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What is Digital Couponing?


Online coupon campaigns take a more than 100 years old marketing tool and transfer it to the virtual world: the tried and tested discount stamps. You don’t have to collect them anymore, though. Nowadays it’s all about coupon codes. When buying something online, you will come across a field at checkout where to type in a promotional code. This way, you will save the fixed amount in dollars or percent that is promised with the coupon code. The discount is the buying incentive and therefore it’s what this marketing tool is all about.


So this makes it rather obvious where online coupons are used most frequently: coupon codes are most suitable for online stores selling stuff, especially in the B2C retail industry.


When doing such a campaign, it’s important to come up with an efficient way to distribute the code, to get the message out. This can be done by the retailer via emails and SMS or offline by printing the codes on receipts or standalone flyers. Alternatively, a coupon publisher can be used. According to the online marketing mag „Adzine“ there were more than 150 such publishers online in the German-language region alone.


Basically, there are two kinds of digital coupons: discount coupons saving you a specific amount, and campaigns that let you buy vouchers for a product at a discounted price. In both cases, the discount works as the purchase incentive.


With the rise of mobile Internet access, digital coupons are no longer for online stores only. Now they can be distributed virtually via mobile devices, but be redeemed in brick-and-mortar malls. The buyers just have to present the virtual voucher on their smartphone or tablet in a store to get the promised discount.


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Nearly every fourth online buyer (23%) in Germany in 2012 had been tempted by a digital coupon to purchase something, according to a study by the German digital industry association Bitkom. In the United States, around 3 billion digital coupons were distributed in 2013. A report by the coupon company NCH Marketing calculates that’s less than 1% of all coupons published there – but they delivered more than 10% of the redemption value! A pretty great conversion rate, right? Considering the high penetration rate of internet usage in general, the potential of a coupon campaign can be huge.



How to Use Coupons to Promote Your Business


Coupons have proven themselves to be highly effective sales tools for every conceivable size and type of business.

Because coupons "pull in the business" they have gained remarkable acceptance and popularity among astute marketing managers. A simple explanation for their acceptance by advertisers is their overwhelming acceptance and use by the consuming public. In fact, Advertising Age (the Bible of the advertising industry) reports that 87% of all shoppers use coupons.


Another independent marketing research firm, the A.C. Nielson Co., reveals that 95% of all shoppers like coupons. And 60% actively look for coupons.

A recent article in the Wall Street Journal entitled, "In a Pinch, Snip.", states that coupon use rises, as the economy in any given area slides. 54% of shoppers surveyed said they had already stepped up use of coupons, and even more are expected to do so.

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It's very easy to see why coupon advertising is sweeping the country. Regular use of good couponing strategy will provide a steady stream of new customers and high quality sales leads.

Savvy marketers cite these reasons for heavy reliance on couponing:

A. Coupons have the effect of expanding or increasing your market area. We know that consumers will travel far to redeem a valuable coupon.

B. Coupons will entice new customers that have been shopping at your competitor. It's a proven fact that consumers will break routine shopping patterns to take advantage of a good coupon offer.

C. Coupons attract new residents when they are actively in the market for products and services.

D. Coupons will re-activate old customers. Those customers that have been lured away by your competitor will start buying from you again when you give them a good reason to do so.

E. Coupon advertising provides the opportunity for additional profits through sale of related items. (Business owners often forget this.) When you offer a special "deal" on a coupon to invite a customer to do business with you, you have to remember that this same customer will probably end up buying additional items that carry a full profit margin.

In addition, you also are being given the opportunity to "sell-up" to a more profitable product or service. You would not have had this opportunity had it not been for the coupon getting the customer through the door in the first place.

F. Coupons build store traffic which results in additional impulse purchases.

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G. Coupons are measurable and accountable. Don't overlook that couponing is the most measurable and accountable form of promotion. It's simply a matter of counting the number of coupons redeemed to judge the effectiveness of the offer. Wise use of this consumer feedback will guide you in creating future offers that improve your results.

Understand that the media delivering the coupon has very little to do with the response. Publications simply deliver your offer to a specific audience. It's up to you to determine what offer produces the best response from that audience. You do this through methodically testing various offers. Savvy use of this "coupon testing" technique will give you the specific knowledge you require to greatly improve all of your advertising response, your sales, and your profits.


Why Do Discounts Work?


Most discounts work on the principle of urgency, as the discounts are only available for a specific period of time. If people don’t buy the product now, at the discounted price, they’re likely to miss out on saving some money. There is urgency involved. That anticipation of missing out is exactly why discounts work.


According to the Pleasure Principle and the Regulatory Focus Theorypeople seek pleasure and avoid pain. The anticipation of missing out on a discount is definitely a pain people will want to avoid.



