed inventory out the door.
When we say brands are addicted to coupon codes, are they addicted to them or dependent on them with seemingly no way out?
Oren Charnoff: Yeah, but brands are addicted to them because discounts work. Coupon codes are the most familiar form factor of discounts for everybody. And they just get stuck doing it. There are alternatives.
Kurt Elster: All right, so let’s break it down to what’s the part of the discount code we want to keep and what’s the part that we want to get rid of? It’s a tool. What’s our better scenario, our better ideal tool look like?
Oren Charnoff: What I would say is because coupon codes are so easy to use and they’re flawed insofar as that they leak in objective, they actually aren’t serving their purpose of being used by shoppers who desire or who need the savings in order to convert. So, the objective is how do we efficiently allocate capital, meaning margin, so I can convert shoppers in an economic way, but hopefully only allocate to those who really desire it because they’re the discount junkies, the people who get the dopamine hits, or the people who simply can’t afford the product without it. For those that are happy and willing to pay at full price, let’s meet these people where they’re at.
So, I think that’s the goal, is how do we give people the experience of discounting, but we only allocate it to those who really desire it? And so, I think in a big way we were really inspired by returns tools. So, if you look back during corona, return volumes went way up, and the way that returns used to work is when you were given a box of whatever you bought, the first thing to do when you’d open it, it would have a preprinted label to return it. So, the first thing a shopper would see is they’d say, “Kurt, don’t forget. You don’t have to keep this, and we made it easy.” Right?
And then Loop, Returnly, Narvar, Happy, and all the others who are building this returns post-purchase interaction are actually engaging, having a discussion, dancing with the shoppers, if you will, saying, “Well, why are you returning? Would you like an exchange? Would you like a gift card? Would you like a different size? Oh, here’s the label anyways.” And you could actually resolve this for the shopper by solving why they’re returning. And of course, they’ll get the label that they just wanted anyway for most of the time, and by expanding the customer journey post purchase, by increasing the level of effort, you actually can do a heck of a lot more profitable interaction and a substantially more meaningful one with the shopper.
And in the same way that returns are a huge reason why gross sales and net sales get crushed, if you look within Shopify, the two things that hurt gross sales and net sales are returns and discounts. So, just like returns was the call of the hour while return volumes went up in COVID, now with the economy, profitability is the hour. So, what we’re focused on doing, there’s a number of people focused on discount optimization right now, but what we’re doing is we’re just building a completely new discount type with cash back, focused on it being a post-purchase engagement, the personalization of asking shoppers what type of discount do you want, and turning it into a relationship around discounting.
Because for your example, Kurt, you actually get a ton of value. You love the experience of discounting and there’s really almost no interaction with the brand in order for you to appreciate, for you to discuss, for you to further connect with them because you’re a discounter. So, we just think there’s this awesome opportunity to do what returns has done but in the discount space.
Sorry if I’m preaching to the choir. I’m passionate about this shit.
Kurt Elster: I’m glad and I appreciate it. I mean, it is a delight to have a subject matter expert who is genuinely excited about something as laser focused as discount codes, as coupon codes. You brought up returns and that was kind of interesting, so in my head as I was walking… In the intros, I was walking through like here’s how I shop from a new brand. That was a very real example. And it was I made a purchase from Negative Underwear. I bought a bra for my wife. She tries it on. She goes, “Eh, I don’t really like it.” I’m like, “It’s fine. If you’re not in love with it I’ll send it back.” And I used Loop Returns for the first time as part of this. And the first thing it says, “Do you want to return or exchange?” And it’s got like it’s showing me other bras. It’s like, “Hey, here's our best sellers. You could exchange it for these.” It’s really clearly optimizing for keep that cash at the brand. Just exchange it for something else if it doesn’t fit, because it wants to know the reason.
And every step of the way it’s like, “All right. Well, you could return it if you want to keep going with this, or just exchange it.” And then it starts offering me store credit. And it’s like, “Hey, you’ll get five bucks more because there’s no handling fee if you get that store credit.” It’s really very clever in a positive way. But it was obvious to me that they were optimizing for just keep that money at the brand. And they did it by issuing a gift card. I thought the whole thing was clever and I ended up tweeting about it. I said, “Look, if returns are coming up, you optimize for it for keeping that cash with an app,” and of course the example was Loop. I don’t have an affiliation with, I was just like, “This is cool.”
