Sales Promotions and Coupon Economics, Downsides, and Use Cases
Sales promotion is a marketing communication framework for maximizing revenue or providing extra value to distributors, sales, and customers over a short time period. Sales promotion activities include special offers, discounts, deals, and other non-recurring selling efforts.
Companies use different channels and mediums to communicate sales promotions: printed materials like posters, discount coupons, direct mail pieces, and billboards. They also use radio and television ads and digital media like text messages, email, websites, social media, and other methods to promote sales promotions.
Companies use sales promotions to increase demand for their products and services, accelerate sales, improve product availability among distribution channel partners, conduct market research, and coordinate selling, advertising, and public relations.
Discount coupons provide an immediate price reduction of an item, goods, or service. The coupon value is the amount of price reduction that is reimbursed to the retailer by the item supplier or manufacturer. Additionally, retailers may receive a handling fee for accepting discount coupons depending on the agreement.
A shrinking or weak economy stimulates consumers to collect coupons to get special bargains or deals, like free or double coupons, like buy-one-get-one (BOGO).
Marketing on the internet scale offers consumers access to international stores and correspondingly to coupons, promotions, and other rewards. While more and more consumers find coupons or deals online, a significant amount of consumers still cut coupons from the inserts of newspapers.
Loyalty programs are another popular application of discount coupons where merchants or stores often provide coupons to returning customers as a reward to motivate them to spend more and build long-term relationships with the brand.
Coupons are an effective way to categorize customers by price sensitivity. Customers who are very responsive to price changes, such as customers with elastic demand, are likely to take time to find coupons that effectively lower the goods or services price. On the other hand, customers less responsive to price changes aren’t as likely to take the time to find coupons.
When starting a coupon campaign, a company first establishes a single price for the good. A company then lowers the cost for customers possessing a coupon. Therefore, customers who don’t have a coupon pay the price P, while customers using the coupon pay the price P - C, where C represents the coupon’s value.
For example, restaurant customers at a vacation destination fall into two major groups - vacation travelers who must eat out and have less elastic demand and local residents who can eat at home and thus have a more elastic demand for restaurant meals.
Price elasticity of demand measures how the quantity demanded is sensitive to a good’s price. With a price increase, the demand quantity decreases almost for any good.
However, for some goods, it drops more than for others. In other words, price elasticity describes the quantity demanded as a function of price increase, given all other factors are constant.
In order to maximize revenue, it’s necessary to set the good’s price so that its elasticity is equal to one. There are many research and practical methods to determine price elasticity, including analysis of historical data, test markets, or conjoint analysis. In addition, companies often use price elasticity to predict the behavior of a tax on that good.
Frequent use of discount coupons raises consumers’ expectations to purchase the product at a lower price and creates the risk of delayed sales. Especially for returning customers, the strategy ‘trains’ them to wait for a better deal.
Thus, discounting items that require an extra sales boost is a far better approach than accelerating sales of items that trade at acceptable market prices.
Moreover, coupons can diminish the value of the product or even hurt a brand’s reputation when used abusively to drive volume or accelerate sales.
Even though retailers have no intention to lower the value proposition, discount coupons and sales promotions are often associated with end-of-life products, final sales, and tactics that sell out unsuccessful products.
Discounts and promotions decrease bottom line revenue simply because they are marketing expenses with additional costs depending on whether to acquire new customers or retain existing ones.
Therefore, discount campaigns are not sustainable and are a less beneficial strategy in the long term as opposed to competitively priced products, value proposition, and excellent overall customer experience.
Many online stores inadvertently incentivize customers to abandon their shopping carts by including a discount or promo code area. Knowing that they can obtain the product at a lower price, the customers tend to start looking for coupons online or even abandon the purchase if they don’t find one.
This section outlines the main business use cases related to various forms of coupons. They are expanded more in the subsequent technical sections.
Targeted or personalized coupon campaigns aim to reach specific categories of consumers in order to maximize top-line revenue. The general strategy, in this case, is to deliver discount coupons to consumers sensitive to price changes and stimulate them to spend more.
Marketers often explain targeting efficiency by utilizing distribution channels (email, SMS, social media, etc.) or third-party marketing platform performance. Using different channels and comparing their performance is often a preferred approach.
Brands commonly use promotional codes to increase the number of new customers, accelerate sales or create opportunities to up-sell more profitable products.
As opposed to coupons, promo code is a word or combination that is shared with all potential customers, often using websites, mobile applications or direct communication.
Promo codes are effective in distribution channel efficiency measurements and comparison.
Brands can reward customers with discount coupons, vouchers, or bonus points that incentivize them to spend more.
