Is Overcouponing Hurting Your Business?

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Born more than 100 years before the Internet, couponing has been an advertising tactic since 1888, when Asa Candler, a partner at the Coca-Cola Company, encouraged employees and salespeople to distribute coupons for one free glass of Coca-Cola. The practice was slow to catch on, but once the Great Depression struck the United States, coupon offers and use skyrocketed, continuing to grow substantially until 1992, the last year that coupon usage would be on the rise for the next 17 years. Fast forward to 2009, and a familiar trend emerges—Americans cashed in 3.3 billion coupons that year, representing a 27 percent jump from 2008, CNN reported. As the nation dipped into the Great Recession, coupon use increased again, but this time, it returned with a vengeance, armed with a digital arsenal it didn't have before.

The Internet has become instrumental in helping consumers find money-saving offers. As e-commerce couponing gained traction, the popularity of coupon aggregating sites, such as Coupons.com, Savings.com, and Retailmenot.com, grew as well. "Consumers have learned that as few as fifteen seconds of searching at a site like Chippmunk can save them ten dollars or more on a transaction," says Brian Nickerson, CEO and cofounder of Chippmunk.com, a coupon search engine. "As a result, they are more willing to invest this time and be assertive with [brands] to honor the best available deal," he adds.

Even as the economy recovers, coupon use continues to grow. According to the 2014 Shopper Marketing Report released by Valassis, a direct mail media and marketing services company, 85 percent of shoppers surveyed use online coupons. When it comes to millennials, the statistics are even higher—92 percent use coupons to plan their shopping lists, the report found, and 51 percent say their coupon usage has increased over the past year. "Couponing is becoming huge across the board, and the fact that younger generations are embracing it is particularly telling," Lisa Reynolds, former vice president of brand strategy and campaign solutions at Valassis, says. "It suggests that couponing is on a continuous trajectory, and its prevalence in the economy will only grow," she adds.

Marcie Merriman, a consultant at Ernst & Young, says Valassis' findings are consistent with the trends she has noticed. "Coupons used to be associated with discount stores and lower-end products, but that's not the case anymore," she says. The demographics of brands that offer coupons are expanding along with the demographics of people who use them. "We see young people that were raised during the recession growing up to be more pragmatic shoppers," Merriman explains. Their aptitude for technology, she adds, also makes them particularly eager to find innovative ways to secure the best deals.

Brands have had to step up their game, delivering more money-saving opportunities than ever. But if companies aren't careful, the coupons currently flooding the Internet could turn discounts into disasters.

Plugging the Coupon Code Search Leak

Across the Web, 75 percent of shopping carts are abandoned, with nearly half of shoppers doing so to search for a coupon code—a phenomenon referred to as the "coupon code search leak." Once shoppers leave the checkout page, they rarely return, largely because they're faced with a subpar experience while sifting through coupon code aggregators. Furthermore, 49 percent of shoppers who return to the checkout process and try to apply a code that they find is no longer valid—or never was—completely abandon the transaction, according to Marlena Sarunac, the marketing director at PoachIt, a wish-list and price-tracking app.

"This is singlehandedly the biggest problem we're tackling. We've created a patent-pending coupon validation engine that combs the Internet for coupon codes and tests them so we can [determine] their validity [for] our users. To date, we've tested over three million, only to find that eighty percent of online coupon codes don't work," Sarunac says.

Despite the high number of invalid coupons, consumers continue to hunt for savings, often electing to boycott a store or a brand rather than make purchases without discounts. In the past, the objective behind coupons was to test a product and "get customers into the store," Marc Ostrovsky, entrepreneur and author of Word of Mouse, says. "But now, brands have allowed consumers to believe that coupons are the norm and nearly every transaction—even online transactions—should involve a coupon. E-commerce has caused overcouponing on a massive scale, and for many companies, the effects could be devastating," he adds.

When Ron Johnson took over from Myron "Mike" Ullman as JCPenney CEO in 2011, his radical restructuring of the company's business model sent the retailer into a tailspin. Under his leadership, the department store that once delivered a steady stream of coupons and made them easy to find online eliminated them entirely, promising consistently low prices and merchandise that would be affordable without coupons.

On one hand, Johnson's decision was understandable. Not only are coupons stereotypically associated with lower-end shopping experiences, but they're also expensive, especially when they are as widely available and popular as JCPenney allowed them to become. "They had to get rid of them because the company was in trouble. When you offer that many deals to that many people, you simply start hemorrhaging money. But, when you get rid of them altogether, you start hemorrhaging customers," Ostrovsky says.

JCPenney's customers' reliance on coupons was too deeply embedded in the brand's culture to be eliminated in one fell swoop. "We worked really hard and tried many things to help the customer understand that she could shop any time on her terms," Johnson 

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