Couponing: The Web’s Hottest Business Model

I’ve  been following the online coupon companies like Groupon and LivingSocial since March of this year. I started even paying  more attention to  such a new hot space, when noticed both Google and  Yelp were also gearing up for online couponing  last month. Not to mention our beloved DC-Based Living Social who just landed another cool $10 mil investment on top of their previously $49 Mil raised so far. The space is certainly HOT and getting very crowded.

The investment came from their previous investors including U.S. Venture Partners, Grotech Ventures, Lightspeed Venture Partners and Steve Case‘s Revolution. This is just three weeks after the company launched its “Deals” service in 25 more cities. Users in more than 50 markets can now sign up to receive daily notifications featuring one offer a day of at least 50% off various local restaurants and attractions. When someone purchases the deal, they receive a unique link to share, and if three other people accept the offer using that link, their deal is free.

Besides, Groupon and LivingSocial, other players in the space are:

• TownHog
• SocialBuy
• HomeRun
• CouponChief
• YouSwoop
• We Give To Get
• MyDailyThread
• TwoBuckDuck

Every retailer should look forward to being able to take advantage of this business model in the very near future. These sites have the customers looking for a deal,  Retailers have the products and services… this is great for everyone – particularly, the small guys wanting to promote themselves without the enormous marketing budgets normally required.

Online couponing is exciting because we’ve finally achieved a pay per acquisition model of coupon advertisement. Because Groupon (for instance) takes 30%-50% of all the revenue that goes through them, they can figure out how to get the most effective advertisements out there. Unlike SuperSaver, Groupon puts one outstanding deal out their, flash sells the bejeezus out of it and moves forward.

They figured out a better coupon model that in no way resembles the old stale one.

One important commonality between the old and new models is the need for promotional marketplaces. In the early days of electronic couponing, brands/retailers thought they could distribute $.50 coupons directly to consumers through banner ads– and though sometimes they do, this has generally proven difficult given the cost of media and conversion rates, even with targeting (i.e. the cost of targeting is higher than the value of the promotion being delivered and the consumer’s activity stream.) That’s why marketplaces, such as Groupon and foursquare, make sense to help aggregate promotions for the SMB community and for consumers. Social media may be replacing newspapers but it’s filling a similar economic role.

Come to think of it, such new business model for coupons online is also way better for the environment to use these sites vs printing a million flyers, distributing them etc.

What’s Next for Couponing?

According to Heather Harde, the coupon expert and Ginny Byrnes, VP of Marketing at  News America during Social Currency CrunchUp held last week, as we enter the next generation of couponing, this list of tried and true lessons is a must-read for those vying for the top of the heap.

10. There are two types of shoppers: Planners and impulse buyers

Planners take time, make a list, look at the circulars, check coupon sites and clip coupons at home. The impulse purchaser prefers to make buying decisions on impulse while they’re in the store.

These two types need a two-prong approach to in order to best be reached when buying decisions are made: Home (planners) vs. Point of purchase (impulse buyers). For example, an impulse buyer needs an advertisement or promotion that calls out and draws attention to the product – i.e. “tell me how this will make my life easier.”

9. Brand tactics are different for each consumer: Loyals, Switchers, Non-Category User

Loyal: Encourage  a loyal customer to continue purchasing in high volume, perhaps offering “buy two get one free” types of offers.

Switcher: Switchers are price sensitive, so a discount of a few cents over your leading competitor can hook them and bring them into the category.

Non-Category User: Oftentimes offering a trial of your product can give people incentive to continue using it.

8. Premium brands need to pretend they don’t discount

Because high price points equal higher quality in the minds of consumers, premium brands need to be more delicate with their discounting, using promotions that are more targeted to an elite niche market. Luxury brands succeed by providing a higher quality free sample, as well as cultivating a higher end look and feel.

7. Create promotional patterns to match purchase cycles

Each product has its own shelf life so businesses need to take into account when and what is the best way to reach their target consumer. Luckily this is getting easier with technology’s ever expanding capabilities to profile and target consumers.

6. Consumer targeting: Know when to use a hammer and when to use a scalpel

Targeting is a double-edged sword — You don’t want to be too targeted because you don’t want to miss out on growing your market. Still some products, such as septic tank cleaner, are better served using a direct approach.

Don’t be too narrow minded with your targeting; If you don’t see toilet paper on a customer’s Safeway loyalty card data, that doesn’t necessarily mean that they’re not buying toilet paper, they might be paper pantry loading at CostCo and not Safeway.

5. Redemption rates, highs lows, & truth

While coupon redemption rates are relatively low (.5% to 1% according to CMS) when you launch a coupon campaign you are generating awareness. Customers recall seeing a coupon promotion, so even though they might not be redeeming the offer, they are still purchasing your product.

4. All promotions need a little pain

You want to make sure that the customer works a little, giving someone a coupon for a latte while they’re in line at Starbucks feels like cheating. “If the consumer gets the discount without any work, then the brand doesn’t feel like they got credit for the discount or helped to really change consumer behavior,” Heather Harde points out.

3. 360 degree marketing works

With currently available technology (like QR or shortcodes) it’s now more than ever possible to interact with your customer at multiple touch points. Touching the consumer no matter whether they are outside, at the store, in home or at point of purchase is crucial for brand absorption.

2. Build for your currency: Virtual vs. real money

While with virtual currency you can always change your plan, if you’re using monetary coupons you first need the correct infrastructure and security to complete what amounts to financial transactions.

1. Don’t slow down the checkout

You want to make it as easy as possible for consumers and retailers to buy your product. You don’t want a consumer to give up on a purchase because the process is so slow, or because there are issues or concerns or point of purchase.

Frictionless options such as integrating customer coupons into loyalty cards, with all coupons preloaded for redemption at point of purchase, are currently at the bleeding edge of coupon marketing innovation.

Here is the full discussion:

Once Facebook is optimized for social saving, I think they should also get into this space. Wouldn’t you agree?

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