Does Coupon Marketing Lead to Loss of Revenue?

2 weeks ago admin Comments Off on Does Coupon Marketing Lead to Loss of Revenue?

Recently, a reader asked an interesting question. I had been exploring the concept of using affiliate marketing in conjunction with coupon codes to drive and track sales. By disseminating coupon codes to various affiliate sites, companies can effectively delegate marketing duties to a third party for “free.” Sure, you have to pay your affiliates a small percent of each sale, but since you’re only paying them when they give your business, there’s no risk involved.

The question was about existing customers. Especially in the web hosting business, customers don’t like to move around much. Surely some of the coupon codes were getting snagged by people who were going to renew anyway. Doesn’t this lead to a loss of revenue? How do you keep track of what coupon codes go to new customers and what coupon codes go to existing customers?

Coupon Codes Are Data

The first lesson here is simple. Every use of a coupon code by a customer should be recorded. Every transaction a customer makes should be recorded, especially if you operate an online storefront. It’s important to be able to perform basic analysis of your own sales. This is why brick and mortar stores offer discounts or rewards to customers who swipe a rewards card with each purchase. It’s easier to track customer data to analyse trends and determine the effectiveness of your marketing.

Coupon codes can be a subtle tool, especially when used in conjunction with affiliates. Since each affiliate distributes a unique code, you can look at your sales to see which affiliate’s codes draw lots of new customers and which codes gets shared among your existing customers. You could even vary the discounts provided by each code and see how that changes things.

Margins and Economies of Scale

At their core, coupons work with some interesting economic ideas. By cutting into your profit margins on each individual sale, you attempt to make more sales overall. If each coupon discounts your product or service to the point where you’re taking a loss on each sale, it’s important to be careful about how you distribute your coupons. This is usually not the case, however. Usually, you try to make sure that you’re still making a profit with all of your discount codes combined.

Activating Sleeper Customers

As long as you’re making a profit, there’s nothing wrong with distributing coupon codes to existing customers. In many cases, you’ll give your customer base a reminder to purchase your goods and services again. “Just because a customer has purchased something from you in the past doesn’t mean that they’ll do so again” says Alex Papaconstantinou of UK voucher site WikiGains, “A coupon code can turn an inactive former customer into one who spends money with your business today”.

Building Positive Reputation

Not only does this lead to more money for you, it also makes them happier with your business and more likely to recommend you to their friends. Never underestimate the power of word-of-mouth advertising and building a positive reputation! If your customers speak fondly of their experiences with your business, they’ll drive a lot of money your way in the long run.

The 80-20 Rule And Coupon Marketing

So if 80% of your coupon codes go to existing customers and only 20% go to new ones, is it worth giving out more codes? Usually, yes! While it’s important to make sure that your discount is reasonable (you’re still making a profit) and you’re distributing your coupons in a way that’s likely to attract new customers, it’s not a bad thing to let your loyal existing customers save a few bucks. You’ll make a few more sales, keep them happy, and get lots of positive word-of-mouth advertising.

If margins are tight, however, it’s a lot more important to be cautious with your coupons. Try limiting how the codes you hand out can be used, reducing the discount they provide, and limiting your distribution channels to the ones that are most effective at bringing in new customers. Coupon marketing can still be an effective tool, you’ll just have to put in a little bit more work.