The double-edged sword of coupons in ecommerce

by Jim Cain

I am spending the afternoon in the office catching up while my boys continue to sort through the metric ton of stuff they got under the tree, and I had a thought worth sharing.

Groupon and other similar sites are showing offline retail what online retail has known for years – coupons still work.

Online retailers have aggressively used coupon codes for years to create competitive advantage and add an extra kick to conversion rates during peak buying seasons. Go to any online retailer and you will see promos/coupons listed on the site, or a signup area for a newsletter that will periodically send readers discounts.

We look at the data for a lot of retailers and we can definitively tell you that coupons work. There are also lots of things we would like to tell you but can’t, like the lifetime value of a coupon shopper and the overall impact of coupon use on margins after you pay out all your traffic suppliers … but I digress.

Most retailers know coupons work as well –- that’s why they all use them. The following are a few tips to get the most bang for your discounted buck when you are looking at adding coupons/discount codes/promos to your marketing mix. Sites that follow these practices not only get maximum impact from discounting, they also get fantastic information that will allow them to refine this critical online sales tool to fit their business.

Stop the ‘spray-and-pray’ approach to coupon use.

Many retailers add new coupon codes at a whim. Not selling a lot of a given product? Create a code and publish it to an email. Want to add a jolt to sluggish spring sales? Publish a coupon code on the homepage of the site.

Sometimes these codes get deactivated, sometimes they don’t. Sometimes the codes get published to a coupon aggregator site. Sometimes visitors write them down to come back later. Having too many promo codes out in the wild means that you have no accurate way to track what is working, and it can actually have a negative effect on sales -– some coupon sites list 20+ inactive codes for a given retail site, which will do nothing but annoy the visitor and cost you a sale.

Clean up all your coupon codes to a manageable number and reach out to sites which have published stale codes and ask them to take them down. If you are going to take money out of your pocket in the form of discounting, you should be allowed to have total control of the process.

Be careful about the coupon entry area in your shopping cart.

Many retail sites have very visible areas to enter a discount code in the shopping cart. While this is very convenient for visitors with a code, it is very frustrating for those who don’t -– and it can have a big impact on conversion rates. Visitors will leave the cart to go looking for a promo code, as you have implied that they are missing out on a deal if they don’t have one.

In a perfect world, make all coupon codes autopromote to the cart, i.e “Click here to activate a 5% discount”. If this isn’t possible, think about the wording for the coupon entry field –- try changing the word ‘discount’ to ‘gift’ and test the impact this has on cart completion.

Make sure your affiliates aren’t stealing your sales.

Based on the previous point, many visitors who see a coupon entry in your cart will do a Google search to see if they can find a coupon to use on your site. Many affiliate sites which specialize in coupons will optimize search to come up at the top for anyone looking for “YOUR BRAND Coupon”. The visitor will click through to the affilate, get their code and then click back through to your site.

Not only did you give a discount on the sale that you didn’t need to give, but not you need to pay an additional percentage of the sale to the affiliate. This is a double fail that can be addressed by both following the point above, and cracking down on affiliates who are optimizing around branded coupon terms – they are trying to get a piece of a sale you would have most likely gotten anyways.

Coupon users are a segment – track them accordingly.

Not every visitor is motivated to buy through discounting. By understanding which types of visitors to your site are most likely to use coupons you can target the right promotions to the right people. By understanding how visitors behave after they activate a coupon, you can fine-tune their shopping experience for maximum effect. All analytics tools will allow you to do this if you set them up properly. Google Analytics events are a great way to track coupon use in your online store.

Maximize coupon effectiveness with proper calls to action.

“Take 10% off with coupon code OU812” is not a very persuasive piece of copy, but is fairly typical of how most retailers position discounts. As mentioned above, autopromoted discounts can help with tracking, but also help create a sense of urgency in the shopper -– if the coupon is activated for that session only, the visitor is more likely to transact. Try adding in personalized content for maximum bang for your buck. “Searching for new shoes in Bing? Click here to get 5% off shoes this visit only”. Now that’s persuasive copy.

Coupons are a very powerful way to bump up conversion rates, especially for online retailers with low brand recognition. They can also be a very costly and hard to manage component of your business. Use these tips to take control of your coupon activities for maximum impact.

Happy Holidays from the team at Napkyn.


Jim Cain

Founder and CEO, Napkyn Analytics

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