In 1888, Coca-Cola released the first coupon on record in North America. Between 1894 and 1913, an estimated 8.5 million free drinks had been redeemed. Today, Coca-Cola is still the leading soft drink manufacturer on the planet.
So obviously coupons work, right?!
Welllll, yes….and no.
Modern-day peddlers of coupons will tell you that coupons attract new clients to “try out” your products and services. They plant the fear that coupons (discounts) are necessary to attract new customers. They even demonstrate through metrics and data how your coupons deliver a very high ROI.
Then why did the likes of Groupon fail so spectacularly?
Business owners would argue that it was decimating their margins while simultaneously delivering terribly disloyal and price-sensitive customers. Customers, who initially loved the thrill of consuming offers at a fraction of the intended price quickly became disenchanted with subpar service and progressively less appealing offers.
The reality of discounting is that any of your competitors can do it, and will, in reaction (or retaliation) to your offer, making your company utterly indistinguishable from another. Furthermore, grudge purchases like air conditioning maintenance and repair are externally triggered, meaning they’re only sought after when they absolutely must be purchased.
No one ever “treats” themselves with a naughty little A/C repair.
Hence, the death of Groupon.
As modern marketers digitized, coupons saw a rebirth. Eluding that coupons would keep them extremely honest since you could easily track the ROI of each coupon clicked, used, and tracked through the entire sales cycle of the client. Coupons, they said, were the reason why they chose to buy….along with their brilliant SEO, PPC, and ad copy of course.
We know this to be last-touch attribution, and legitimate digital marketers have all but abandoned these weasely practices by redesigning their new client acquisition offers to be considerably more in tune with attracting the right type of customer without damaging your good name in the process.
An article by the Harvard Business Review on the subject states that:
“A company that offers average-value products and services to everyone wastes resources in over-satisfying less profitable customers while under-satisfying the more valuable loyal customers. The outcome is predictable. Highly profitable customers with higher expectations and more attractive choices defect, and less desirable customers stay around, diluting the company’s profits.
Onetime promotions can cost a great deal of money and do not, as a rule, generate loyalty. They do indeed change customer behavior but often in ways that are undesirable in the long run. Any positive impact is washed away as soon as competing companies launch their next promotion.
Realizing the benefits of loyalty requires an admission that not all customers are equal. A company must give its best value to its best customers.”
The harsh truth is, your coupons are lying to you:
- The research indicates coupons do not create brand loyalty.
- 4 families in 5 use coupons, but not because the coupon instigated the purchase. Rather, they use the coupon because there was a coupon to be used.
- Coupons create price sensitivity, making it less likely to up or cross-sell beyond the product or service offered. This forces businesses to serve the kinds of customers that do not contribute meaningful profitability to the bottom line.
- Coupons do not prove ROI. They prove that if you offer a discount, people will take it. This dismantles any claim that coupons generate ROI.
- Coupons place your brand into a sea of other unremarkable competitors, making you indistinguishable from every other option.
- Coupons are unbiased. They can be used by new or existing customers, with no means to determine the efficacy of attracting new business. This further perpetuates price sensitivity, low margins, and rewarding cheapness over loyalty.
- Coupons don’t hold your marketing team accountable, rather they are exploited by digital marketers to justify false ROI claims.
- Approximately 4 percent of coupons received are redeemed, making the cost of lead generation impressively high.
Does this mean there is no place for transactional offers like coupons?
What it does mean is that you need to voraciously protect your goodwill and integrity in the eyes of your prospective customers. Instead of carelessly throwing out arbitrary discounts, consider strategically developing relational-friendly transactional offers that won’t damage your brand image. This will produce consistently more high-quality leads that convert easier, faster, and at a higher profit.
Just like Coca-Cola did, way back in 1888.
Here are a few of our unwavering principles:
- Start with strategy. Loyalty does not exist in a vacuum; discounts and coupons must dovetail with both a solid strategy and your capabilities to execute.
- Limit your relational-friendly transactional offers to 30% to 40% of your total marketing message. Anything more will attract too many of the wrong types of clients.
- Full price or free. If you are going to entice new prospects to try your service, limit it to first-time buyers only and do it at full price with added value stacked on in abundance or provide the first service for free.
- Be willing to provide an offer that no one else is willing to do. This will definitively separate you from the herd.
- Offer savings in the form of bundles. Like Costco, this makes it far more difficult to compare apples-to-apples while delivering exceptional perceived value.
- Stand your ground and don’t waiver. People will respect your confidence and interpret it as competence. If you don’t appear to believe in your prices, neither will they.
- For home service companies, run an outstanding club membership program to nurture and reward your loyal client base.
We know the exact 4 things you have to do to create a powerful coupon offer that overperforms. The conscious choice to eliminate this short-term tactic from your marketing vernacular is reserved for the courageous few who are 100% committed to the long game.
For those few who keep their eye on the horizon with us ALWAYS see the light of a new day. For the riches that lie beyond that which you see at the tip of your nose are 100 fold to what you know of today.
The proof is in our pudding.
PS – Home Service Businesses who want a free swipe file of our Top 20 RFTO’s (relational-friendly transactional offers) are welcome to email me. We’ll also happily spend the time to discuss how you can custom tailor these offers to fit your company’s strategy and capabilities.