So, all right, you used that example. Now I’m doubly interested, so what are we doing here that’s similar?
Oren Charnoff: So, what I’ll say is there’s two things that occurred that we’re really inspired by that I’ll walk through how we’re doing it. They’re absolutely introducing friction. Let’s not pretend. This is post-purchase engagement, continual commerce, whatever you want to call it, but it’s increasing friction for shoppers to get the return slip, right? And during that discussion there’s great resolution. There’s a meaningful discussion that happens. So, instead of neglecting returns, which is a profit margin crushing process, they’ve created a ton of enterprise value, value for shoppers and for brands.
So, the way that coupon codes work are they leak, they’re easy to use, and they’re applied pre-purchase. So, what we’ve essentially done is rather than giving the shopper 10% off in the welcome series, you could say to the shopper, “You get 20% back.” The shopper is made aware that they’re eligible for cash back throughout the entire customer journey, and then at post purchase we ping the shopper and it says, “Hey, shopper. You’re eligible to claim your discount post purchase. Would you like to claim it at all? Would you like to claim it as cash? Or for a greater value a site credit?”
And look, some shoppers who don’t care to save money, they simply don’t claim it and that’s totally fine. For those who love value or who love the brand, we’ll take the site credit. That’s more valuable. And for those who are transactional, they will claim it as cash. But by expanding the customer journey, by asking who wants this discount and for how much while ensuring they’re made aware of it throughout the journey, it’s strictly more profitable. And given that not everyone claims it as cash, some don’t care at all and that’s fine. Behavioral economics. If you want savings, you’ll press the button. Or for those who love the brand or will take the credit, so you’re deflecting these discount costs, now you could actually offer a more aggressive discount value. You can actually increase it.
Notice in the beginning I said it’s 10% off versus 20% back. That is way more powerful on a welcome series than switching up color, or font, or the image, is to optimize that discount value. So, unlike a coupon code, it’s a post-purchase discount.
Kurt Elster: Okay. I see where this is going, and I like it. It sounds clever. Help me understand, what is the first point where Fondue, that’s your app, and a delicious, trendy in the ‘70s appetizer, when do I first interact with it if I’m the customer? Is it when I get into the checkout process, step one? When do I see it for the first time? How do I trigger it?
Oren Charnoff: It’s a great question. We’ll take it from the example you said before, WELCOME15. So, let’s start with where most people begin in eCommerce, where discount codes are used the most. We’re gonna start with the welcome series. So, Kurt, you went to a website, and you get a popup, and they offer you a discount value and a discount type in exchange for you to give them your email and SMS to be tastefully bombarded thereafter.
And so, in this sense, let’s say they’re using Klaviyo or Attentive, the popup instead of saying 10% off, it will say something like 20% back. Okay, nice. It’s good value. The shopper gives their email and SMS and either on the success page of that popup or in the drip email and SMS sequence thereafter, the shopper is invited to shop with an eligibility for 20% cash back if they use the UTM link below. So, it’s a URL, unlike a coupon code, which therefore doesn’t leak, which shoppers click through to purchase with cash back eligibility.
And throughout the journey, PLP and PDP, the shoppers are aware that this is a cash back product. And then in the cart, they’ll see that their full price purchase is eligible for a 20% or 30% cash back, and then after they complete that purchase they immediately get their Shopify receipt emailed, their track your shipment email, and then your cash back email that says, “Hey, Kurt. Do you want to claim your discount?”
Kurt Elster: Okay, so I land on the site, it makes the offer in the traditional manner. What I’m used to and expecting if I’m looking for it. Let’s say, so I spend $100 on the site, and then after the fact it’s like, “All right, you can get $20 back post purchase.”
Oren Charnoff: Correct. The shopper is made aware of that in the cart and in the checkout.
Kurt Elster: And then how does it look in the checkout?
Oren Charnoff: It’s a product. It’s as if it’s digital inventory.
Kurt Elster: Okay. And so, we would say like, “$20 cash back,” is like a line item?
Oren Charnoff: Yeah. Exactly. That’s exactly what it would be.
