Once just a fad, online coupons are catching on big with retailers and shoppers
By Nicole Grasse
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.
Another fan of online coupons is Jeffrey Steinberg, vice president of marketing at MotherNature.com, a health products and services e-commerce site. “These sites perform very well, in part because of self-selection,” Steinberg agreeing with Levin that shoppers who request promotions are more likely to use them.
The one uncertainty Steinberg sees is whether the couponing sites’ retention level will continue to remain as high as it has been. “Will people who ask for the discounts shop regularly or just take the deal and run? That’s a tough behavior to build a business around,” he says, but notes that the early indication of customer retention looks good.
Another kink to smooth out is that many sites have problems with customers re-using the same coupon. CoolSavings sidesteps this obstacle with a patented technology that prevents greedy consumers from re-clipping. Once a registered shopper at CoolSavings redeems a particular coupon, it disappears. “We are the only site that can keep consumers from using coupons over and over again,” Levin says proudly.
Certainly, online coupons are catching on with shoppers for an obvious reason: everyone likes to save money. But the Internet puts a new spin on the subject in terms of customer profile. The old stereotype—an economically disadvantaged person—doesn’t reflect reality, especially in the online world. “There are a lot of value-focused people who use the Internet. These are people who want to know they’re getting a fair price,” McQuivey says.
A demographic dream
Actually, the average online coupon user is a merchant’s demographic dream. According to CoolSavings, the average users are females about 30 years old. These shoppers—and coupon clickers—also tend to be homeowners with an average yearly salary of $51,000.
The Internet offers advertisers an alternative—and effective—way to reach these folks. “People age 25-35 are not reading newspapers,” Levin points out, which means traditional coupons aren’t necessarily tapping into this demographic group.
For shoppers, the Internet’s accessibility translates into instant gratification. CoolSavings features a “Notify Me” button that allows shoppers to specify what bargains interest them. For example, Martha Stewart sheets may not be marked down today at Kmart, but CoolSavings will let you know when they are.
As coupon sites pull in larger numbers, more merchants are certain to join in. Right now CoolSavings boasts more than 60 national retailers, including J.C. Penney Inc., Chuck E. Cheese Restaurants, Kmart Corp., eToys Inc. and United Airlines. DirectCoupons features savings from L’eggs Hosiery, Meineke Discount Mufflers, Eastman Kodak Co., Wolf Camera and LensCrafters. In many cases, merchants can—and do—advertise with more than one coupon site.
In fact, because many online couponing companies are seeing such big increases in traffic, they’re diversifying their e-commerce efforts. DirectCoupons, listed by NPD Online Research as the fifth largest coupon site on the Web, provides subscribers with a weekly newsletter delivered to their e-mail address. It also features a centralized location to search for coupons at coupondirectory.com. Jason Wolfe, DirectCoupon’s CEO, calls his company “the Yahoo of coupons sites.” In addition, he offers the newly launched MyCoupons.com, an organizing service that sorts coupons and then sends them to pre-determined e-mail addresses.
Wolfe acknowledges that online savings sites are blazing a new trail—one that calls for rethinking standard ways of doing business. For instance, Wolfe points out that his company cooperates with competitors. “We don’t require users to stay within our space, we provide information,” he says—even if it means information on other coupon sites.
Nearly painless
Online couponing programs certainly aren’t cheap. CoolSavings charges an average of $15,000 to $20,000 per month for a national retailer to place up to five promotions. But most merchants agree that virtual coupons pay off.
Chuck E. Cheese’s Rice says the online coupons are catching on with restaurant customers. And at MotherNature.com, Steinberg says that he, too, is very pleased: “We’re definitely seeing results.”
McQuivey at Forrester Research believes that virtual coupons are definitely a marketing tool more online retailers should use. “There’s very little trouble putting coupons online. It’s nearly painless.”
He doesn’t see online couponing fading anytime soon. Some industry insiders are even predicting that online coupons will exceed the $6 billion offline coupon business. And McQuivey doesn’t rule that scenario out. “It’s a burgeoning industry,” he says.
|
