Coupons: Devaluing your product or driving revenue?
Coupons have long been a staple in modern marketing strategies, with retailers and brands offering discounts and savings to attract new customers and retain existing ones. However, while coupons can drive sales and increase revenue, they can also have a negative impact on the perceived value of a product and the brand as a whole. This can lead to a vicious cycle, where companies are forced to offer even more coupons and discounts to maintain their customer base, leading to an overall devaluation of the product and often reduces customer loyalty to a question of percentage points.
The widespread use of coupons has led to a culture of entitlement and expectation among consumers. When customers are regularly offered discounts and promotions, they start to see the full price of a product as artificially inflated, and the actual value of the product is diminished in their eyes. This can lead to a lack of motivation to purchase the product at full price, as they are trained to wait for the next discount or coupon. Additionally, customers who receive a discount may not perceive the product as being of high quality, as the coupon reinforces the idea that the full price is too high, and the product is only worth the discounted price.
This is, in part, why massive coupon platforms failed as spectacularly as they did. By creating an ecosystem of coupons, they trained their customers to wait for the next deal, inadvertently starting a race to the bottom.
A simple example of this in action: Elizabeth receives a 50% discount coupon to try out a new $20 product. She tries the product and the brand’s loyalty program sends her another 50% coupon to return. At this point Elizabeth is already trained to wait. She has no loyalty to the brand, even if the product is good. The expectation she’s developed is purely based on how much she can save–she's become a deal shopper as opposed to a real customer and brand supporter. That product is now worth $10 to her, that’s it. She’s simply not going to return at full price.
A prime example of the negative impact of coupons on a brand's perceived value is JCPenny's failed attempt to remove couponing from their marketing strategy. In 2012, JCPenny made a bold move by eliminating the use of coupons and sales promotions in an effort to restore the perceived value of their products. During this time, they actually priced their products at the average paid even WITH coupons. However, the move backfired, and the company saw a sharp decline in sales and customer loyalty. JCPenny quickly realized that coupons and discounts had become such a significant part of their customers' expectations that removing them was a major mistake. They were forced to bring back coupons and sales promotions, but the damage had already been done, and it took several years for the company to regain its footing.
Despite the negative impact of coupons on a brand's perceived value, there can be benefits to using coupons, as well. Coupons can drive sales and increase revenue, as they encourage customers to purchase products they may not have otherwise and also allows brands to clear out products that are taking up shelf space and not moving quickly enough.
Coupons can also be an effective way to reach new customers and create brand awareness, as customers are more likely to try a new product if it's being offered at a discount. Additionally, coupons can be used as a reward for loyal customers, which can increase customer loyalty and satisfaction.
Treading the fine line between the negative and positive impacts of coupons is no small task. To maintain a high level of perceived value for your brand, it’s important to maintain a balance between what a brand gives out in discounts and what they gain as a result of the discounts given. Brands can offer discounts as rewards for loyal customers, offer limited amounts of coupons, or, as we at GoVi work with our clients on, offer coupons and other rewards in exchange for specifically directed actions taken by customers. In other words, GoVi's brands use our technology to work with their customers to provide value in exchange for value. Not only does this entirely avoid the aforementioned problem with coupons devaluing a brand's offerings, it also significantly increases customer satisfaction as customers begin to value their brand relationships and the benefits thereof even more.
Let's revisit our friend Elizabeth. Imagine rather than simply getting $10 off of the product, she had to carry out a specific action on behalf of the brand. Take a survey, post on social media, bring in three friends, basically anything of genuine economic value to the brand. NOW, when she buys the product she is, psychologically, paying $10 out of her pocket and $10 from her actions. The product is still worth $20 to her, but she was able to earn a discount by being a valuable supporter. So, in Elizabeth's mind, it's not that the product itself has been devalued, it's that she has offered more value as a customer through her deliberate, supportive actions. It’s a simple but important and incredibly impactful mindshift.
We know that coupons can cut into profits, but when a brand is strategic about getting something before giving discounts, the value to the brand can be significantly greater than the size of the discounts given.
In 2021, coupon redemption in the US increased by 25% compared to the previous year (Source: NCH Marketing Services).
60% of consumers said that coupons are a major factor in their purchasing decisions (Source: RetailMeNot).
3. 75% of consumers feel that coupons improve the value of a product (Source: RetailMeNot).
67% of consumers believe that brands that offer coupons are more likely to get repeat business (Source: RetailMeNot).
Research shows that consumers are willing to pay an average of 14% more for a product if they receive a coupon (Source: NCH Marketing Services).
So to revisit: while coupons can drive sales and increase revenue, they can also have a negative impact on the perceived value of a product and the brand as a whole. JCPenny's failed attempt to remove couponing altogether from their marketing strategy serves as a cautionary tale for brands considering a similar move. To mitigate the negative effects of coupons, brands must strike a balance between offering promotions and maintaining the perceived value of their product and, most importantly, planning their get while they’re planning their give.
GoVi’s technology pairs the power and impact of coupons and other rewards within the broader scope of Mass Customer Mobilization, a growth mindset which puts the power of your customers in the palm of your hands. Your customers can, and will, engage with your brand if you know how to tap into their habits and interests. GoVi allows you to reward your customers for actual activity that moves the needle for your brand. They’ll help you grow mindshare and market share all while increasing the loyalty to your brand.
"The Impact of Coupons on Customer Loyalty and the Perception of Value" by Jennifer L. Jones, Journal of Marketing Theory and Practice, 2007
"Coupons: Friend or Foe?" by Mark L. Baer, Mark Baer Inc, 2011
"The Psychology of Coupons" by Daniel A. Leemon, Psychology Today, 2011
"How Coupons Impact Your Brand" by Rebecca Bosl, Forbes, 2018
"The Pros and Cons of Using Coupons for Your Business" by Lauren Drell, Mashable, 2014