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I’ve just read Jay Goltz’ blog post on NYTimes.com entitled “Is Groupon Ruining Retailing?”  A good read, and lots of good points that got me thinking about couponing as a marketing tool.

A classic sales promotion method, couponing has grown steadily over the past several decades.  According to a recent report issued by NCH Marketing (a Valassis company,) shoppers saved $3.7 billion with coupons in 2010.

Sort of a perfect time for Groupon to be coming out of its shell, eh?

However, there are some important rules of the channel that the Groupons of the world might be missing.  Couponing is not for everyone, is more of an awareness-building tool, less of a customer acquisition tool, and it has a limit.  There are also many factors at play besides redemption rates that have to be taken into consideration.

So why do marketers coupon?  A solid coupon program will create:

  • Incremental sales (for either new products or labels past maturity)
  • Brand Awareness
  • Program ROI
  • And maybe some additional opportunities for sell-in at the store level.

A colleague of mine, David Adelman of OCD Media, also reminded me that couponing has to be looked at in context of what the running sales trend has been for the particular brand, and then re-evaluated months after the program.  Sure, there can always be a spike in sales in the short term, but some coupon programs can hurt, since, on some level, you’re discounting future sales for that spike this week.

The real balancing act with couponing is about redemption:  too little redemption and the program won’t deliver the requisite ROI.  Too much redemption, and the value of the program ALSO goes down…how is this?

Coupon Redemption Scale

 

Turns out that too many redemptions can erode the brand in several ways:  super-redemption can cut into overall margins, so while moving more volume, the marketer can be incrementally losing share on every purchase.  Look for a redemption range [in the blue dotted lines] that helps move sufficient volume without over-saturating the market. Better to under-estimate, since you can always pump more coupons into the market, or hand-distribute in stores.  Also, if the coupon is on a 1+ offer, (most are) you can erode repeat purchase by an even longer period…further delaying the product sales rebound…a deadly combination with over-redemption.

So coupon carefully.