Online Coupon Strategy: 9 Strategies for Increasing Margins
by Kathleen Booth, on Sep 1, 2021 11:11:13 AM
Discounting and redeemable coupons codes have a long and reliable track record of helping ecommerce merchants increase sales and grow their business.
This is because customers love, and will search for, a good deal. With as many as 60% of online shoppers looking for digital coupons to save money at a site they haven’t purchased from before, this strategy remains a powerful tool for attracting new business.
Large, online digital coupon brokers like Groupon.com and Retailmenot.com have a dominant presence in the coupon ecosystem. But individual ecommerce merchants can also develop their own coupon strategy that can help achieve specific marketing objectives or target a narrow audience.
Pros and Cons of Discounting
Coupon and discount strategies are one of the most common and useful ways businesses attract new customers and drive revenue. But that doesn’t mean they are without their risks.
Here's a quick list of how discounting can help your business, and how it may also leave you vulnerable:
- Reward customer loyalty
- Move out of season products
- Target new customers
- Increase cart values
- Retarget abandoned purchases
- Track the performance of different marketing channels or tactics
- Can lower perceived brand value
- Lower margins can lead to lost profit
- Attracts bargain hunters and more price sensitive shoppers
- Can train customers to expect discounts with every purchase, lowering lifetime value
- Puts you at risk for coupon fraud
Offering too many discounts can not only damage your margins, but it can hurt your brand reputation as well. Customers will start to associate your discount with the quality of your brand, and this may lead them to avoid your products.
Also, many of your discounted conversions may end up being bargain hunters with no intention of becoming repeat customers. These shoppers might help you move out of season inventory, but are unlikely to become a part of any loyalty program or contribute to your long term marketing goals.
Coupon fraud has always been a risk when it comes to discount strategies, and has only increased with the introduction of coupon scraping apps like Honey and CapitalOne Shopping.
What is Coupon Fraud?
Coupon fraud occurs when users redeem discounts with promotional codes they did not qualify for. This can happen when codes “leak” onto discounting websites or are scraped and distributed by coupon extensions.
Coupon fraud can damage your marketing attribution and cut into your ROI. Because the coupon is now being used outside your targeted audience, it will become more difficult to properly attribute sales to the strength of your campaign.
If an unexpected number of shoppers begin to redeem discounts, it may lead you to overpaying affiliates whose codes are being improperly distributed by discount sites and coupon extensions.
Defensive software like cleanCART is able to prevent coupon scraping apps from auto-injecting discount codes on your site, protecting your margins and giving you back control over your campaign, while eventually training the extensions to stop sharing your codes by rendering them ineffective.
If you believe you are losing revenue to these kinds of browser extensions, you can sign up for a free cleanCART trial here to see for yourself how it can improve your average order value.
How Discounting Affects Your Sales Margins
If you want to run a successful discount strategy without creating a loss in profit, you need to calculate the discount against what your gross profit margin is, how much you usually mark up your prices, and your breakeven figures to see what kind of boost you need in order to turn a profit.
For example, if your regular GPM is 20% and you decide to run a 5% discount, you would need a 33.3% boost in sales in order to still make the same profit.
Here’s a quick table that shows the sales increase needed to counter the effect of discounts on your gross margin.
Of course, there is no guarantee you will see these boosted sales figures. As is the case for most marketing strategies, you need to view any lost revenue due to discounting as an investment in the long term growth of your business.
Customer Acquisition Cost
Customer acquisition cost (CAC) will also increase during your coupon campaign, especially if you are taking an omnichannel approach.
Why? The discount you are offering is now tacked on to your customer acquisition cost.
If you are discounting too much or too often, it may be possible you are dangerously increasing your CAC. This means you may be growing your business and acquiring new customers in the short term, but at a cost that may be hurting you in the long run.
With omnichannel commerce, potential customers typically engage with your brand multiple times and across multiple marketing channels before converting. Because of this, it may become difficult to tell which channel led to the sale.
If you don’t have a good system in place for tracking marketing attribution, you may end up running campaigns on more channels than you need to, over-investing in unprofitable channels, or falsely attributing a conversion to an affiliate or strategy that didn’t actually push the sale—all outcomes that will add to your CAC.
Discounting too often may also set customers expectations that you are a discounted brand. When this happens, customers will convert only when you are offering a sale. If you find yourself constantly needing to discount in order to drive conversions, try marginally lowering your prices across the board instead. This way you can cut out affiliate fees and other expenses that come with coupon strategies, which will help lower CAC in the long run.
Effective Discounting Strategies
Once you have properly prepared your operating costs, target sales, and marketing goals for the discount you want to employ, the next step is to decide how you want to distribute your coupons or discounts.
Here is a list of ways you can use a discount to boost sales, target and retarget customers, or increase customer loyalty and engagement.
1) Bundled Discounts
In a bundled discount, you offer shoppers a lower price on a group of items rather than lowering each price individually.
