Is Overcouponing Hurting Your Business?

Marketers need to take back control over brands’ coupon strategies

 

By Maria Minsker

Born more than 100 years before the Internet, couponing has been an advertising tactic since 1888, when Asa Candler, a partner at the Coca-Cola Company, encouraged employees and salespeople to distribute coupons for one free glass of Coca-Cola. The practice was slow to catch on, but once the Great Depression struck the United States, coupon offers and use skyrocketed, continuing to grow substantially until 1992, the last year that coupon usage would be on the rise for the next 17 years. Fast forward to 2009, and a familiar trend emerges—Americans cashed in 3.3 billion coupons that year, representing a 27 percent jump from 2008, CNN reported. As the nation dipped into the Great Recession, coupon use increased again, but this time, it returned with a vengeance, armed with a digital arsenal it didn’t have before.

The Internet has become instrumental in helping consumers find money-saving offers. As e-commerce couponing gained traction, the popularity of coupon aggregating sites, such as Coupons.com, Savings.com, and Retailmenot.com, grew as well. “Consumers have learned that as few as fifteen seconds of searching at a site like Chipp-munk can save them ten dollars or more on a transaction,” says Brian Nickerson, CEO and cofounder of Chipp-munk.com, a coupon search engine. “As a result, they are more willing to invest this time and be assertive with [brands] to honor the best available deal,” he adds. 

Even as the economy recovers, coupon use continues to grow. According to the 2014 Shopper Marketing Report released by Valassis, a direct mail media and marketing services company, 85 percent of shoppers surveyed use online coupons. When it comes to millennials, the statistics are even higher—92 percent use coupons to plan their shopping lists, the report found, and 51 percent say their coupon usage has increased over the past year. “Couponing is becoming huge across the board, and the fact that younger generations are embracing it is particularly telling,” Lisa Reynolds, vice president of brand strategy and campaign solutions at Valassis, says. “It suggests that couponing is on a continuous trajectory, and its prevalence in the economy will only grow,” she adds.

Marcie Merriman, a consultant at Ernst & Young, says Valassis’ findings are consistent with the trends she has noticed. “Coupons used to be associated with discount stores and lower-end products, but that’s not the case anymore,” she says. The demographics of brands that offer coupons are expanding along with the demographics of people who use them. “We see young people that were raised during the recession growing up to be more pragmatic shoppers,” Merriman explains. Their aptitude for technology, she adds, also makes them particularly eager to find innovative ways to secure the best deals. 

Brands have had to step up their game, delivering more money-saving opportunities than ever. But if companies aren’t careful, the coupons currently flooding the Internet could turn discounts into disasters. 

Plugging the Coupon Code Search Leak

Across the Web, 75 percent of shopping carts are abandoned, with nearly half of shoppers doing so to search for a coupon code—a phenomenon referred to as the “coupon code search leak.” Once shoppers leave the checkout page, they rarely return, largely because they’re faced with a subpar experience while sifting through coupon code aggregators. Furthermore, 49 percent of shoppers who return to the checkout process and try to apply a code that they find is no longer valid—or never was—completely abandon the transaction, according to Marlena Sarunac, the marketing director at PoachIt, a wish-list and price-tracking app.

“This is singlehandedly the biggest problem we’re tackling. We’ve created a patent-pending coupon validation engine that combs the Internet for coupon codes and tests them so we can [determine] their validity [for] our users. To date, we’ve tested over three million, only to find that eighty percent of online coupon codes don’t work,” Sarunac says. 

Despite the high number of invalid coupons, consumers continue to hunt for savings, often electing to boycott a store or a brand rather than make purchases without discounts. In the past, the objective behind coupons was to test a product and “get customers into the store,” Marc Ostrovsky, entrepreneur and author of Word of Mouse, says. “But now, brands have allowed consumers to believe that coupons are the norm and nearly every transaction—even online transactions—should involve a coupon. E-commerce has caused overcouponing on a massive scale, and for many companies, the effects could be devastating,” he adds.

When Ron Johnson took over from Myron “Mike” Ullman as JCPenney CEO in 2011, his radical restructuring of the company’s business model sent the retailer into a tailspin. Under his leadership, the department store that once delivered a steady stream of coupons and made them easy to find online eliminated them entirely, promising consistently low prices and merchandise that would be affordable without coupons. 

