Coupon cutting is back in fashion

20 December 2011

Black Friday – the day after Thanksgiving – kicks off the traditional holiday shopping season and is the biggest day for retailers in the United States.   If early indications are anything to go by, 2011 has seen a distinctive uptick with 227 million shoppers(1) spending an estimated $52.4 billion(2) over the four day weekend alone, representing a 6.6% year-on-year increase over the same period last year.

At the same time online spending is demonstrating even greater growth, including the best Cyber Monday (the Monday after Thanksgiving) results on record with $1.25 billion(3) in one day, with an equally high probability that total online sales for the holiday period will go on to break all records.

Increased consumer spending in an economic downturn

Whilst the general outlook for the US economy has deteriorated during 2011 as consumers continue to worry about rising unemployment, higher living costs and general tightening of the purse strings, the record-breaking figures above demonstrate that consumers are now bucking the economic trend and increasing their spending – including discretionary purchases such as jewelry, home décor, sporting goods and self-gifting – just so long as they are getting (or think they are getting) a great deal!

The influence of coupons, short-term offers and special discounts is bigger than ever in driving consumer spending – both offline and online – as savvy consumers seek out the best deals before parting with their hard earned cash. In fact the availability of coupons, deals and free shipping are considered the biggest influencers in the continued share shift from traditional bricks-and-mortar retailers to online merchants.

This consumer behavior is both indicative and symptomatic of an economic downtown, whereby even a brand’s most loyal customers can become more price-sensitive alongside the more hardened deal hunters.  

Discounts don’t drive loyalty      

There’s a common and often valid argument amongst loyalty professionals that discounts don’t drive loyalty. Coupons and discounts have traditionally been considered as more suited to driving acquisition than increasing customer loyalty and retention, since a brand’s loyal customers are precisely the ones that they shouldn’t need to provide discounts to.

This traditional view has been further enforced by questions raised over both the short term returns (to participating businesses) and the long term sustainability of online group-coupon sites such as Groupon, Living Social, Google Offers and the many carbon copies cropping up in the digital marketplace. Such sites run the risk of encouraging buying behaviors whereby consumers only purchase from businesses when they are offering significant discounts, and never when they don’t. These providers might enable a business to acquire new customers – albeit at a cost – but they do not provide a suitable foundation to engage with them, drive loyal behaviors and create long term, profitable relationships.

The opportunity for loyalty programme operators

Loyalty programme operators cannot ignore the proliferation and availability of coupons and discounts in the market today, however, but they can turn this renewed trend to their advantage by utilizing such techniques to reward customer loyalty rather than trying to create it. By using a loyalty programme’s greatest asset – its customer data – programme operators can create highly targeted coupons and offers to drive specific behaviours amongst their customer base.

For example this approach could take the form of a more traditional purchase-related discount proposition, whereby loyal customers can be targeted with exclusive offers to increase footfall or online traffic, but notably such targeted customers will have a higher propensity to generate incremental, higher margin spending during the same shopping visit. The offer can be extended further by enabling advance previews or early access (and therefore the best choice) to a programme’s higher-tier members in recognition of their greater value.

Alternatively, established loyalty programmes might equally use coupon tactics to drive redemption behaviour amongst programme participants, by targeting members with offers for spending their points on excess or distressed (core) inventory, or discounted redemption prices for non-core redemption options. Not only does this approach deliver enhanced member value through reduced redemption costs, but simultaneously creates additional member engagement along with a means to accelerate the reduction of programme liability.  

The best brands don’t need coupons

Still not convinced that coupons have a valid role for the best brands? Then I’ll leave you with one final thought…

Despite having what might be regarded as one of the most loyal customer bases of modern times coupled with an equally enviable ability to generate unrivalled consumer demand for their products, even Apple offered a range of discount coupons for some of their most popular products on Black Friday – both in their retail stores and online – allegedly resulting in an all-time one-day sales record for the company.    

Coupon cutting is most definitely back in fashion, and is arguably with us for the foreseeable future.


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