December 26, 2000, 9:55 AM

Once just a fad, online coupons are catching on big with retailers and shoppers

Although the Internet was expected to revolutionize many things, coupon clipping wasn’t necessarily one of them. Yet today’s bargain hunters are finding plenty of reasons to reach for their virtual scissors.

Web sites offering coupons and other incentive programs are suddenly one of the hottest e-commerce trends. CoolSavings Inc. and Valupage.com, two of the most popular places for coupons, ranked among the top 15 retail sites for holiday traffic last year, attracting more than 1.8 million visitors, according to Media Metrix Inc., a New York-based Web traffic measurement company.

Other online coupon services, including E-centives Inc., H.O.T.! Coupons LLC and DirectCoupons (owned by Advertising Concepts Inc.) have watched their visitors grow, even as new competitors enter the fray.

The growth is prompting Internet retailers of all sizes to add couponing programs to their marketing and advertising strategies.

One of the biggest advantages of virtual coupons is the volume of customer traffic they bring in. Michael Kofman, director of business development for New York City-based Bigstar Entertainment Inc, thinks online coupons are a great way to tap new customers. “It’s a huge traffic-driver for our business,” he says. The savings help create customer loyalty and, what’s more, online coupons are easy to redeem, with “none of the face-to-face stigma of paper coupons.” Everyone loves to save a buck, but some sensitive shoppers feel that redeeming a coupon makes them look like a cheapskate.

Sharpening traffic

Use of virtual coupons has grown tremendously in the past year. The top three coupon sites-Valupage, CoolSavings and E-centives-are registered with a total of three million households, reports James McQuivey, a senior analyst at Forrester Research Inc. in Cambridge, Mass. Considering that the number of households online today is about 10 million, that means that online coupons are constantly popping up on millions of personal computer screens around the country and enticing shoppers to give electronic couponing a try.

Valupage.com wins the top spot for traffic with more than 3.2 million unique visitors in May, according to Media Metrix. CoolSavings.com came in second with 2.5 million visitors, followed by H.O.T.! coupons with 471,000 visitors, E-centives with 231,000 and DirectCoupons with 218,000.

But numbers don’t tell the whole story. Visitor traffic doesn’t always measure the number of consumers using a Web site’s incentives. That’s because there isn’t a lot of common ground in distribution methods. Dealers such as CoolSavings have specific Web sites where consumers can download and print coupons to use either online or in stores. Some coupon purveyors focus on a tighter niche-dealing exclusively in grocery store coupons or providing regional coupons that can be used locally. Still other players, such as E-centives, aren’t a destination site at all. They place savings on highly trafficked Web sites such as USA Today and Excite, which shoppers can snip and use both online and offline.

E-centives doesn’t even use the term “coupon.” Dadi Akhavan, E-centive’s president and co-founder, says the word is too limiting for the services his site provides. His nomenclature of preference is “personalized incentives.”

Though coupon sites may differ in their delivery, most practice “permission-based” marketing. Instead of using traditional hit-or-miss marketing methods-blindly placing a coupon in the newspaper in hopes that consumers will uncover it-these companies target their audience by gleaning demographic and lifestyle details from the shoppers themselves.

When customers go to the coupon site, they are asked to provide certain information such as home address and merchandise categories of interest. That way, consumers only receive incentives for products they actually might use. No rugrats under your roof? Don’t worry, you won’t be bombarded with coupons for Pampers and Gerber. If you live in Chicago, you won’t receive coupons for Harris Teeter, a grocery chain in the South.

Indeed, E-centives wants to make offers that “give consumers what they want, in the right place and at the right time,” Akhavan says.

Sixty-six percent of online shoppers curtail their purchase at the last minute, continues Akhavan, who believes that incentives help cinch the deal for shoppers. “We’re taking them by the hand and helping them through the purchase,” he explains.

Not your mother’s coupons

This new breed of incentives seems to be working. Paper coupons generally have a dismal redemption rate of 1% to 2%, while online coupons boast the startling rate of 10% to 15%, Akhavan reports.

Of course, click-through and redemption rates depend on the particular offer. Yet the fact that Web coupons are not spammed out, but sought out by the customer helps explain why the redemption rate of virtual coupons is so much better than that of traditional ones, explains Hillel Levin, president of CoolSavings. The strategy is not to “ambush people with e-mails,” he adds, but rather to provide immediate access to information on sales and incentives to the people who want it.

And the medium itself gets some of the credit for couponing success. “We’re not doing magic here,” says Levin. CoolSavings is merely applying the basic principles of direct marketing, but the Internet is a better place to do it. The online world allows Web retailers and couponing companies to track customer shopping habits, which they then analyze and use to create an extensive marketing database.

CoolSaving’s ability to mine data and find just the right target audiences of online coupon users helps them to develop a relationship with the customer that most businesses don’t have. “Other businesses may have a customer list, but they don’t know why someone bought something,” Levin observes.

Self-selecting success

Indeed, extensive targeting is the key to coupon success, says Jon Rice, vice president of CEC Entertainment Inc., which owns Chuck E. Cheese Restaurants. “Without targeting, you’re just splattering ads everywhere. You can’t expect that to pay off,” he points out. Rice deems online couponing as “an experiment” and, like most retailers, isn’t willing to discuss specifics yet. Nonetheless, he’s still pleased with performance so far.

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