Basics of Coupons and Discounts — Identify The Right Way For Your Business?

Source: Webdonuts.com

Giving discounts is the easiest way to drive short term sales. How to give discounts depends on what you want to achieve in the long run. This is an intro for things to consider before giving a coupon for discount.

Why do you want to give coupons/discounts:

1. Encourage Trials — You are trying to reduce friction of trying a new product or service so you offer a discount to share the risk with audience. You could just keep the prices low by default but that might hurt perceived value of the service. So you keep the prices at what you want to keep in the long run and distribute coupons to drive trials.
2. Liquidate inventory / Utilise capacity — This is for products that are nearing expiry or services that have a perishable inventory like hotel room nights. By offering a discount you are expanding your target market with a lower margin. Since the discount is temporary it does not hurt your regular market. Most food and services industry falls in this category. You would want to make sure that your regular audience does not learn about the discount being offered.
3. Drive perception — A lot of brand value is perceived through the price. Some Indian brands have been notorious in keeping the label prices high and then offering a discount. The discounts are almost permanent and easy to redeem. Apparels ecommerce company, Myntra, followed this strategy very well. They never showed discounted prices upfront but almost always offered a 30–50% discount coupon. You feel you are buying a branded high price clothing but by paying lesser.

How is the coupon distributed:

This is the key to how successful your campaign will be. The main goal is to choose your base audience.

1. Along with a product or service — When you offer a free salon visit with a bottle of shampoo, you choose your audience as the market of the Shampoo brand. The brand equity rub off is high. And the product and freebie complement each other well. This is the one of the best ways to distribute a trial.
2. Free in a push medium — Like a newspaper flyer. This is cheap way to reach out to a large audience. The audience you get generally depends on the language of the newspaper or the neighbourhood of the distributor. The redemption rates may be too low here. If you do this too often, it will hurt your brand.
3. Free on a pull medium — Like a coupon site, say Retailmenot. Although, this is a popular thing to do but it serves almost no purpose. A coupon site cannot send new users your way, unless they are pushing those coupons on a emailer or notification. Most likely, such users start looking for a coupon after they see the coupon code text box on your checkout page. You might as well host a page on your own blog with such coupons. Traditionally, online sales tracking follows the last click attribution so it seems that the sales came through the coupon site, but they are rarely responsible for the sales to happen. A coupon/discount has to be distributed through a push medium, always.
4. Buy coupon on a site — A typical Groupon style. This is suited for inventory liquidation. Since there is little control on the target audience, it is not advisable to launch a new service on such a platform. Customer loyalty will be low. This is what Dominos did for most of its early years in India.

Restrictions on a coupon:

Terms like, valid only 1 per user or only on weekdays etc. are required results for a successful campaign but not necessarily required conditions for the user. Do not apply conditions if only a small audience is going to misuse it. Get a marketer to write the conditions of the coupon, not a lawyer. Keep it simple.

There are 2 kinds of coupons with respect to redemption:

1. Low Friction — Low friction coupons are easy to redeem and generally have a believable offer. These are generally redeemed for the purchase of product that is being promoted.
2. High Friction — The typical redemption process is 2–5 steps long. The offer is too good to believe so the idea to make lesser people redeem it. The coupon is given with the promoted product but the redemption happens for a cash voucher or other freebie.

Real Life example -

Steps involved to Redeem a coupon from Ashirvaad Ready Meals worth ~Rs.50 for Bookmyshow voucher worth Rs.100

1. Once you get the product open it to find Bookmyshow voucher inside it
2. Write ashirvaad <voucher no> and sms to 09902391200
3. After getting conformation message u need to call 080 4055 48445 betwwen 10.30- 5.30 to get ur win pin
4. You can use winpin to get 100 off while booking movie tickets at Bookmyshow for 30 days.

If you are running a discount through a coupon/voucher to drive more trials of your new service, make sure your staff is well trained and incentivised to understand and accept the coupons. Many a times, the service degrades at this point itself. Either, the sales man is not trained enough regarding the terms of the discount or their incentives depend on net sales, so they make an extra effort to dishonour the coupon. A college student might still be OK spending some time negotiating the terms of a coupon but an “elite” crowd may not be. Read more about how to do coupon right for the elite crowd.

Originally published at Naman Sarawagi.