Retailers! Stop Using Coupons If You Want To Survive

One of the most interesting things,
when you talk to people running an online shop,
is that they have absolutely no clue at all how to build loyal customers.

For some reason,
they think it is easier to build those customers online than offline.
It’s easier to acquire new customers, yes. Loyal customers. That’s hard.

Coupons are used _a lot_ to grow an audience.

Well, it’s not a bad idea.
Actually, it’s a good idea, but you can do better than that.
Financially. To benefit your business. Your Commerce.

Why Coupons Are A Good Thing

Think about it.
Why would _you_ , as a person/customer, use a coupon?
Be fair.
The answer is probably one of these answers below:

  • I want to try a new product
  • I would have bought that product any way but got it at a cheaper price
  • I want every thing as cheap as I can get

And that’s fine.
Now. You’re a retailer.
Why would _you_ offer coupons?

  • To get people to try a new product
  • To grab the attention of people during a certain timeframe to lift (one-time) sales
  • To acquire new customers or just more recurring sales

That last point, that’s the part where it gets tricky.
It depends on your focus.

Coupons are good for two things:

  1. Acquisition
  2. Retention

Focus on Acquisition

What do you do to get the word out about a new product?
Or you want to gain new customers? You get out on the streets.
Online, you start to advertise and give people a good reason to buy that product.

One of the most used tactics are coupons. You can spread them everywhere online. It’s easy as pie. Get a designer. Make a coupon. Spread it where you can. There are a ton of coupon sites out there to spread the word.

Bummer!
In the end, it won’t help you acquire customers.

By customers I mean, customers that will execute more than one transaction in their life-time on your website.

Coupons are no guarantee for acquiring returning customers

A coupon is perfect to get traction.
You can get new customers that never have ordered at your site before. You can get returning customers, that just want to profit from the temporarily deal.

That’s good.
Although, you can’t give away free stuff al the time.
You’ll have to earn cash too.

Focus on retention

Coupons are great for retention too.
Don’t give them away just for free.
Let people give something in return.
The easiest way? You write me a review, I’ll give you a coupon for a next purchase? Sounds like a match made in heaven, right? And it is.

The only hard thing: they need to buy something first.

Have a splendid customer service & use coupons to grow your data. Reviews & other info from you customer, in this case.

Bummer!
Customer service & coupons are not why people return to your site & purchase even more.

Everyone can deliver good customer service, if they really want and have the resources to do it.
Everyone can give away coupons, as long as their margin is big enough.

Customer Service is not a commodity yet, that’s why most of the retailers think that’s why customers grow into returning customers. Wrong!

You’re just lucky this online scene is just getting traction.
The internet only exists a few decades.

People care about customer service,
although that’s not the main reason why they return & will become a, hopefully, life-time customer. Nor Coupons. It’s just a tool, like any other tool.

You have to be fair with your business.
Getting new customers is relatively easy.
Convince customers to return is harder.
Motivate customers to order regularly on your site is very hard.

Step Away From Coupons At Some Moment In Time To Survive

Only a few percentage of retailers have a business that is purely focussed on retention.

Their marketing model is a retention model when their revenue exists out of 60% from returning customers.

That’s a lot! That is in most of the cases, compagnies that have mass-scale reach & with that comes a more likely massive product range: Small Moving Consumer Goods & Fast Moving Consumer Goods.

That are retailers like Amazon & Coca-Cola. They spending more on returning customers than they do on acquiring customers, because the acquiring part is the cheapest and almost free cost thanks to their brand & ambassadors.

The likeliness of your business getting that level, is not realistic.
So, you have to focus on the acquisition for most of the time. You’ll probably get 50/50 even more over time, but in the first few years, acquisition is your focus. Also your biggest cost.

Why do you need to stop using coupons at some point? Fairly simple. You don’t want to give away your margin. You need it to grow.

A simple mathematical real life example

You’ll recognize this for sure, if you’re a retailer.

You’re selling bicycles.
You found a great model you think will sell.
Like this one for example.

bicycle

A bicycle costs about €1.000
You’re selling that bicycle for €1.500

If you give away a coupon of 10%,
you loose 10% of €1.500 = €150.
You earn €350.

Actually, you decided to give away €150 of your margin in order to sell more.

That’s a great tactic if you need to buy a certain amount of bicycles from your supplier if you want to get a better price for the bikes. Which means you’ll have a greater margin on the bike.

Honestly? That’s a risky investment.
But you have to have stock right?
If you’re lucky, you could get a deal with drop shipping.

Your supplier demands you to order at least 5 bicycles.
If you order 10, you get a lower price.

10 bikes costs €9.000 instead of €10.000
You’re selling them at €1.500 per piece.
So your margin grows to €600 per bicycle.

Which means if you give away 10%,
You’ll earn €450 per sold item.

A better approach

You decide to buy 5 items, to lower your risk.
So, you pay €5.000 in total & have a margin of €500 per item.

You’re again willing to give away €100 of your margin,
in order to sell all those bicycles.

You decide to take on another approach.
You order 5 bags to give away when someone buys the bike.

People pay for value, not goods

You’re looking for a proper leather bag that has a value of €100 per piece in the shops. You’ve found those bags at €50 per piece.

Bingo!

Lets do the math again.
€100 margin.
Now you only give away €50 & you give your client something extra too.
That’s a total of €750 margin for those 5 bicycles.

Why this is a good thing

It’s a psychological thing. If you only give away €100, that might not be that appealing to your customers. If you add extra value, extra comfort for instance, to their experience (riding that bicycle), that’s better.

  • You give an extra product – they get two instead of one items!
  • You earn more & yet you give away something extra
  • You have to invest less – a smaller risk for your stock

Stock is never good.
It costs a lot!

Extra tips

  • Buy a product that you can combine with other actions so you only have to invest once (a leather bag fits with several other products)
  • Buy a product that matches the interest group & your products – it adds extra value to your core business & focus of your shop: one-stop-shop
  • If you’re smart, you can also sell the bags separately. The minimal viable transaction is a great way to test a product. So if you give it away in an action and it works, you could probably sell it as an separate item in your shop as well, for even more than the value you give away ;)

TL;DR – Don’t give away your margin

  • Define your marketing strategy: it will probably be an Acquisition model for a long time
  • Use coupons to acquire new customers
  • Use coupons in a review or other retention model to serve existing customers
  • Serve your customers as good as you can
  • Deal with the fact that customer service will become a commodity at some point
  • You can do a lot more with your margin than just give away coupons
  • Don’t lie to yourselves: there are only a few retailers that have a retention marketing model so you need to earn money with your acquired customers as much as you can
  • Think in terms of added value: a product, an extra service etc. to keep a larger margin