By Tasso Argyros, ActionIQ
When was the last time you received a coupon in your mailbox? If you’re anything like me, probably sometime in the past week. What about the last time a retailer emailed you a coupon code? You’ve probably received a few of those today, maybe even in the last few minutes. Go on, check your email. I’ll wait.
Now, when was the last time you used a coupon? Are there retailers that you wouldn’t even think of shopping at without receiving some kind of discount? Would you use a coupon on your phone? Coupons have become an indelible part of our retail landscape. But as brick-and-mortar retailers struggle to compete against e-Commerce, it’s time to take a good, long look at them to see if they’re doing more harm than good.
Retailers have Coca-Cola to thank for the coupon’s invention. In 1887, Asa Candler devised an innovative marketing strategy: offer hand-written vouchers to the public entitling them to a free glass of Coca-Cola, then retailing at 5 cents. The goal was to get people to try the product — and it worked like a dream. In the period between 1894 and 1913, it’s estimated that one out of every nine Americans had received a free Coke — meaning that 8.5 million free drinks had been distributed to the public.
Now the real question is, did it work in the long-term?
It could be argued that Coca-Cola’s continued existence is proof enough that their marketing tactics were successful, or at least didn’t do any permanent damage. But the fact that it took decades for Coca-Cola to phase out their coupons shows how valuable a marketing tool it was, and how difficult it was to relinquish it completely.
Despite Coca-Cola’s success, marketers were surprisingly slow to recognize the coupon’s potential. It wasn’t until the 1930s and the height of the Great Depression that coupons became really popular, as people looked to save money any way they could. In the 1940s, supermarket chains began offering shoppers coupons to lure them away from their local grocery stores, offering steep discounts but with the assumption that any money lost would be regained through the number of customers acquired.
Now, 130 years after its creation, the coupon is still a vital part of some retailers’ strategies. Perhaps the most famous example of this is Bed Bath & Beyond’s 20% off coupon, which has its own cult following. Unfortunately for the retailer, the popularity of this particular deal has backfired, reducing their profits and prompting a reevaluation of their coupon strategy. The issue stems from the fact that most people won’t shop there unless they have a coupon — which has had a severe impact on their bottom line.
To combat this, Bed Bath & Beyond has been testing an Amazon Prime-like loyalty program that gives members a 20% discount year-round in exchange for a small annual fee. The program is in early stages, but it hasn’t proved popular — so it’s safe to say that those Bed Bath & Beyond coupons won’t be going anywhere for a while.
Retailers have to ask themselves whether there are ways to give customers a good deal without resorting to coupons. For example, Amazon Prime’s model gives customers discounts on products, while making that money back on the subscription fees that people pay. By employing this model, companies can lessen their dependence on discount codes while still giving customers what they want — lower prices — without sacrificing their bottom line. While there are hurdles to overcome, as Bed Bath & Beyond’s example shows, this strategy remains one that retailers should consider.
It’s unlikely that brands will stop using coupons entirely. Everybody likes getting a discount, and right now, coupons still have strong influence over consumer buying patterns. But in order to be successful, companies need to start weaning their customers off of discount vouchers, especially ones that are not specific to person or location.
Some companies, like JCPenney and Barnes & Noble, have simply adopted coupons as part of their business strategy. These companies have been using coupons for so long that those discounts have become synonymous with the brand itself — so getting rid of them would be like a betrayal of the brand.
To my chagrin, nobody gets a voucher for a free Coke anymore. This hasn’t stopped me from drinking it, or buying other Coca-Cola products. Coca-Cola doesn’t need to give out free Cokes anymore, and retailers shouldn’t have to rely on coupons. In order for retailers to thrive, they need to find a way to offer people discounts without sacrificing revenue, whether by offering coupons that are targeted to specific people or are geofenced, or by creating a subscription model where people get discounts in exchange for a small fee. That’s the only way for retailers to break the cycle of dependency.
Tasso Argyros is founder and CEO of ActionIQ. He started ActionIQ to combine his passions for solving real-world business data problems and developing innovative technology. Originally from Greece, he dropped out of the PhD program at Stanford to start one of the first companies in the Big Data infrastructure space, Aster Data.