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Coupons: Good or Bad for Online Sales?

Posted by | May 26, 2010 Online Marketing | 2 Comments

In theory, coupons are a win/win: they’re a great way for smart shoppers to stretch their dollar to the max, and an effective way for businesses to attract new customers and build the loyalty of the ones they already have. But online discounts work differently than the print coupons found in newspapers and brick-and-mortar stores. If used incorrectly, they can actually discourage customers from buying. It’s important to fully understand the ins and outs of online coupons before offering them in your eCommerce store.

According to a recent report from Interpublic Group, online searches for coupons have increased by 58 percent in the last year alone, a spike that’s most likely spurred by the current economy. But not all of these coupons are being used – and those that are may actually be hurting the businesses that offer them.

For online businesses, there is a serious downside to coupons: they remind customers that better offers may exist, and can result in cart abandonment, wasted marketing efforts, lower customer and order values, and a loss of income on discounted products. To prevent lost sales and protect your bottom line, web coupons must be promoted in a whole new way.

The Problem with Online Coupons

Cart abandonment is one of the biggest thorns in the side of today’s online businesses. PayPal and comScore recently reported that as many as 30 percent of online purchases are not completed – usually because the customer absconds to a search engine or another site to compare prices. Coupons are often the culprit behind these rampant comparisons.

Although many e-tailers try to solve this problem by tucking the coupon code field at the tail end of the checkout process, it still reminds shoppers that better deals and discounts might be out there. The field can prompt customers to open a new web browser tab to search for a coupon code on Google, or abandon their cart entirely to bargain shop elsewhere. In many cases, these shoppers would have continued on to complete their purchase if they hadn’t been reminded of the possibility of greener (cheaper) pastures.

Not only do coupons lose some customers mid-purchase, they can also cost money in referral fees from affiliates or coupon listing websites. And that’s not including the cost of discounting products in the first place – an expense that should not be overlooked, since offering even the smallest discount cuts into profit margins.

The value of a coupon or special discount lies in the quality of customers it attracts, and online coupons often fail in that regard. Unlike print coupons, which bring new customers into a store where they may be encouraged to buy something else at full price, online coupons are often used by low-quality customers—bargain hunters who are willing to spend time searching for the lowest price online and have little loyalty to any single brand or seller.

How Smart eCommerce Sites Deliver Discounts to Customers

Coupons can still succeed in attracting quality customers and boost online sales – but they have to be crafted and distributed with a marketing paradigm different than those used by real-world stores.

Part of the value of print coupons is in the way they naturally divide customers into groups – those who are interested in bargains and who can afford the time spent coupon-clipping and hunting for deals, versus those who don’t have the time or need for coupons and are willing to pay full price.

Customers who are seeking bargains won’t always buy immediately, but they can be enticed back to your site through targeted special offers. For instance, if you have a list of visitors who signed up for a mailing list but didn’t buy anything, you might consider sending them an email with a one-time coupon.

If your primary goal is to increase average order value, tiered discounts based on the total purchase amount can encourage shoppers to add one or two more items to their cart in order to qualify.

If you’re interested in using coupons to drive online sales, it’s worth taking the time to do your research and know your market before offering a discount. Success is reliant on knowledge, foresight, and business savvy in the online marketplace.

About Blue Acorn

2 Comments

  • Alpaca Hats says:

    I tend to agree with this. Coupons can be detrimental and can also send the worng message if used incorrectly. They should only be used in my opinion for specific and tailored campaigns.

  • Ryan Hoody says:

    Interesting post Melissa. I know companies like Groupon have had their share of problems, as well as the businesses using them. I think a major issue is the markup practices employed by many companies after offering coupons. In fact, if I’m not mistaken, I believe Groupon actually told companies to mark up their prices after offering coupons as a way to combat falling profits. Thoughts?

    Thanks for the post,

    Ryan

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