How to Avoid Falling into the Coupon Trap

coupons-discountsI seem to keep having this conversation so hang in there while I engage in a little blogging therapy as I think aloud in this article trying to align my messaging with my thought processes.

Fact: The people who come to your business with a coupon in hand are less likely than even your children to return any time soon, that is unless you bribe them with another coupon offer.

This means you are giving away product to the people who are the least likely to come back and do profitable business with you. And a lot of these coupon redeemers would have come in with or without the coupon. I know in my household, we will decide to purchase something and on the way out the door someone will say, “Wait, I think I saw a coupon for that.” So with these facts on the table, why would a business owner ever want to use coupons?

I’ve heard all the rationales. They include:

  • They do come back. I have been tracking and know of X people who did (out of several hundred coupon redemptions).
  • I need to keep my name out in the community and this is the only way to get prospects to pay attention.
  • Direct mail marketing requires I include a coupon, right?
  • I have to use coupons if I am going to track my marketing, right?
  • My competition has been doing this for years.
  • Big national companies are doing it and they have higher priced marketing advisers than I do.

 

There are two cures for this line of reasoning.

  1. Knowing what is an acceptable maximum for acquiring a new customer
  2. Knowing why some customers are doing repeat business with you

Know Your Maximum Customer Acquisition Cost

National companies spend a lot of money mailing coupons to areas where they have a presence. For them, it’s the only thing they have outside of street visibility to affect market behavior. They lack the ability to tune in to specific area needs let alone knowing where and what the best communication channels are for each area. But even they know to calculate how many customers they expect to gain from their effort and keep their budget to a reasonable “per person” level based on that.

What’s your tolerable maximum customer acquisition cost (and I mean that in “per customer” terms)? Often it can work best to come at this backwards and figure out the average profit per customer visit and how many visits an average customer makes in a year. That will tell you the value of a new customer over a year’s time. Hopefully your acquisition costs are not going to eat all that up. It’s up to you what percentage of the value of a customer you are comfortable allocating to getting that customer.

 

New Repeat Customers Are the Goal

The measurable goal for accepting coupons is new repeat business that you wouldn’t get otherwise. Right? So instead of tracking how many free key cuttings or pops you gave away, you need to track who came back. How are you going to do that? You are going to somehow pull off the equivalent of putting a stamp on their forehead you will know when they return. Customer loyalty programs are great for this. Unfortunately, they also require more discounting to reward participation in the program. The smartest implementation of a customer loyalty program that I’ve ever encountered occurred while the store boosted it’s prices by 10% across the board. People participating in the loyalty program were told they would enjoy discounts off of the marked prices. Brilliant.

Other than implementing a full-scale customer loyalty program, I’m at a loss as to how you will know if someone who took advantage of a coupon offer ever came back. As such and since you are spending of money without any visible return on investment, I cannot recommend doing it.

And if anyone suggests giving them another coupon to use upon their return, I will probably say something unprofessional. We’re trying to create a mutually beneficial relationship with our customers. Being required to always give something away isn’t going to accomplish that. The pizza delivery industry knows that all two well.

So just how does a business go about getting more business, more door clicks, more quotes, etc.? Frankly by being awesome at providing the market with what it needs and wants, exceeding their expectations while doing so and not being shy in sharing your ability to do this. This will provide all sorts of opportunities to provide success stories to prospects, interesting tidbits to the local business editor in your town’s newspaper, and of course your happy customers should be developed into a very effective referral source. And I haven’t event mentioned the opportunities to publish content, host events and establish your position as a leading business in very visible ways. All without having to bribe people who are probably not your best prospects anyway.

There. I feel better already. How about you? Do you agree? Disagree? Let’s continue the therapy in the comments.

 

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