Understanding Coupons.

Today we will breakdown the various options that an organization has when it comes to coupons, and when and how to use them.

The key reason to use coupons is to drive existing and new customers towards certain behaviors, such as buying a particular product or combination of products. The reasons for this can be to boost up slow sales of a particular product line, to clear old stock ahead of a new season, or simply to reward loyal customers with something special.

There are lots of options and considerations when creating coupons, here we will go through a non-exhaustive list.

There are three main types of coupons:

1. Fixed Cart Discounts. These are the simplest types of coupons, and simply give a fixed currency amount (i.e. $10) off the total of a cart. Note that the cart is never allowed to go negative, if the cart total is lower than the coupon total, and this is often mixed with a ruleset amount minimum spend as well, so you would have to spend at least $20 to be able to use a $10 coupon.
2. Percentage Discounts. This type of coupon gives a % discount off the entire cart amount, and often this needs to be mixed in with a ruleset about the maximum spend to ensure that customers do not bulk buy with huge discounts.
3. Fixed Product Discounts. This type of coupons gives a set (can be fixed $ amount or % amount for a particular product).

Additionally, there are various rulesets available for all coupon types:

• Allowing partial usage of coupons. Generally speaking, coupons are either used entirely or used up, which means that customers cannot use $5 of a $10 coupon and then keep the remaining $5 to use at a later date.
• Usage Limit per Coupon. You can limit the total usage of a coupon, which is great to keep the discounts within a pre-existing budget. For instance, you can limit a $15 coupon to 2,000 uses, giving you a total budget for this coupon of $30,000
• Usage Limit per Customer. You can also restrict how many times one customer can use (or reuse) a coupon. Restricting usage per customer can be a good strategy to ensure that the coupon is used as widely as possible, vs used many times by a small number of customers.
• Free Shipping. Coupons can also grant free shipping when used, which is a nice bonus, and surprise, for customers checking out.
• Dates. You can set start dates and expiry dates for coupons. This is great because it means you can plan coupon campaigns ahead of time and then have the coupons start working on a precise date.
• Min-Max Spend. As mentioned above, you can set rulesets for minimum or maximum allowed amount in the cart prior to the coupon being allowed.
• Individual Use. This means that you do not allow the coupons to be used in conjunction with other coupons.
• Sale Items. You can choose whether you want to allow coupons to be applied to any items that are already discounted as part of a regular sale period.
• Product-Specific. You can set coupons to be for only a specific set of items, or even exclude specific products that you do not want to allow to be discounted with coupons.
• Category-Specific. You can also do the same with categories. For instance, if you sell musical instruments online, you can provide a coupon that only works for "guitars", regardless of the brand.
• Brand-Specific. This would make a coupon that only works for one brand, which is great for retailers that carry multiple brands and want to discount only one particular brand.
• Customer Specific. You can also make coupons that are specific to only one customer, or you can even decide to exclude certain customers from being able to use the coupons.

The above rulesets can often be mixed-and-matched to create specific coupons, for instance you can build a coupon that has a minimum spend of $200 in one purchase on a specific brand.

Strategy.

Now that we are aware of the various possible coupon types and rulesets available, it is time to build a strategy around couponing, and this means building a campaign to encourage users to make a purchase!

The key thing with coupons is to make them specific. A general $10 off anything in store will generally have a weak campaign and perhaps attract bargain-hunters who will not actually become long-term customers. Ways around this to create great coupon-based discounts on older stock or on specific product lines that are designed to be discounted.

One of our team members has previously had retail experience at Harrods, and shared an insight about their sale strategy. Almost all the items on sale for their famous January sales were actually purchased specifically for that sale period, and you could not purchase any of those items at any other time of the year.  

Another great strategy is to offer one coupon, or even a series of coupons, to first-time buyers as this will encourage familiarity with your brand and services, and hopefully turn them into a long-term customers with a high lifetime value.

You can also encourage a higher-than-usual total cart value by ensuring that coupons can only be used if the total cart value is high. For instance "receive 20% of your order if you spend more than $50" can work very well if you average order value is only $15 or $20.

Beware.

While coupons can be a great strategy, you need to beware of the following:

• Lower Perceived Brand Value. One risk that you run with coupons is that it can lower the desirability and value of your brand in the eyes of the consumer if you are not careful. This is why you seldom see high-end brands offering coupons, because it goes against their core brand DNA.
• Delayed Sales. If you have a regular discount or couponing season/cycle, consumers will learn about this and delay their purchases to match this cycle, and of course with each day or week that a consumer delays a purchase of your product, the greater the risk that purchase will not happen at all.
• Lower Profit Margins. It goes without saying that each time you provide a discount (which is what a coupon essentially is), you take a hit on your bottom line. This can be somewhat sidestepped by intelligent use of coupons against high-margin products or even bundle deals that match best-selling products with low-margins with slower-moving higher margin goods.
• Higher Abandonment Rates. This is specifically a UX issue, and you'll find that some shoppers who reach your checkout page, will actually leave your website or app if they see a coupon field because they will hunt around the internet or ask their friends for the coupon. This can actually lead to a loss of sales. Good user interface design can often help here.

Conclusion.

It goes without saying that couponing is a great tool to be used by retailers of all shapes and sizes – with perhaps the above noted exclusion of high-end brands – and we also know that they are extremely popular with consumers.

90% of consumers use coupons when they are readily available, and digital coupon redemptions will surpass over $90B globally in the next few years, so there is clearly a great opportunity to increase revenue and gain a loyal brand following iif coupons are used correctly.