Weigh the benefits of electronic coupons, are they all they’re cracked up to be?
Editor’s note: The Electronic Coupon- Technology Goes Local is part four of The Small & Medium-sized business toolkit Part 1, Part 2, Part 3
One of the most incredible developments over the past 3 or so years is the marriage of sophisticated geo-targeting technology and national companies. For a small and medium-sized local business, this marriage has opened a completely new marketing universe.
Initially created by Groupon the market exploded in June 2011 when Amazon which had purchased Living Socialdecided to go into that business under the Amazon Local name. Its huge advantage: around 150 million paying customers
The original company, Groupon, still exists, of course.
So whats the attraction:
Groupon, Amazon Local, Deal Saver and a host of other look alikes all deliver on the same basic promise: The ability to deliver your offer (be it a coupon or voucher) to hundreds of thousands of people segmented geographically in a single day with no upfront cost to your business.
Lets look at it in detail:
- In most cases, these services get geographical information from people registering in their websites to get offers. So, it is safe to assume that geographical information is accurate.
- In Amazons case, they also have shipping information for 150 million or so clients, so geographical information is even more accurate.
Profiling & Predictive Modeling
- Amazon is well known for its excellent predictive models in books and can apply many of its technology to its Amazon Local product.
- In most cases, however, profiling is self-administered, people fill in the kinds of offers that they would like to receive
- There are no costs associated with joining one of these programs. However, this doesnt mean that there are no costs period, just no upfront or membership costs.There are three costs associated with these programs:
- First, the platform (whether Groupon, Amazon, or others) charges anywhere from 6% to 25% of the sales
- Second, you must offer a sizeable discount to make it attractive. Discounts of 35% to 75% are the norm, with most discounts hovering around 50%. And these are real discounts; consumers are too jaded, too intelligent to put up with an artificial price increase only to have a discount bring it to a normal level. Moreover, the wording in many vouchers guarantees the discount (e.g., $10 for $20 worth of food at ). In my case, and speaking strictly of personal experience, if I am offered a Museum Wrap 30 x 50 canvas at a 66% discount, I will check the website to make sure that the regular price is what they say.
- Third, there is a cost of transaction with your credit card (typically between 1% and 3%)
Advantages & Disadvantages
In spite of the fact that you will probably not make any money (in fact, you might actually lose money) with one of these massive electronic coupons, there are several advantages that might work for your business:
- Instant and massive reach
- You reach people who have signed up to receive similar offers meaning, people who are actively interested as opposed to passive coupon recipients
- Instant purchasing. Even if someone buys some of your products for the future, they purchase the voucher or coupon right then and there
- Ease of use: once approved by the platform, you can create an offer, get it in front of thousands of customers in a very short time
- You begin forming a very robust database of people who have purchased from you in order to remarket to them.
However, there are also other very real disadvantages:
- You will lose money
- In many cases, customers are trained by these programs to wait for the inevitable sale or coupon, so it is hard to sell to them as a regular price
- Your product or service is not alone. Though, in fairness, unless you use regular direct mail or do your own email campaigns, most coupons are never alone (see below)
- There have been problems with getting paid by the platform. There have been several reports of Amazon, for example, withholding payments to vendors for a wide range of reasons and not being transparent about these reasons. On Nov. 2012 the Seattle Times reported that hundreds of sellers had complained to the Attorney General about Amazon suspending payments and even unilaterally closing their accounts. While these issues were resolved, there is no guarantee that they will not happen to your business, so caution is needed.