Kurt Elster: And so, I pay the 100 bucks. What happens next? How do I redeem my 20 bucks? What does this look like? When do I first see it?
Oren Charnoff: Totally. We will email the shopper immediately and say, “Do you want to claim your cash back?” No different than they get their shipment tracking email, the Shopify receipt. It’s they get their cash back eligibility piece saying, “Do you want to claim your money?” A push notification, like opening the box for the shopper. That’s, “Here’s your pre-printed label.” Here is do you want to claim your cash back?
Kurt Elster: I was big into retail discounts and couponing 20 years ago when mail-in rebates were huge. And the magic of mail-in rebates was that the retailer knew a majority of people would never redeem the mail-in rebate. They would not go through the effort of doing it. I was 19 and absolutely would go through the effort. And so, I could get really huge discounts on stuff as long as it was deferred. And it sounds kind of like where this is going, because if the person doesn’t bother to redeem it, that’s just cash in the retailer’s pocket.
All right, so step one is it’s offer… The retailer now has the full hundred bucks.
Oren Charnoff: Full price purchase.
Kurt Elster: The full price purchase.
Oren Charnoff: AOV is up. Full price purchase.
Kurt Elster: The customer now has the option to redeem the cash back similar to a coupon code, but with marginally more effort, and therefore there will be an inherent amount of breakage. People who just don’t bother.
Oren Charnoff: Unlike a rebate, sorry about that, Kurt, it’s not designed to screw over the shopper. Rebates were built to have as much friction. Cut out a barcode, keep a receipt, mail it in, climb up a mountain, take a picture with a goat, write a-
Kurt Elster: And then sometimes they’d lose it.
Oren Charnoff: Yeah. We’re emailing the shopper immediately to start the post-purchase engagement of, “Hey, how do you want to claim your discount? Do you want to get 20 bucks back as cash or do you want 30 bucks of site credit?” And if you’re a value-oriented shopper, you love savings. And if you have a great interaction with the brand, yeah, I could see myself buying here again, so that’s the discussion.
And if the shopper just doesn’t care to save the money, the brand doesn’t bleed margin.
Kurt Elster: Me personally, even if it was like, “Hey, we’ll give you five bucks back,” I am clicking that link. You’re not gonna keep me away from it. So, I click the link. What happens next?
Oren Charnoff: Sure. The shopper, super similar to returns, just confirms that they are in fact the shopper, and then they immediately choose between claiming it as cash or as site credit.
Kurt Elster: Why would I not take the cash?
Oren Charnoff: The reason why you might not take the cash is one, you actually don’t care, right? As a shopper, “Eh, it’s four bucks. I don’t mind.”
Kurt Elster: Oh, so like I’m just gonna bank it at the store if I know I’m gonna make a future purchase?
Oren Charnoff: The shopper has three choices when getting pushed, “Hey, do you want to claim your money?” They can choose not to claim it, which is they just don’t care about the savings. They can choose to claim it as site credit to get more value. Or take it as cash. Why would someone not choose it? I don’t know. Maybe they don’t care about four bucks. Why would someone choose it as site credit? Because it’s a better deal or you just love the brand so much.
Kurt Elster: And so, do you optimize for this? Is there a handling fee if I have it distributed to me as cash?
Oren Charnoff: No.
Kurt Elster: And so, what’s the breakdown here? Wouldn’t everyone take the cash? Or is it like 50/50?
Oren Charnoff: There’s a tremendous amount of shoppers who choose not to claim it at all, which goes to the point of how many shoppers want the discount experience versus actually care to save money.
Kurt Elster: Weird.
Oren Charnoff: This goes to the price elasticity of a shopper. It’s a huge surprise.
Kurt Elster: Yeah. That’s what we should have led with. Oh my gosh.
Oren Charnoff: Yeah. The closest thing we have to a trade secret is that some folks or a lot of folks are taking site credit and a meaningful number of people aren’t taking, aren’t claiming it at all, despite getting push notifications, “Do you want some money?”
Kurt Elster: You’re right. Up front, they are getting the experience of the discount, but then entirely giving up the discount. Wow.
Oren Charnoff: Because of a click of a button.
Kurt Elster: Could this app be set up where we’re like, “Hey, we’ll give you an extra 5% if you take the store credit.”
