A Couponing Cautionary Tale

Three Helpful Hits and One Big Caution

Couponing has almost become the tactic de jour for B2C marketers.  The 3-year global economic slowdown and consumer price sensitivity have made immediate sales not just the primary, but the only objective.  And then there is the growing use of FaceBook and the emergence of Groupon and other similar sites who encourage marketers to attract customers through the latest and greatest social media and technology.  Lost in all of the excitement, however, is the fact that brand loyalty is not only for sale, but also for sale at a very high cost. 

Belch & Belch estimated in 2009 that 323 billion coupons were distributed and that three billion of those were redeemed resulting in a total savings to consumers of $3.47 billion.  Looked at it another way, that is $3.47 billion that did not make it to the bottom line of companies who badly needed it. 

The point is that couponing, like alcohol, should be used judiciously. The classic definition of Sales Promotion is “a direct inducement that encourages immediate and incremental sales.”  What is often missed is the idea of incremental sales. 

Here are some tips that might help marketers think about coupons the right way. 

1. Enhance Brand Loyalty – Segmentation is undoubtedly the most valuable marketing tool in the couponing arsenal.  Understanding who should get coupons and who should not is a very strategic decision. Set a definition of brand loyalty.  Is a loyal customer one who visits the store or buys a product every 3 months or every 6 months?  Couponing is an extremely useful tactic to attract the passive shopper back into the store or website who might not otherwise be actively in the market.  Conversely, why give away margins to those who far exceed the loyalty benchmark?  Not to be miserly, but that is just throwing good money after bad.

2. Use Coupons to Up-Sell  – Remember that the definition of direct marketing is, in part, to encourage “incremental sales”. Using a couponing to move a customer from one price point to higher price point (and an improved margin) is an excellent use of the tool.

3. Encourage Continuing Relationships – While point-of-purchase scanning and in-depth customer databases have been the driving force behind over-couponing and over-discounting for immediate gain resulting long-term brand erosion, point-of-purchase scanning can also drive a highly useful  and extremely helpful brand-building tactic. It’s called the “next purchase” coupon. A discount on future purchases not only limits margin erosion but also leads to continued product trial and a repeat step in product purchase behavior.

The one big caution behind all of this is that couponing tends to drive immediate purchase at the potential cost of lost brand equity and lost brand loyalty.  The solution is to develop couponing strategies that drive true incremental sales AND increase brand equity and brand loyalty.


About businesspracticum

Chuck Byers is the Managing Director of Business Practicum & Adjunct Professor at Santa Clara University
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