Coupons or other types of discount offers can be a great way for a small business to capture new customers and boost sales. They entice potential buyers who might be shopping at a competitor, attract new residents of an area and can also reactivate old customers.
Unfortunately, many business owners trip themselves up by making ill-conceived offers, targeting the wrong customers – or both.
When devising discounts, some businesses forget the key question: Will the offer make money or otherwise benefit my business? In fact, most business owners who offer coupons either lose money or simply don’t know the financial outcome because they don’t track the data.
The problem, however, can usually be fixed if you pay close attention to how you craft and promote your discount offers. Your goal is to attract new customers who are likely to buy again at full price. When discount offers simply provide a way for existing customers to pay less, the result is reduced profits for your business – both now, and in the future as customers grow accustomed to discounts. In most cases, coupon offers end up doing a little of both. Your task is to shape the offer to maximize long-term profits.
Attracting new customers isn’t the only benefit of offering coupons. Placing your offer on a high-profile coupon site such as Groupon, LivingSocial or Yipit also has promotional perks.
Here are profit-boosting tips for creating a coupon offer – either on your own or through one of the online coupon services:
• Know your marginal cost. Deep-discount offers work best for businesses with low marginal costs, where the price of producing an additional “unit” to sell, over and above fixed costs is low.
• Be patient. Discount offers can hurt short-term profits but pay off later as new customers return and pay full price.
• Block multiple purchases. Research shows that profitability drops greatly when customers receive or are allowed to purchase (on Groupon, for example) multiple coupons. Disallow multiple purchases if possible (although there’s nothing to stop buyers from setting up multiple accounts to buy your coupons).
• Gather purchase data. If possible, find out if customers who used your discount coupons have purchased from you before at full price. You might start by simply asking them. Remember that coupons can re-activate old customers who’ve forgotten about you or moved to a competitor. •
Daniel Kehrer can be reached editor@bizbest.com.