Different discounts

As I’ve said, there are a lot of ways of giving your customers a discount. You can give them free products if they buy certain (amounts) of items, free shipping, a fixed price off, a percentage off, etc. You can even give your customers a discount on top of another discount.


But some of these discounts actually do work better than others. For instance, people prefer to get 50% more of the same product for the same price than save 33% on the price, even though that comes down to exactly the same thing. Also, people like it better when you give them a 25% discount on top of a 20% discount, instead of a single 40% discount. And yes, again, this comes down to the exact same discount.


On top of that, discounts are regarded as relative. What I mean by this, is that a $10 discount off a $100 product will be regarded as much less than a $10 off a $20 product. The absolute discount is exactly the same, but the relative discount is much smaller in the first discount. So, if you give people a fixed $10 discount, don’t count on selling a lot of $100+ products.


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Wording

Wording has a lot of impact on how people perceive your discounts. For instance, “Get $ off” emphasizes achieving a gain, while “Save $” emphasizes avoiding a loss. You should test which kind of wording works best for your specific company. This basically depends on your customers; are they more likely to achieve a gain or more likely to avoid a loss? In general, though, it’s been found that a wording like “Get $ off” will motivate people to buy more, even if the other products are not actually on sale.


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If we elaborate on that, you might actually consider dropping the dollar sign altogether. Karl Gilis of AGConsult explains this in his Dutch article: 6 Unexpected tips to sell more using pricing psychology. The dollar sign or euro sign actually reminds people of the pain of paying for something. Reducing the size of the sign, of simply removing it really seems to push sales. Note that this is a bit difficult though, when you’re selling your products in multiple currencies :)


A quick word on the ‘9’

Just adding a 9 at the end of your (discount) price isn’t always the best strategy. In the article mentioned in the previous paragraph, Karl explains that a price like 9.99 looks cheaper than 10. But that really goes for products that need to look cheaper, or simply are cheap. For luxury goods, the ‘cheap’ psychology of that price might backfire, as one of the unique buying reasons for a luxury product is quality and people are willing to pay for quality. A product that costs 399 looks ‘inferior’ to the similar product priced at 400. Just something to keep in mind.


Duration of the discount

Unfortunately, I couldn’t find a lot of research or posts done on the duration of promotions or discounts. Personally, I’d not leave a sale or promotion period running longer than a couple of weeks. If the period lasts longer than that, you’re risking negating the urgency principle.

Think about how long you’d want the discount to last. And make sure you communicate this clearly to your potential customers. If you have an actual sales force it’s mentioned that a maximum of 6 weeks for a promotion is more than long enough. Apparently, employees can’t (or won’t) focus on a promotion after 6 weeks. However, I think 6 weeks is pretty long, especially for online shops. That probably covers a number of holidays (a.k.a. sales opportunities), right?


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Pros and Cons to Discounts


After all this information, I feel compelled to give you some pros and cons to discounts. The con I have to discounts is pretty simply: don’t overuse discounts. Our good friend Chris Lema is actually completely against them, saying discounts just don’t work. While we reserve a somewhat more moderate opinion for ourselves, we do completely understand where he’s coming from.


There’s a risk to (back-to-back) discounts. The risk that people get used to not paying full price in your store. That’s why I’m telling you to be careful with discounts. Don’t give



away discounts too regularly or too often. Especially if you’re offering a single service or just a few products (as we do), discounts could backfire on your overall sales. Think about why you should give a discount on which product. And when.


New customers

Obviously, discounts have a major benefit as well: discounts will attract new customers. Giving people a discount might just be the thing to draw them in and become your customer. And new customers mean new opportunities for cross-sells and upsells, meaning more revenue in the long run as well.


Discounts for existing customers


Discounts are not only a way to acquire new customers, they’re also a way to show your gratitude to your existing customers. What better way to show that gratitude to your most valuable customers than to give them a discount. Giving discounts can come in the form of sending your best clients a free product, a discount code or whatever else you can think of.


These discounts or gestures don’t actually have to be that big to make someone appreciate the effort. In fact, the customer won’t only appreciate it, the customer’s behavior will actually change as well! It’s as they say: it’s the thought that counts.


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Promotions and Discounts Are Serious Business For Online Stores.


Whether you are need to launch a sudden Flash Sale due to an appearance on the Today Show (and thus earn a 50% conversion rate of 5,000 immediate visitors) or if you need to use specific discount codes for your affiliates and bloggers across the web to track the value of the relationship overtime based on discount usage –– every situation is unique, for every business, every single time.


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Those two scenarios above are not just made up. This is how people do business. But along the way, there’s been a dirty little term used in the ecommerce industry that shies folks away from using discounts: pricing race to the bottom.