Oren Charnoff: Absolutely. Every single brand juices up the site credit option as opposed to the cash option.
Kurt Elster: Oh, so this is a feature that’s in there now?
Oren Charnoff: Yeah. 100%.
Kurt Elster: Okay. Yeah. That’s what I was looking for.
Oren Charnoff: Yeah. I’m sorry if I did not make that clear, but totally. If you’re a value-oriented shopper, you could take the 20% as cash or 30% as site credit.
Kurt Elster: I was so enamored with that Loop Returns experience and the way they had optimized for just keep that money with the retailer, and now hearing that you have done that for coupons in this incredibly clever way… All right, you have my attention. I’m interested and excited about this. In your experience, this isn’t gonna be a good fit for everybody potentially. Who does this work for versus who should not bother?
Oren Charnoff: If you’re not discounting, you’re probably not going to be using cash back. If you are discounting and you have coupon codes, you probably have said this to yourself all the time. Fuck coupon codes. I will say it’s anyone who’s using coupon codes, fuck coupon codes. Get cash back. Specifically in the welcome series. That’s the sweet spot for where we work with brands because I would obviously tell you with this insane level of enthusiasm that my product works, but Klaviyo and Attentive can just A/B test it and then you can build the trust to see do you build bigger lists? Do you generate more revenue? And what’s that profit on that revenue given unredeemed plus redeemed as site credit?
It's super clear for where to build trust with us, and then our brands graduate and they use it with ads, influencers, affiliate, even posts to mail in with a QR code for cash back. But it starts in building trust in a welcome series.
Kurt Elster: All right. I’m sold on this thing. But I want to know, with your insights, do you have other discount strategy, coupon code thoughts and insights that we may be missing?
Oren Charnoff: Totally. Yeah. So, the first is you should treat site credit holders differently than you do standard shoppers. Brands are neglecting to take advantage of shoppers where they know who has a site credit, and sending them emails saying, “Don’t leave your money on the table.” And perhaps the brand should consider not emailing them a discount email and only reminding them, “Here’s your site credit.” I think if you look at site credit, that should be considered part of subsidizing purchases, which is part of the discount category broadly, and there’s an awesome opportunity to be segmenting shoppers of who wants a discount experience, which can be cash back, which can be gift cards if they are site credit holders, because then you don’t need to have the double dipping of site credit, plus a coupon, plus a cash back, plus a discount.
So, I would say that understanding who to discount really matters, and that’s some of the value prop of the behavioral economics of cash back, of self-selection. But you can also understand who needs the discount and who doesn’t. Also trusting influencers. If you’re both paying an influencer and you’re subsidizing it with a discount, the influencer is building trust. They have a relationship. And the brand just wants to build trust. Discounts are a great way to build trust. It’s taking that first step, the olive branch in a relationship, so I would say discounting with influencers, while it is effective, it’s marginally more effective than engaging with the influencers directly.
Because when we’ve seen brands, if you look at the redemption rates of cash back when it’s an influencer, it’s just substantially lower than the redemption rates on other channels.
Kurt Elster: So, it sounds to me like with discount codes, absolutely they’re effective, but they’re a cost center. I mean, there’s just no way around it. The thing you are giving up is just straight top line profit. The hope is… The real scenario in which they are most useful is our first-time customers. A first-time customer has never bought from you before, has no prior experience to say this brand is good or bad, and therefore it is to them, that first purchase is the riskiest.
And so, the coupon codes become most important on that first purchase. And then at the same time, the coupon code really… The subjective value and importance of it is really dependent on the customer. And so, segmentation and self-selection is an important consideration here. And then… So, switching to this cash back approach, now you’re able to do… You’re giving up the segmentation in favor of self-selection. You are giving people the option on how they want to approach it. And with the whole thing, it’s the same experience for the customer, same outcomes, we can still get them in the door, but ultimately the brand then is giving up less profit.
The other thing I like about this is novelty, right? It is a new experience. And anytime we have those, novelty and the new experience often can lead to a better experience and higher conversions. Now, does that last forever? No, but if you get in early it lasts potentially years before it’s like, “Well, that’s just standard and expected and we’ve seen that before.”