Coupons are often used as a reward for loyal customers and serve as means of building a stronger relationship between the customers and the brand. Brands can combine the coupon mechanics with bonus points to allow customers to pick preferred rewards. Another popular application of the loyalty rewards system is to incentivize the return of old customers.
Customers may refer each other to a brand or merchant, increasing new customer flow and promoting the brand within the friend’s network. However, the friend is supposed to be a first-time customer in order to get a discount on products or services.
The mechanics work well with loyalty programs since referring customers naturally expect a reward for their efforts.
There are various approaches and tools used for coupon marketing nowadays. Let's briefly describe them before diving into solutions based on enterprise blockchain.
Brands commonly create, distribute, monitor, and measure coupon campaigns through third-party marketing services.
There are numerous services available; besides covering main coupon distribution and redemption use cases, they provide a rich set of tools, targeting, integrations, and reporting capabilities, including user-facing applications that companies can brand and customize.
Recently deals websites or platforms are gaining popularity. They allow users to search for the most relevant deals and promotions before shopping.
For the merchants, such platforms become a place to advertise products and services to a broad audience or accelerate sales for a fee. The mechanics are different from discount coupons in the sense that the deal (voucher) should be purchased first and redeemed later.
Many techniques aim to capture customers’ attention and stimulate sales based on gamification.
They rely on game mechanics involving challenges or puzzles, where brands reward customers when they solve them with a discount coupon or voucher.
For example, rewarding users with discount coupons in exchange for likes and promotions on their friend’s network.
Artificially created sense of urgency or a time limit on purchase discounts prompts customers to act sooner, thereby increasing the conversion probability.
A commonly used trick is an instant coupon redemption, given to selected customers on a shopping cart checkout that stimulates spending more.
The main challenges for the digital coupons market are growing digital fraud and the transition from paper to digital coupons.
With the rise of digital coupons, digital fraud is growing too. For companies to fight this, many coupon distribution services incorporate technologies into their offerings, like blinking pixels preventing QR-codes from screenshotting or limiting coupon usage count and lifetime.
However, judging by customer reviews of popular deal sites, dispute resolution remains a serious issue.
Regardless of how secure the chosen digital coupon marketing platform is, merchants have to trust its data and rely on the provided tools fully.
There are several developments based on blockchain technology, such as a company in Dallas building a single secure coupon blockchain network for retail that supposedly solves trust and transparency problems or a range of digital coupon platforms backed by Ethereum tokens.
Despite legal issues, coupon clipping services exploit paper coupon distribution and redemption issues, providing users with a wide selection of coupons that can be ‘purchased’ and delivered to customers’ addresses for a handling fee.
In 2020, following marketing campaign cost cuts and reduced newspaper issuance, digital coupons surpassed paper coupons in redemption rates.
Though digital coupons are more cost-effective, many companies have built their marketing pipelines for decades, and switching to digital will require changing internal processes, introducing new roles and tools, and training employees to use them.
Digital coupon marketing platforms with many similarities in digital coupon distribution, redemption, and security features dominate the coupon distribution market.
CouponTools is probably the most advanced coupons marketing platform. It offers personalized, secure, single-use coupons distributed via email, SMS, brand websites, and social media channels.
The service enhances coupon distribution with dedicated gamified apps and social interactions, for example, sharing or replying to claim a coupon.
In addition, there are rich reporting and campaign performance tracking features that integrate with POS terminals and dozens of third-party services. This service also provides a loyalty program and a White Label platform.
There are a few runner-up platforms, such as Komo digital coupons, Woobox coupons, and Code broker coupon platform, that offer personalized coupons, similar distribution channels, redemption, and reporting options.
Among their unique features, geo-location tracking and social gamification are worth noting.
The following top-visited websites of 2020 have excellent coupon and discount strategies:
SlickDeals - accounts for the majority of Internet traffic (2020)
Groupon
RetailMeNot
Rakuten
They are all similar in features among these websites that allow consumers to search for deals and discounts, shop online, and earn cashback. (Although customer privacy, customer support, and user experience differ depending on the site.)
Regardless of whether the website is a coupon site or a digital coupon marketing platform, the solution is all-inclusive and provides a complete set of tools to distribute and redeem coupons and monitor campaign performance.
These websites offer user-facing applications through web and mobile apps, although consumers tend to prefer mobile apps. Additionally, there are separate apps for consumers and merchants.
Deals websites provide additional integration through browser plugins to track consumer purchases and earned cashback, which raises security and privacy concerns.
The number of integrations, use cases covered, and digitization of reporting tools vary depending on the provider.
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