This term has long been something to avoid (and it still is). With Amazon’s low pricing, with which brands continue to find difficult to compete, the term came from the unprofitability and likely shuttering of any business that played in a pricing race to the bottom rather than building brand equity and finding full-price buyers.


But discounts aren’t the evil they’ve been made out to be.

In fact, folks just starting out to those pulling in $20,000,000 in revenue are using them consistently to measure influencer impact, personalize their sites, grow sales and ultimately make more money and win more mindshare than their competitor.

We’ll look at 4 of those brands here in just a moment. But first, it’s important that you understand this: discounts are part of your promotional strategy.


And discounts have their own anatomy and hierarchy. If you're going to sue them to drive growth, you need to understand what they are, how they stack and all of your options.

Let’s break it down.


A High-Level Anatomy of a Discount

A discount rule consists of some conditions and actions to apply. If all conditions are met, discounts are applied to the cart for a customer.

A discount rule can also show banners on the storefront to encourage customers on the site to use them.


These banners can show up on category specific pages, product specific pages, cart specific pages or the entire site.



An Introduction to Discount Types


Before you begin experimenting with your discount tactics, you should know more about the most common discount types, summarized below:


  • Dollar or Percentage Off: This discount type is the most standard and widely used, simply offering a reduction on the original price, such as $25 off or 20% off. These discounts can be placed on specific products or applied to an entire order.

  • BOGO: Short for, “Buy One, Get One,” this discount type prompts customers to purchase additional items. Examples of BOGO include, “Buy One, Get One Free” or “Buy One, Get 50% Off the Next Item.”

  • Quantity Discounts: Quantity discounts encourage shoppers to increase their order value to a specific threshold to receive a discount. For example, “Purchase 4 items and get the 5th free,” or, “Receive 15% off your $150 purchase,” are considered quantity discounts.

  • Rebates: A rebate is an amount that’s returned or refunded to customers after their initial purchase. Often used for large-ticket items, the most common form is a mail-in rebate. An example of this would be listing a price as, “$349.99 after rebate.”

  • Free Shipping: Increasingly popular among online business owners, free shipping fully removes the shipping cost associated with any order from the customers. Many merchants offer free shipping for a certain order amount, such as “Free shipping when you spend $49.95.”




How Discounts Impact Consumer Behavior

Beyond appealing to the notion of helping shoppers save money on an item, discounts also have an impact on how consumers interact with your products and brand.

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Discounts Assume Trust

Consumers overwhelmingly trust that an offered discount is a legitimate reduction from the original price. In other words, you could technically raise the price of an item by 20%, then turn around and offer a 20% discount, but consumers very rarely consider this possibility. This assumed trust in your discount leads to a feeling of excitement towards your offer.


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Discounts Reduce the Propensity to Search

Studies show that the offering of a coupon or discount can dissuade consumers from searching for other offers. This is because discounts create a sense of urgency to purchase, which distracts shoppers from looking for other options. This impact on consumer behavior is particularly important for online businesses, in which price comparison shopping is rampant thanks to the wide availability of competitors in the digital space.

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Discounts Create a Sense of Urgency

Discounts entice shoppers to purchase sooner. This can be attributed to the idea of scarcity, in that consumers understand that there aren’t always discounts available to help save money. Urgency is a critical element in moving customers past the purchase threshold, and can be aided with your marketing communications – for example, including “One day only” or “Last chance!” messaging helps remove any purchase hesitations that may be holding customers back.


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Consumers Learn to Expect Discounts

One downside to coupons and discounts is that they train consumers to expect them when making a purchase. This expectation often prevents shoppers from purchasing items at regular price, and encourages them to look for competitor discounts. In the realm of ecommerce, this expectation is becoming increasingly true with free shipping promotions. To help prevent customers from only purchasing with a discount, it’s recommended that you be strategic with the type and timing of your discount campaigns.

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Learning Which Discounts Work for You

Since there are so many ways for you to position discounts with your customer base, it’s important to discover which are the most effective in driving sales and increasing redemption rates. To do so, I recommend testing multiple variations of a discount to see which are most impactful. For example, you can segment your email list and send one half a percentage discount, while and the other half receives a dollar-off discount. Based on the results, you’ll have a much firmer understanding of which discounts best appeal to your audience. You can try the same with different discounts and communication channels, too.


Important: Don’t forget that discounts can easily eat into your profit margins, so always crunch the numbers internally before launching or testing any type of discount campaign.


Once you have a better understanding of how discounts impact your specific audience, you’ll be in much better shape to mix up your campaigns to boost sales and customer engagement. All it takes is a little math and a bigger appreciation for the power that discounts have over your customers’ minds.

Happy selling!




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