On one hand, Johnson’s decision was understandable. Not only are coupons stereotypically associated with lower-end shopping experiences, but they’re also expensive, especially when they are as widely available and popular as JCPenney allowed them to become. “They had to get rid of them because the company was in trouble. When you offer that many deals to that many people, you simply start hemorrhaging money. But, when you get rid of them altogether, you start hemorrhaging customers,” Ostrovsky says.  

JCPenney’s customers’ reliance on coupons was too deeply embedded in the brand’s culture to be eliminated in one fell swoop.  “We worked really hard and tried many things to help the customer understand that she could shop any time on her terms,” Johnson told Bloomberg Businessweek in a fourth-quarter conference call last year. “But we learned she prefers a sale. At times, she loves a coupon.” With Johnson let go last year, the company has been working to rehabilitate its image. Ullman is back, and so are coupons. 

Getting rid of discounts entirely is rash and unnecessary because couponing has become a tradition that Americans love, as well as a marketing practice that brands could benefit from when it’s executed effectively, according to Ostrovsky. “Overcouponing isn’t just a question of the quantity of offers; it’s a question of quality as well. Mainly, it becomes a problem when brands aren’t mindful of what offers they’re distributing, how they’re distributing them, who’s receiving them, and how are they being used,” he says. 

Tracking and Targeting

Historically, couponing played an introductory role—it was about introducing consumers to new brands, or introducing existing customers to new products. “Now that it’s so easy to post and claim coupons on the Internet, it has become a race to the bottom, a question of who can offer the lowest price,” Amna Kirmani, professor of marketing at the University of Maryland’s Smith School of Business, says. Rather than allowing offers to run rampant online, she suggests, companies should balance e-commerce coupon codes with in-store-only offers that bring customers back into physical locations. 

According to Kirmani, local businesses are leading the way in revolutionizing couponing. Behavior- and location-based targeting, for example, have played major roles in helping local businesses build effective couponing strategies by bringing consumers past the mobile or e-commerce experience, where small brands may have a modest presence, and into stores. PayPal, for example, helps its partners use coupons effectively by leveraging the power of location and data-driven targeting through the PayPal Media Network, which provides targeted advertising and offers products that are distributed on mobile devices.

PayPal’s redesigned mobile app now includes a “Shop” section, which enables users to locate nearby merchants by searching PayPal’s partner database. This includes mostly small local businesses, but a few more recognizable brands, such as Home Depot and American Eagle Outfitters, as well. The app has a search bar so users can search for specific businesses, but also enables users to browse, sorting the merchants by location, the types of coupons and deals they currently offer, and whether or not they accept payments through mobile wallets. 

Furthermore, as users interact with other apps on their devices, the PayPal app serves up targeted ads, sharing special offers available nearby. Because the app is connected to a consumer’s PayPal account, PayPal Media Network’s targeting tool can track purchasing history and allow the merchant to make decisions based on that data. American Eagle could, for example, choose to serve an ad for a $10 coupon to anyone who’s near a store and has been a customer in the past, but hasn’t made a purchase in more than six months. This type of offer can build urgency and momentum, inspiring consumers to make the purchase immediately not only because the discount is lucrative, but also because they’re already nearby.

“With the PayPal app, we’re creating custom audiences for our merchant partners. Not only are we targeting the likeliest customers based on their location, but we’re also giving the merchants an opportunity to customize to whom they serve their ads,” Sarah Hodkinson, the company’s director of marketing and sales strategy, explains. 

Hodkinson also points out that offers aren’t shareable and won’t spread like wildfire, as some online offers do. Each person can only redeem a coupon by logging in to his or her PayPal app, checking in at the location, claiming the offer, and then using the Web to complete the transaction through PayPal. Some stores also allow mobile payments, which involve the same steps, but don’t require users to check out through the app. Instead, they simply present their device to the cashier. 

Though most of the companies currently taking advantage of PayPal Media Network’s mobile ad solution are small to medium-sized businesses, big-name companies should consider borrowing a few moves from their local counterparts’ playbooks. “It has gotten to a point where there are just too many coupons out there, and companies need to win back control over the distribution of their coupons and offers,” Hodkinson suggests. Diluting excessively available online offers with more targeted money- saving opportunities that get customers back into the store to browse is one way to do that. “By implementing a high level of targeted mobile couponing, brands could help revitalize the brick-and-mortar model, and may rely less on online couponing,” Ostrovsky agrees.

