Issues With Incentives Hint at Customer Acquisition Changes for Platforms in 2022

Customer acquisition strategies are now being questioned as platforms seek to extend a pandemic hot streak that’s showing signs of cooling down.

There’s a growing sense that a pruning of questionable pandemic-era accounts is coming to a variety of platforms in 2022 as the fog of COVID lifts and companies get more clarity into users gained during the past two years, with a tighter focus on more engaged and frequent users.

Abuse of promotional policies is an industrywide problem, as found in the study Beyond eCommerce Fraud: How Retailers Can Prevent Customer Policy Abuse, a PYMNTS and Forter collaboration.

PYMNTS found that policy abuse by customers is costing U.S. retailers north of $89 billion per year, “as misused discount codes, free trials or scanned physical coupons can create “extreme” discounts that are used and reused well beyond their original intent.”

Get the study: Beyond eCommerce Fraud: How Retailers Can Prevent Customer Policy Abuse

Showing that even the biggest players are prone, PayPal disclosed on Wednesday (Feb. 2) that 4.5 million “illegitimate” accounts were created on the platform in 2021 through abuse of the PayPal Referral Program offering a $10 sign-up bonus and up to $50 in referral rewards.

Calling those accounts “immaterial to our overall base of 426 million customer accounts” on the company’s latest earnings call, PayPal Chief Financial Officer a John Rainey nonetheless acknowledged that the company had hit a snag in its incentives strategy. Among other reasons, it’s why the company backed down on its ambitious goal of expanding its member base to 750 million.

See also: PayPal: Venmo Volume Gains 29% to $61B, Super App in Focus

Drawing comparisons between payments and subscription platforms, he said the latter model tracks more closely to revenue, whereas use of PayPal “is much more attenuated.”

However, subscriptions are part of the incentives debate, as free trials — specifically free trial abuse — also impacts financials and clouds the view of legitimate subscriber activity.

The 2021 Subscription Commerce Conversion Index, a PYMNTS and sticky.io collaboration, notes that “a portion of subscribers abuse their free trials by extending them past their end dates. This is done typically by cancelling their subscription and then re-signing under a different name, giving free-trial abusers more access to the retail subscriptions they should be paying for.”

In Q4 2021, 5.8% of subscribers who used free trials canceled after trials ended. “The share who keep their subscriptions after their free trials end now clocks in at 54%, meaning that 19 million consumers with active subscriptions first received them by signing up for a free trial.”

The study found that 26% of subscribers are using free trials they signed up for using different accounts, “more than have done so since Q1” 2021. Viewed together with PayPal’s problem, acquisition and engagement strategies are headed for a major review in 2022.

Get the study: Subscription Commerce Conversion Index: The Exclusive Access Effect Edition