Posted by CAROLYN KMET on: http://www.practicalecommerce.com/articles/3927-Online-Coupons-Pros-and-Cons

Using coupon codes to entice online consumers is a long-running debate. The pros are: easy to implement, easy to track, and consistent increase in conversion. The cons are: uncontrollable distribution, tendency to drive non-loyal discount shoppers, and reduction of average order value.

Many companies that I’ve worked with avoid coupon codes, saying that the return is not worth the monetary or human resource investment. Lately, however, I’ve seen many effective uses of coupon codes.

Coupons at J.C. Penney

Consider the case of J.C. Penney. Early last year it eliminated many promotions in favor of everyday low pricing and month-long sales and seasonal sales events. The goal was to convey to consumers that they would always get the best available price simply by shopping at J.C. Penney, without waiting for a sale. J.C. Penney dropped non-seasonal sales, promotions, and coupons. Penney’s ran paid search ads, such as the one below, announcing the shift.

J.C. Penney’s paid search ad.

It didn’t work. By May 2012, J.C. Penney’s stock price plunged nearly 20 percent after it missed sales targets. For the first three quarters of 2012, sales fell by 23 percent. Since then, J.C. Penney started reissuing coupons.

So even though J.C. Penney committed to “fair and square” pricing, which meant that if consumers did their research, they would see a competitive price without the need for a sale or coupon, why did J.C. Penney’s revenue take such a dive? The answer likely has to do with consumer behavior. Online consumers like to research. They use shopping comparison engines. They weigh whether shipping fees will offset tax savings. They take part in online forums to discuss the merits of price and product. Part of online shopping is the hunt. Consumers want to feel like they’ve “found” a good deal, that the effort they’ve spent in finding that deal resulted in a payoff.

When consumers find a coupon and use it successfully, they believe they’ve gotten a good deal. Never mind they could have purchased that same product at J.C. Penney for the same price without a coupon. If the consumer uses a coupon code he found buried on page 7 of the search results, he’s likely going to tell others.

Coupons Disrupt Purchase Path?

Many merchants fear that coupon codes interfere with the purchase path. This does occur. A consumer goes to a retailer’s website, locates a product she wants to buy, adds the product to the cart, and then exits the transaction process to find a coupon code. This is where affiliate marketing comes into play. The consumer finds a coupon code on an affiliate site, and now the retailer has to discount the product for the consumer and pay commission to the affiliate.

However, there are many ways to manage this scenario with proper attribution. Many affiliate tracking platforms allow for a specific commission rate for coupon sites. For example, ShareASale.com not only allows you to set a lower commission rate for specific affiliates, but it also allows you to see at what point the coupon affiliate entered the shopping stream. As a marketer, if you can see that the consumer visited the coupon site seconds before completing a purchase, likely the consumer visited the coupon site to acquire the coupon code.

Coupons Generate New Customers?

If, however, you see that the consumer visited the coupon site ten minutes before completing a purchase, then perhaps the coupon site truly did drive incremental traffic. By seeing the code on the coupon site, the consumer may have been motivated to visit the retailer’s site, where she browsed for ten minutes before completing the purchase.

Coupon codes aren’t just for coupon sites, however. My company recently analyzed 100 blog posts that generated high traffic for a retail client. Over 50 percent of these posts featured a coupon code. I’ve seen blogs generate upwards of 20 percent of a retailer’s new customers. While blog traffic does take time for a retailer to build, the investment is worth it in terms of new customer acquisition. And, as I saw from our quick study of those 100 posts, offering bloggers a coupon code — with an affiliate link in the code — is a good way to get coverage of your brand.

Summary

So here are the takeaway points. Coupons are not horrible. In fact, they can be beneficial if used as part of an overall marketing strategy. Set expiration dates. Set attribution metrics. Ensure that affiliate commission rates are in line with new and existing customer mixes. And don’t be afraid to test.