This is the second in our series of 5 posts about online coupons. Take a look at the introductory piece about online coupon basics and then read this one. The next installment in about a week.
The most important, basic reason to use online coupons is to get or keep a customer. In fact, this is the basic rationale for all marketing. Coupons can be used to get or keep customers in a number of ways that correspond to the conditions in your business.
However, coupons are often used to motivate sales through discounting. While discounts can lead to customer acquisition, you have to maintain the distinction between motivating short-term sales and building a customer base. Since low price is the lure for online shoppers in most categories, it is tempting to use coupons in price competition just to boost sales. But if you do this, you have to be very careful to make your business case for discounts with the thought in mind that you may be setting a price ceiling, not a floor.
But businesses that rely on continuous discounting create the expectation among shoppers that “full price” is for suckers only. Why would you use a coupon campaign?
Here’s How to Use Online Coupons
We see two basic ways to use online coupons to get or keep customers. The obvious one is to motivate purchases through discounts or other offers. The second, increasingly important in the relationship-building that online marketing promotes, is getting and keeping a customer.
Reasons to Use Price to Motivate Customers
Clear inventory: Stimulating sales in the short term to clear inventory to make room for new products or new models, or simply to boost top line revenue, is a classic use of coupons.
Increase market share: Increasing market share in a well-defined niche is where the price competition bites hard. Depending on how well differentiated your product or service can be, you will be going more or less head to head against your competitors. If discounting is easy (and your discounting is easily visible), this can be a very costly form of customer acquisition characterized by a dive to the bottom price-wise. Online coupons can still help increase market share if your markets are already highly price competitive and/or your competitors are not using them.
Counteract cyclical downturns in sales: Many businesses have predictable seasonal variations in sales. Coupons can be used to boost business in the downturns in order to maintain production capacity, cash flow, or other business requirements that can justify reducing the revenue per sale.
Get customers in the store to get additional sales: You need to have customers in the store in order to make sales, right?
Use Online Coupons to Build Relationships
Capture a new customer: The lifetime value of a repeat customer may justify deep discounts for the first sale or lead. The requirement is to have a strong customer retention program in place to extract this value. Customer retention will be the subject of other posts because building online relationships is one of the bedrock principles of online marketing. But smart marketers know that customer retention is not only key to building a brand and sales directly, but it also leads to new customer acquisition through viral distribution. Its importance cannot be overstated.
Introduce a brand or product to a new market segment or location: Breaking into a new market is hard because potential customers already have 100% of their mind share allocated. New customer acquisition in these circumstances can be spurred by offers conveyed through third party coupon networks (Groupon is the innovation leader in this category) that have their own set of loyal visitors whose eyes you can borrow – for a price. These third party networks can help you “get found.”
Introduce a new product or service to existing customers: Online businesses have a huge advantage in their solid connections to existing customers via email, texting, Facebook and Twitter. These channels are low cost and highly targeted ways to alert your best customers about new products and services, perhaps coupled with introductory discounts or other offers. Using a coupon in this situation may be ideal if you want to require an action on the part of your customer to confirm or reinforce the relationship.
Build a brand: Coupons can help reinforce the power of a brand. Since this is always a function of placement and repetition, coupons might be one component of a brand awareness campaign taking place in multiple online channels.
Our next post on coupons will look at 5 successful coupon sites, and we’ll toss in 5 more that are not so big but illustrate ways to use coupons. The business models vary, so you need to be aware of how they might work for your business.