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The Pros and Cons of Offering Coupons: A Retailer’s Dilemma

Paul Stainton
Paul Stainton on August 15, 2016 - 6:00 am in Small Business, Social Media

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The decision to offer money-off coupons can be a tough call for retailers, especially small businesses.

Advocates say couponing is a relatively easy way to attract new customers and make a brand more appealing in the face of competition. But naysayers point to the possible loss of profits from continually discounted purchases.

Both sides have valid points, but studies indicate businesses offering coupons do have a competitive edge. Among those customers who aren’t driven by a need to “replenish” products (a segment representing half of all brand purchases) the availability of store coupons is the top influencer for why they shop in a certain store, according to Nielsen.

While print coupons are still widely used, the uptick in mobile couponing has been the real spur for coupon campaigns in recent years. Some 127 million adults in the U.S. will redeem digital coupons this year, Statistica reports, representing a 13 percent hike since 2014. Another researcher, Juniper, projects 1.5 billion mobile coupon users by 2019. Additionally, Nielsen reports 30 percent of U.S. consumers get their coupons from websites, while 11 percent retrieve them from email or mobile apps.

“Digital mediums can play a significant role in influencing brand purchase decisions, particularly when consumers are planning their shopping trips,” Nielsen explains. “While coupons are the top pre-store brand purchase influencer, digital drives how shoppers obtain coupons.”

For many businesses (but not all), couponing can effectively drive customers to your business without leading to unsustainable revenue losses. Here, we discuss some of the pros and cons of couponing, as well as tips for creating a coupon strategy.

Costly, but crucial?

Retailers hesitant to embrace couponing programs fear lost revenues, especially when customers might well make their purchase without a coupon. Others prefer to brand themselves as always maintaining competitive prices, keeping profit margins low enough that discount programs aren’t really feasible.

Some marketers argue that discounting prices leads the consumer to subconsciously lower their perceived value of that brand, or to draw the conclusion the merchandise in question must be overpriced if the retailer is able to make such offers.

In some cases the above rationales represent sound thinking, explaining why certain retailers don’t even dip their toes into the couponing pool.

However, only you, the business owner, can determine whether you’re better off reducing profits in exchange for retaining sales. But naysayers need to consider the possible cost of sales lost to other competitors with effective couponing strategies. Some possible advantages of couponing include:

  • Customer expectation: These days, couponing from retailers is almost expected. Some 85 percent of consumers now seek coupons before visiting a retailer, says online coupon aggregator RetailMeNot. That means you may be losing out on that population while simultaneously being perceived negatively for not offering special deals.
  • Competitive positioning: Unless you have an extremely unique product, you’re competing against several other retailers for market share. Consumers admit to being deal sensitive, and their choice of purchase often comes down to who offers the best value. Couponing may well tip the scales in your favor.
  • New customers: Studies show 78 percent of U.S. customers are influenced to buy a brand they wouldn’t typically buy due to a coupon, while 72 percent only buy a product if they have a coupon and 77 percent select stores based on where they can (surprisingly) redeem paper coupons. All that suggests coupons provide a huge opportunity for you to attract and keep brand-new clientele you may not have attracted otherwise.
  • Simple utilization: The cost of creating and distributing coupons has reduced dramatically with digital technology. These days coupons can be compiled relatively easily through online sources, then shared online through coupon sites, affiliate relationships, email or social media networks like Facebook and Twitter.

Effectiveness in the digital age

If you’re a business owner considering entering the couponing realm, you’ll want to know about the most recent trends so you can form your strategy. Recent findings by Forrester Research include:

  • Desktops and laptop computers are still the primary devices used for viewing digital coupons or redeeming them online or in person. However, tablets and smartphones are increasingly the vehicles for those functions. Unsurprisingly, RetailMeNot reports a whopping 87 percent of retail marketers plan to invest more in mobile marketing this year.
  • The primary means by which coupons are received continues to be email, but native apps using location-awareness technologies and coupon sites are increasing, especially among leading retailers.
  • Retailers must master the digital-to-in-store redemption process to maximize their couponing campaigns, making the process simple and hassle-free for customers.
  • In-store customer service and sales acumen are key, since customers are likely to spend more than anticipated when using coupons. Forrester found 55 percent of smartphone coupon users will make additional purchases while buying something else with a coupon; 77 percent will spend $10 to $50 more, and 17 percent an extra $50 plus. Fifty percent of consumers also note they’re more likely to buy full-price items later on if the retailer in question offers online promotions and coupons.

Other couponing tips to consider:

  • Multiple online tools can help you set up an online couponing program.
  • Offering coupons via email or mobile ensures you’ll gather valuable contact info (for already-interested customers) for use in future marketing campaigns.
  • Coupons shared exclusively through social media encourage more followers, especially if you require users to share the offer with a friend before redeeming it.
  • Ensure your actual offers are crystal clear and foolproof in their wording. Allowing for ambiguity could cause unhappy customers, staff headaches and perhaps even lost profits if you have to honor wonky deals.
  • Include numbered barcodes on coupons to control the volume that can be redeemed. Unique barcoding for online offers also allows for tracking of user-level behavior.
  • Consider establishing a loyalty program that allows for automatic coupon offers for frequent and/or VIP customers.

Implemented strategically, couponing can be a valuable part of your overall marketing plan. Think about whether the benefits could outweigh the costs for your business.

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Editor’s Note: This post was originally published in February 2015 and has been revamped and updated for accuracy and relevance.

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