E-Coupons 101: Offering Digital Discounts

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It's no secret that shoppers love bargains, and if done the right way, offering discounts can increase conversions and nurture customer loyalty. In fact, Forrester Research analyst Lisa Bradner's report "E-Coupons Engage Customers Beyond Discounts" shows that Web shop owners would be wise to ramp up their efforts in this area. "Half of coupon users who go online use Web coupons as well. They make more money, shop online more, and talk about new products with peers more than offline coupon users do," according to the report. One-quarter of e-coupon users said they like to try new products and services before others, compared with 13 percent of offline-only users, which shows they also influence others with their opinions. Thirty-five percent say, "People ask me for information about products, places to shop, sales," compared to just 20 percent of their offline counterparts. But how exactly do you get started? Scott Kluth, founder and CEO of CouponCabin.com, wondered the same thing. He likes a bargain as much as anyone else, which is how he got started in the online coupon business. "I noticed when I was checking out online there were these boxes for discount codes and I never had any," said Kluth. "If I've learned one thing in my career in retailing and the Internet, it is that people love the opportunity to save money. And they hate it when somebody else is getting a bargain when they aren't." To that end, he decided to help e-tailers make it easier to offer promotions through coupons by creating CouponCabin.com, an aggregator of consumer discount codes. In his three years of doing so, he's become keenly aware of what works — and what doesn't — when administering coupons online. We spoke to him to find out, and here are his top 10 tips:

1. Mass Appeal: When creating coupons for the first time, merchants tend to forget that they must create coupons that appeal to a wide audience and are simple to apply. One of the most common mistakes is creating a coupon that is valid only for a specific product or product category. Alternatively, merchants will create coupons that appear general but actually include as many as 30 or more brand and product exclusions. In limiting the product range, merchants are also limiting potential customers.
2. Keep It Simple: A complicated coupon code is another common problem among merchants using coupons for the first time. Many shoppers tend to write down coupon codes on paper before entering them, and long and complex codes leave room for error. "I've seen some merchants use codes that are 15 or 20 digits long and case-sensitive," said Kluth. "That's not good." Coupon codes should be short, simple and avoid using characters that can be misinterpreted.
3. Parameters Beyond Price: It is a safe assumption that a greater discount will result in a higher conversion rate; but here are some additional best practices for creating effective coupons:
   
   
   • Offer a solid discount of at least 5 percent.
     
   • Keep the coupon generic to all orders or a category.
     
   • Establish a coupon expiration date to create a sense of urgency.
     
   • Use simple characters to avoid confusion when entering a coupon code, for instance, confusing characters may include "i" and "l" and "1" or "0" and "o."
     
   • Create a clear landing page recognizing the discount.
4. Flat Rate vs. Percentage: Coupons offering a flat-rate discount in dollars, such as a $10 or $50 coupon, are very popular. These coupons tend to attract more clicks and have a better conversion rate for sites with average order totals less than $100. Alternatively, sites with an average transaction size more than $100 find that coupons offering a percentage discount, such as 10 percent off $100, often perform better. Finally, coupons that provide a discount with a low minimum purchase threshold, such as $5 off a $15 purchase, or even no minimum at all, such as $10 off any order, consistently result in high conversion and click- through rates.
5. Don't Be Too Greedy: Merchants commonly try to create coupons with a minimum-spending requirement that is higher than their average order. By imposing such a minimum spending requirement, the merchant is subtly suggesting that the consumer add an extra item or two to their product order. An example might be a book merchant whose average order is two items totaling $40. Recognizing this average, the merchant would typically offer a 10 percent off coupon for orders of $60 or more, thus enticing the consumer to add another item to their order to meet the minimum. "A lot of times it's better to at least start out just using the average order amount," said Kluth.
6. Free Shipping Rules: Free shipping coupons are also quite popular with merchants as they consistently perform well. With shipping costs constantly on the rise, consumers take advantage of free shipping coupons, particularly for sites that would normally charge in excess of $6 in shipping fees.
7. Target First-Timers: Since new customers typically have larger orders than repeat customers, many online merchants now attempt to attract first-time buyers by offering them greater discounts. Whereas repeat customers may expect coupons offering 10 percent off their order, new patrons might enjoy a 15-percent discount for their first purchase.
8. Click to Activate: Another rule of thumb is that user-friendly coupons lead to higher conversion rates. Overall, coupons perform better when they can be activated from the shopper's click, thereby skipping the step in which the consumer must enter the coupon code during the check-out process.
9. Decoding Code: At check out, e-tailers that do choose to use coupon codes should keep their entry boxes clearly marked so that visitors can find them easily. Entering the coupon code or clicking on the link should activate the code and allow consumers to see their discount. It is best that the discount be seen as a line item in the shopping cart before they complete the transaction so that the savings are visible and the customer knows that the discount has been applied.
10. Smooth Landing: Finally, coupons should be linked to a specific page. Merchants new to the world of Internet coupons will sometimes link a category-specific coupon to a generic landing page, leaving the customer to search for the discount or appropriate page. Instead, e-tailers should make every effort to link a coupon directly to a landing page that represents the discount. By customizing this landing page, sellers save consumers time and provides them with the assurance that their coupon has been activated. This simple task typically results in considerably higher conversion rates.

Michelle Megna is managing editor of ECommerce-Guide.com.

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