Oren Charnoff: You’re totally preaching to the choir here. It’s you can try to understand who needs a discount and who doesn’t. AI, shmay-I. Segmenting, building lists. What can you trust more than liberty and choice? You’re giving people the option to claim instead of trying to have a proxy to guesstimate if they need it or they don’t. But giving everyone that dopamine hit of a savings opportunity and reminding them that they can claim that cash back, and because it’s more profitable you can increase the discount value. You can expand in the demand curve based on pricing how to get people engaged in your funnel. It’s just way more efficient than stale coupon codes which are as old as commerce itself, that has no way to differentiate between who needs the savings and who doesn’t.
This is like the biggest payments category in eCom I think no one’s talking about.
Kurt Elster: Yeah. And it’s certainly not in this manner. And so, I think the other question I have here is how does this impact customer service inquiries and education? So, a new thing to eCommerce, new in its approach. Do we have issues with educating customers on this is how this approach works?
Oren Charnoff: Sure. So, what I would say is the language that you use to describe the cash back, if it’s for example in that welcome series, really matters. So, you could say get 20% cash or credit. That’s super clear. Get 20% back. Get 30% cash back. So, we’ve done this language testing across all the brands that we’re working with, and the brands might have an intuition of what’s best for their shopper. Including in the cart that the shopper can press to learn more about how this cash back works, right? These are all these trust building features that we have.
And what we’ve seen is that cash back is a good word. People like cash back. It means winning. And a big part of discounting is what you’re looking for, Kurt, is like you’re looking to win when you make these purchases, right? You’re looking for a great deal. You want to know you got the best deal. So, if you can build that trust by explaining to the shopper how it works, we’ve seen a shockingly little amount of tickets. We totally over hired for that. We thought we’d have CS volumes. And look, there’s certainly some people who also will ask, “Well, where’s my return label?” So, it’s not to say it doesn’t happen, but we’ve been able to build trust with brands and shoppers in a pretty meaningful way thus far.
Kurt Elster: I’m on board with that. So, if I want to try this, what’s it gonna cost me?
Oren Charnoff: Sure. So, we’re not gonna charge you anything for the first month. And for folks who say that they’ve heard through the podcast, we’re not gonna charge you for the first quarter.
Kurt Elster: Whoa, I get 90 days out of this?
Oren Charnoff: Yeah.
Kurt Elster: Sweet.
Oren Charnoff: Long time listener, first time caller, gotta give the fellow listeners some love. And then after that it’s $35 a month.
Kurt Elster: Entirely reasonable. You know, oftentimes with these things we see it’s like tiered pricing, or it scales with your order volume, which is always kind of frustrating because it’s like, “Well, the functionality here isn’t changing. I’m just getting dinged because I’m more successful than someone else.”
Oren Charnoff: Totally. Kurt, you’re welcome to pay us more. But look, that’d be fine, but no, we’re creating a category here. We’d also like to thank our venture capitalists for helping to subsidize our brand’s usage of this product.
Kurt Elster: Oh, those wonderful venture capitalists. Thank you so much for your support in making these discounts happen for me. I appreciate it. Okay, so you said they gotta let you know. Is there a live chat? How do they let you know to get their extension?
Oren Charnoff: Yeah, sure. Oh, sure, so one, we’ll include a unique link for folks that you can circulate here. We speak to pretty much every brand as they go live, so they could just let us know. Folks can just email me, Oren at get fondue dot com. Send me a DM on Twitter or on LinkedIn. You can check out our website, get fondue dot com. All of the above.
Kurt Elster: And what about you? How do we find you on the internet?
Oren Charnoff: So, I hang out a lot on Craigslist. No, so you can find me, Oren at get fondue dot com. I’m on Twitter. I’m on LinkedIn. Still lurking on Myspace. No, not actually, but I’d say LinkedIn, Twitter, and my email.
Kurt Elster: I still love how undesigned Craigslist is. That is a perfectly functional website. I bet that scores phenomenally well in PageSpeed because it is just like, “Here’s plain text. Go.” And everybody knows how it works and what they’re doing.
Oren Charnoff, GetFondue dot com. Cash back instead of coupon codes. And what’s your tagline? Three words, starts with an F?
Oren Charnoff: Yeah. That is fuck coupon codes, sir.
Kurt Elster: Oren, thank you so much.
Oren Charnoff: Totally. Thank you.