How To Develop A Profitable Couponing Strategy

Couponing is coming back. Make sure your business gains both customers and a profit with these strategy suggestions.
July 14, 2011

Couponing is coming back. I’m not sure if it’s ever been gone, but I’ve noticed that couponing has been popping up on my radar more this year than any other. There are the extreme couponing reality shows, a flurry of articles about Groupon and whether it’s good or bad for small business and there was some chatter about video coupons a few months ago.

So what is the state of couponing for small business? Is couponing better for some businesses than others? And how do you develop a balanced couponing strategy so that you can grow the top line without sacrificing the bottom line?

Customers love coupons, but do small businesses?

A recent Morpace research study found that more than two-thirds of U.S. consumers have downloaded an online coupon. The same study also found that more than 94 percent of the people surveyed were aware that you could download coupons online. But are online coupons a good business decision?

Many small businesses get enamored with the prospect of higher sales and more traffic, but there is more to the couponing decision than that. As a small business owner, don’t even consider using coupons until you have gone over your full cost picture in great detail.

You’ll need to understand every penny associated with the costs of creating, marketing and delivering your product or service. You’ll need to have an unblemished view of your profit margins and you’ll need to have gone over a few “what if” calculations so that you can see what impact coupons will ultimately have on your business and your bottom line.

If you decide to use coupons, make it a conscious decision based on your marketing goals and not something you do because everyone says it’s a great idea.

Video coupons can draw search results, interest and profitable customers

Video couponing hasn’t received as much buzz as the online couponing sites Groupon, Living Social, Facebook and Google Offers. But they’ve made an impact where it matters most—the small business owner’s bottom line.

To get more insight into the benefits of video coupons, I spoke with Roger Ach, President of vAdz, a site that creates video coupons for small business. “Groupon is very expensive for the advertiser while video generates two to three times greater engagement and video ads can generate 41 percent more click-throughs,” says Ach.

Be careful when getting into an online coupon strategy; you’ll get the volume of sales and visitors—but not the profitability you want along with it. According to Ach, VideoCoupon offers you more control and flexibility—you can send out out 1,000 coupons and then disable the coupon when they reach their goal without ever removing the ad. This means that you still get the advertising exposure without incurring the financial risk exposure.

When is couponing a good marketing strategy?

Before you embark on a couponing strategy, be clear about your marketing objectives. The whole purpose of coupons is to reduce or eliminate the hesitation that consumers feel when they are considering purchasing a new product. Often, that hesitation is about price, but often it can come from another reason altogether.

Be sure that you understand what’s important to your customers when they are looking at choosing a product or service such as yours. Not every business gets the same benefit from coupons.

Checklist for deciding if a coupon strategy is right for your business

  • Know (really know and understand) the full cost picture of your entire product mix. Consult with a financial professional that can help you understand your margins for each product line and to help you decide what the most appropriate coupon offer should be.
  • • Know the lifetime value of your ideal customer. The main objective behind couponing is to offer a discount for that first purchase and build loyalty for repeat purchases at the full price. Be sure to offer coupons for the right product aimed at the right customer.
  • You are launching a new product or service and want to provide an incentive for people to try it. This also works for product line extensions; a new flavor, size or version of a product.
  • You are trying to get rid of excess inventory. If you’re in danger of losing even more money by holding on to a product too long, consider offering a coupon.

If you’ve gone over the checklist and you like what you see, then a coupon strategy may be your best bet to get and keep new customers or to build excitement and engagement around a new product or service.