Solving the Consumer Packaged Goods Crisis

Brands that produce consumer packaged goods (CPGs) have suffered tremendously as popular television shows such as TLC’s Extreme Couponing have turned the practice into a sport, featuring consumers who spend as little as $10 on purchases that total thousands of dollars before coupons are scanned. 

Even in less drastic cases, CPG companies typically have the least loyal customers. CPGs are considerably less expensive than other coupon-friendly items, such as clothing or electronics, meaning consumers are more likely to experiment with different brands and “shop around depending on the best deal,” Ostrovsky says. Adding coupons spells even more trouble. “Many shoppers…won’t think twice about switching brands if one offers a coupon and the other doesn’t,” he explains. 

For CPG brands to benefit from offering savings, the companies need to use coupons to build loyalty, not discourage it. A Denver-based start-up cleverly named Ibotta (pronounced “I-bought-ah”) is helping CPGs achieve this by making customers work for their savings, rather than giving them away. 

Before shopping, users select offers for certain products in the Ibotta app and complete tasks that include learning a fact about the brand, taking a poll, playing a trivia game, posting on Facebook, or watching a video ad. In exchange, the app offers 25 or 50 cents for each completed task. Juice brand Simply Orange, for example, offers customers 25 cents to take a poll, to like the brand on Facebook, and to learn a fact about the brand, for a total of 75 cents in savings on any size and variety of the juice at a participating retailer. 

After claiming the offer, consumers have to buy the item at one of the participating stores (Target, Walmart, and Walgreens are among the 40 current participants), take a photo of the receipt, and scan the bar code of the item. Once the transaction is verified, the money is transferred into the consumer’s PayPal account. 

According to CEO Bryan Leach, Ibotta’s business model works because it’s attractive to both brands and consumers. The reward for consumers is obvious, but for brands it’s a bit more nuanced. “In a nutshell,” Leach explains, “companies win because they get consumers to not only buy their brand, but also engage with it in meaningful ways by sharing on social media and learning interesting facts about it. This has the potential to grow brand awareness and build loyalty.”

While traditional CPG coupons are offered as weekly deals and short-term discounts, offers on Ibotta’s app could be available for months, which is also conducive to forming a more loyal customer base. Ibotta’s solution, Leach explains, attracts users with longevity.  “Because the offers are long-lasting, customers might make a permanent switch to a brand they didn’t previously buy,” he says, “rather than switching to their original preference within a week because the promotion ended.” 

The reason brands can afford to honor Ibotta’s discounts is that they are getting two valuable things in return—engagement and data. The purchasing data allows brands to track consumer behavior in real time and gather intelligence on how many times the offer was redeemed, where it was redeemed, and the demographics of the consumer. “These aren’t ‘coupons’—they’re marketing strategies that are mutually beneficial to both consumers and companies,” Leach says.

As of April 2014, the Ibotta app had generated roughly 15 million unique brand engagements, and had saved its 700,000 users about $1 million over the last six months, according to Leach.

As companies consider the coupon strategy that best suits their needs, one thing is clear: Couponing has to return to its roots by getting customers back into stores and building brand loyalty. Though many small businesses have adopted innovative technologies to help them thrive, bigger companies have been slow to follow. 

Still, progress is being made—even JCPenney is learning from its mistakes. The retailer not only brought back coupons, but regained control over its distribution by putting the deals right on its e-commerce site, eliminating the need for customers to search elsewhere and abandon their shopping carts. 

“We’ve made it easier than ever to find all the best JCPenney coupons in one place. Whether you’re hunting for a printable in-store coupon or an online coupon code, the savings start right here,” the company wrote on its Web site. JCPenney is upping its coupon—centered marketing as well. “We love to keep it fresh and exciting—sign up for new deals and promotions sent straight to your mobile phone or email inbox and you’ll never miss out on another offer,” the brand promised on its site. 

Is this strategy enough to keep JCPenney away from the brink of another nightmare? “Only time will tell,” Ostrovsky says, “but either way, their mistake is a good lesson in coupon moderation.” 

Associate Editor Maria Minsker can be reached at mminsker@infotoday.com.