The benefits of this method include:
- Increasing Total Number of Products Sold: Customers love a good deal, and are likely to convert on items that offer them more bang for this buck. This means you can increase your average order value and move more product by enticing customers to increase their cart size with a discounted rate on bundled products. It may seem like you are running the risk of losing revenue, but the boost in sales will quickly make up for the discounted prices.
- Move unpopular products by bundling them with popular ones: If you are having trouble moving some out of season products, a solution many retailers take is to start offering them at a discounted price. But you can take this a step further by leveraging the popularity of other items. Attach the unpopular product to your bestselling ones at a discounted price, that way you can move out old inventory, increase your AOV, as well as...
- Get Customers to Try Your Other Products: Getting customers out of their comfort zone can be difficult and frustrating, especially when you know they will enjoy a product that isn’t naturally on their radar.
Putting items you want customers to try together with ones they already want is a great way to grab their interest, especially when offering the item at a discounted price.
A helpful hint when setting up a bundled discount is to look at the items your customers often buy together. It can make sense to sell unrelated items together in order to move inventory or have customers try something new, but the most effective bundling will be with items that compliment each other.
This way you can add value to the bundle by discounting products customers want to buy together anyway.
2) Volume Discounts
This is when you offer customers a discount on an item that is being sold in bulk. Volume discounting can benefit your business by increasing your average order value (AOV) while also quickly moving inventory to make space for new products.
This is a common tactic for essential household goods, like soap, shampoo, and paper towels, that customers need to constantly refill on.
3) Event/Seasonal Discounts
Black Friday, Labor Day, and Christmas sales are just as familiar to customers as the holidays themselves.
Because of this, many buyers go into those holidays ready to make purchases, and you can take advantage of that by offering discounts.
Because these events happen around the same time every year, you can plan on using these days to move out old inventory and prepare for the next season.
One drawback to these seasonal events is that you will likely attract bargain hunters that are less likely to become repeat customers. You can counter this by requiring user email addresses in exchange for discount codes so you can directly retarget them in the future with email or audience match ad campaigns.
4) Free Shipping
Customers love free shipping. It is the backbone of the Amazon empire, and unexpected shipping fees are consistently ranked as the number one reason for cart abandonment. Offering free shipping is one of the most effective ways to increase conversion rates on your online store.
There are a couple of ways to implement a free shipping discount. Offering free shipping across all items for a day can give a quick boost to your sales, but you can also try having a regular policy for free shipping when customers reach a certain order value.
This way you can regularly push customers to increase their average order value, thereby making up for the costs of shipping their items.
5) Buy One/Get One Free
Buy One/Get One Free—or BOGO— promotions are one of the most common and familiar ways to discount items and move inventory.
With Buy One/Get One Free, you can grab the attention of casual customers who may be interested in trying your product. Remember that you don't have to offer two of the same product, but can also pair items together in a way that can be appealing to your customers.
6) Exclusive Discounts
This is a great way to push customers to sign up for your loyalty program or a premium subscription option.
By creating exclusive discounts for shoppers that have become a part of a “member’s only” group, you add clear value and incentives to joining such a program.
It’s important to make sure that membership fees and discount rates actually end up saving users money, or they will quickly turn away from joining. Long term customer loyalty will always pay out better than trying to manipulate shoppers into spending more, only to have them never return to your business.
7) Milestone Discounts
Milestone discounts are when you offer customers bonuses and discount rates after they have completed a certain amount of purchases in a set time-frame.
This is one of the most effective ways to attract repeat business, as the sense of urgency tied to earning a deal on your products motivates customers to continue to shop on your online store.
Loyalty points are one of the most common ways of implementing this strategy. This is when users earn points on purchases and can then redeem them for a “free” or discounted product or service down the line.
8) Win-back Discounts
Cart abandonment is one the most common and frustrating obstacles online retailers face.
A great way to minimize this issue is through email marketing and winback campaigns. If you use a customer relationship management (CRM) platform, you can create automatic email campaigns that target shoppers who have abandoned their carts before making a purchase.
In these emails, you can offer them discounts on similar products in order to attract them back to your site.
9) Mobile/In App Discounts
Mobile shopping continues to be the fastest growing form of online shopping.
Optimizing your website for mobile can be tricky, and because of this many shoppers prefer to use an app (rather than a webpage) when shopping on their phones.
If you are looking to expand your mobile base, you can offer shoppers that download your app discounts on products and services.
If you’re looking for ways to boost site traffic, increase brand awareness, retarget customers, or simply move old inventory, coupon codes and discount promotions are an effective solution that can help you achieve your ecommerce marketing goals.
But if not properly managed, they pose several risks, ranging from lost revenue to reputational harm and lower customer lifetime value.
If you are looking for a tool to better understand your coupon campaigns, block unwanted coupon injections, and see how your discounts are being redeemed, check out our cleanCART free trial here.