With the rise of online shopping, it is easier and more feasible for businesses to keep track of what a customer has bought previously. They can then make recommendations based on those previous purchases or send them custom offers or coupons that reflect the interests that they've shown in the past. This concept of sending custom offers to customers to encourage new purchases is one that all retailers can leverage. Consumers value strong relationships with vendors they've done business with. Strengthening communication efforts in personalized ways can build loyalty.
Pros of using coupons
They present opportunities to connect and engage with past customers.
The ability to personalize offers represents a ready-made opportunity for retailers to give consumers what they want – as long as these offers are relevant. Although some consumers are uncomfortable about the idea of retailers tracking their shopping behaviors, most still welcome personalized offers based on their shopping history. Their reasons vary. Here's a sampling of responses:
- "I like coupons for products I've purchased, but not comparable products."
- "It's a nice perk for places I shop at frequently to get discounts on items I am already buying."
- "Having customized discounts increases the attractiveness of a merchant. It makes the store more personal and intuitive to patronize."
The ability to stay in front of customers after they've made a purchase is critical to effective engagement and retention. Customers don't want to feel forgotten. Follow-up offers that are aligned with their needs, interests and purchase history can spark both action and loyalty.
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They help you attract new customers.
In addition to helping you engage with past customers, coupons and discounts can help bring in new customers. According to a study done at Rice University, 31% of first-time buyers returned to make another purchase at businesses offering coupons. Offering coupons might also lead customers to switch brands entirely. It can also help you to increase your overall brand awareness, which can increase sales.
You can meet customer expectations.
Many buyers expect discounts and coupons from the companies they're shopping with, so giving them out is considered to be a normal practice for most businesses. Coupons and discounts can also be seen as a reward for loyally shopping at a business, and these rewards may even exceed customers' expectations.
You can gain a competitive edge.
Offering discounts and coupons can help you to develop an edge over your competitors. Consistently offering discounts and coupons can encourage customers to seek you out for repeat purchases, rather than turning to your competition.
Cons of using coupons
They cut into profits.
This is the most common disadvantage of offering coupons and discounts. It stands to reason: By definition, you would be making less money from any discounted sale. You could also be giving a discount to customers who would be willing to buy your products at full price. Sales could be not only less profitable but also delayed, as many repeat customers might begin expecting and waiting for a better deal.
Coupons and discounts might also lessen the perceived value or quality of the products that you're offering, as they are often considered a tactic to move unwanted products out of a store. This can affect profits.
They can be expensive.
Before offering a discount or coupon, make sure you understand your profit margins, as failing to do so can increase the risk of losses. Consider the cost of materials for a product, as well as production and overhead costs. Also, be sure to factor the cost of using a coupon service into your calculations.
They may increase online shopping cart abandonment.
Many retailers have inadvertently caused customers to abandon their online shopping carts by previously offering a coupon or discount code. Now, a customer who may be willing to buy products without an added incentive will go hunting for a good deal and abandon their shopping cart if they don't find one.
How to implement coupons
1. Deliver value to the customer.
Here's an important point for retailers hoping to gain relevance and spark engagement among their customers: It's not all about you. It's all about them. If you hope to stand out from the myriad communications that consumers receive on any given day, you need to get into their heads and deliver value.
Customers are engaged with a wide range of retailers and make ongoing decisions about where to spend their money. While price is certainly a factor in encouraging sales, it's not the only factor.
Customers also value experiences with retailers that are unique, personalized and provide higher value than what they might receive elsewhere. Marketers need to consider how they can effectively position themselves as high-value providers that are tuned in to customer needs across all channels.
You won't have a positive impact with customers if you send an SMS coupon for a product the customer has recently purchased, offer a "we miss you" promotion to a customer who just made a purchase the day before, or promote childcare or pet care products to consumers who have neither children nor pets.
2. Use technology to your advantage.
Technology is a big driver and a critical aid for harried marketers. Joseph Brady, senior director of digital marketing for Reliant Funding Technology, says that IoT (the internet of things) and CI (customer intelligence) technology can help retailers reward loyal customers. The offers must be used in relevant ways, though, or their efficiency and impact will be diminished.
For instance, although high-value coupons and offers are nearly 100% effective for reactivating lapsed customers, it's critical to leverage purchase history and preference data to generate a positive impact. Two factors that will affect customer decisions to use a discount are store location and product need or desire. These factors need to be considered when designing offers that are likely to spur the desired action.
Technology can also affect the retailer's experience. Retailers must exercise caution in terms of security for their couponing efforts, or the bottom line can suffer. They must also be aware of the technology that customers will feel most comfortable using. Most customers prefer to use coupons through their mobile devices. Mobile coupon methods include text-only coupons (text messages and emails), image coupons (emails and social media), and web- or app-based coupons. Be sure to give your customers the opportunity to redeem these coupons.
If offers can be used multiple times or shared by recipients with non-customers, the impact can be dramatic. Many retailers are revisiting their approach to couponing and making shifts, although they face the risk of disengaging – even losing – loyal customers. The craft retail chain Michaels lost sales when the company attempted to replace its coupons with everyday low prices, according to Daphne Howland of Retail Dive.
3. Balance customer needs with the bottom line.
Using data to identify customers poised to make a purchase and tying coupon and promotional efforts to personalized offers can help to engage and retain customers. But at what cost? Retailers must ensure that their promotions are well designed and that they eliminate the potential for reuse and sharing. This is where single-use coupon security comes in.
Single-use coupons and offers are being employed by numerous retailers today to ensure that high-value coupons do not get used more than once or go viral. What makes the single-use model work is that it employs security on two fronts: offer distribution and offer redemption.
Secure coupon distribution and redemption ensures the following:
- Retailers are able to generate millions of unique, single-use coupons or promo codes daily that can be accepted, validated and redeemed by a top POS system or e-commerce platform in real time.
- Consumers can obtain only the offers that are meant for them.
- Consumers can obtain an offer only once, even if they try to access the offer multiple times over different channels.
- An offer can be redeemed only one time, even if customers try to redeem it on a different channel.
That's the power that the right technology, used in the right way, can bring to retailers seeking to balance the need for customer engagement and loyalty and a healthy bottom line.
High-value personalized offers are effective for engaging certain customer segments; however, it can be risky to use them without single-use coupons. Think about it: You don't want customers to redeem coupons more than once or have your offers go viral without your oversight.
There's another big benefit to single-use offers: They allow for data collection because you know where and when each offer was used. That provides you with key information about your customers and their purchase patterns and preferences – information that can be applied to future marketing initiatives. Single-use offers fueled by the right technology will help you personalize your offers in a risk-free way while adding accuracy to your metrics and allowing for improved A/B testing to boot.
By establishing a reliable method for reaching out to key market segments on an ongoing basis, you can positively impact engagement to drive customer retention. Ongoing iterations based on what you learn will serve to continually help you reduce costs while boosting revenue – just like Amazon.
Don't risk losing customers or revenue due to random coupon distribution. Today's retail technology puts you in the driver's seat.
Dan Slavin contributed to the writing and research in this article.