The Pros and Cons of Offering Coupons: A Retailer’s Dilemma
“To coupon or not to coupon”… that is a question many retailers like you face in today’s competitive marketplace. Although coupons, particularly online and mobile coupons, are a significant part of many consumer’s shopping patterns, they can create issues for small business owners.
Nearly gone are the days of newspaper and flyer coupon-cutters. With coupons being readily available through a variety of online and offline options, it is difficult to avoid the concept of coupons as a whole. In some rare cases, retailers – particularly those that deal in rare, one-of-a-kind products – can forgo the concept of coupons entirely.
However, if you’re anything like your potential customer, chances are that you have used some kind of coupon in the past and chances are that your potential customers will be looking to use some kind of coupon in the future. Either they’ll find a coupon from you, or they’ll find one from a competitor… and that can make the difference between completing or losing a sale.
When thinking about the “what-ifs“ as well as the “how-to’s“ related to offering coupons to your customers, here are just a few of the pros and cons of using coupons to boost sales:
PRO: Customer Expectation
Many, many consumers simply expect there to be coupons or deals available from a retail store. It’s become so engrained in their purchase behavior that 96% of shoppers have used a coupon in the last 3 months. That’s more than a significant number of shoppers who use coupons, that’s almost all of them. As a small business owner, you can’t afford to ignore 96% of the shopping population.
CON: Subsidizing Planned Purchases
One of the major concerns retailers have with coupons is that it simply reduces the total value of an order that would have been received anyway. Some believe that the customer would have purchases with or without a coupon, but by providing the coupon they might have just given away an extra discount that simply cost them money. In some cases, this is true. With or without a coupon, that customer will buy. In many cases, however, the lack of a coupon could lead the customer astray and end up with them purchasing the same or a similar product or service from another company.
CON: Reduced Margins
Any time you offer a coupon, it reduces the retail price but it rarely (with the exception of manufacturer coupons) reduces the cost of the product to the retailer. Therefore, it is a direct hit to the bottom line profitability of that sale. This is an understandable concern, but it must be balanced against the potential lost sale. Is it better to make a little less money off that sale or is it better to let that sale go to another company? That is a question only you – as the business owner – can answer.
PRO: Competitive Positioning
Unless you have an extremely unique product, you are competing against several other retailers for that customer’s attention and pocketbook. Consumers freely admit to being deal sensitive, so it often comes down to who offers the best value. If the coupon you offer tips the scale in your favor, then that is one more customer you will get that your competitor may have gotten otherwise.
PRO: Customer Sampling
56% of shoppers state that they have used coupons to try a product for the first time. These customers can become long-term, repeat purchasers driving a significant amount of total revenue… but there’s a much higher chance that you won’t get them in the first place if the retailer didn’t offer that initial incentive.
PRO: Easier to Produce and Distribute
With the advent of online couponing, the cost of creating and distributing coupons to customers has reduced dramatically over the print-only days. A coupon can easily be shared online, trough coupon sites, through affiliate relationship, via email or on various social media networks such as Facebook and Twitter.
In the end, each retailer must make the decision about whether or not to provide coupons based on a fairly simple concept.
Will Coupons Generate More Value To Your Business Than Their Total Cost?
One way to increase the overall value of coupon offerings is to make the coupon available via email only, where the customer must sign up for your email list in order to receive their coupon. This provides additional value to you as a business because – even if the customer doesn’t end up buying right away – you now have their contact information (and necessary permission) to email market to that customer and attempt to gain their business in the future.
Another way is through the concept of Social Coupons. Social Coupons are those that are shared exclusively through key social media networks. The difference between social coupons and regular coupons is that these often require an action or engagement before the coupon can be redeemed.
For example, you can offer coupons that only your Facebook fans can access, therefore a potential customer must join your online fan base before being granted access to the coupon. For additional value, you can also make the coupon contingent on the customer sharing something to their own set of followers, turning the coupon into a viral marketing machine.
Through some trial and error, a retailer can find the right balance of coupon offers that maximizes the value of new customer acquisitions, turning coupons into a valuable marketing effort that can drive new business while minimizing any negative impacts.
Listen to our free recorded webinar, Get the Inside Scoop on Social Couponing!