Coupon Codes and Lost Revenue

Coupon Codes and Lost Revenue

In this post we’ll be looking at how coupon codes (used synonymously here with promo and discount codes) can cause retailers to lose revenue. I’ll share some (hopefully) interesting trends that I’m seeing with a client I work with, and hopefully start a discussion with how to turn lost revenue into gained revenue.

Before getting to things, I am not claiming the following:

  • That coupon codes decrease revenue
  • That retailers should remove coupon code support from checkout
  • That retailers should stop using coupon codes

In fact, the retailer that I reference below recently had their best week ever through offsite marketing channels thanks to a promotional effort that relied on coupon codes. Further, they actually saw their margin increase while discounting products.

Now with that out of the way…

One Problem with Coupon Codes

I don’t have millions of dollars of research to support this, but I hypothesize that one problem with coupon codes is simply that they can and do distract users from completing their transactions in a linear fashion. A coupon code entry field exposed during e-commerce checkout is analogous to a sign at the register in a brick and mortar store that directs a customer that if they leave and look around a bit, they may be able to save money. At that point, the store is basically guiding the customer off course and then hoping that they finish what they started. Not ideal.

Online, this problem can be compounded for many reasons. My top 3:

  1. It’s very easy for buyers to get distracted.
  2. Smart competitors are good at stealing customers during checkout.
  3. Smart affiliates are incredible at stealing customers during checkout.

So? All three of these scenarios results in lost revenue. The second scenario results in lost revenue and gained revenue for a competitor, which is an even worse result.

(I have been dinged a few times for treating affiliates unfairly. I once was a very successful affiliate. The majority of very successful affiliates are crafty folks that find gaps in a company’s online marketing campaigns and fill those gaps. That is an incredibly valuable service, but if  as a retailer you aren’t policing your affiliates and learning from them, then you are unnecessarily allowing your cost of sale to increase. It’s that easy. E-mail me for more thoughts on that.)

Coupon Codes Are More Prolific than Ever

This all matters because shoppers are not only using coupon codes more, they are searching for coupon codes more. This provides competitors and affiliates the opportunity to reroute them and either drive revenue loss or increased cost of sale.

Coupon/Promo/Discount Code Search Volume

Coupon/Promo/Discount Code Search Volume

For  a real life example – the retailer I eluded to earlier. This retailer is one of the largest online and has multiple stores that are all experiencing the same thing. Searches like “[brand] + coupon code” are on the rise in a big way. These searches are already up 40% year-over-year and that number is expected to take off in November.

We know how coupon codes can drive revenue loss, and why we care more now than ever. What are we going to do about it?

Stop Losing Revenue to Coupon Codes

The main challenge is that the coupon code field can drive users away from your site. To solve that challenge, you have to break it down to the why’s. This list isn’t exhaustive… please share ideas in the comments section and I will add to the section below.

  1. Everyone wants to pay the lowest price.
  2. You (the retailer) aren’t providing coupon codes when relevant.
  3. You aren’t actively routing limbo customers back to your site effectively.

And here is where it gets fun. Ideas for reducing the revenue lost from coupon codes. (Note that if you try these ideas, you need to be responsible and test them!)

  1. Hide the coupon code field if you don’t have active coupons or if a cart does not qualify for a promotion.
  2. Automatically provide relevant coupon codes to customers.
  3. Promote your promo codes. (GetElastic via MarketingExperiments)
  4. Optimize a page on your site (SEO) for “[your brand] + coupon code” and variants.
  5. Increase coverage on “[your brand] + coupon code” keywords and variants via PPC. Make sure that you give users a great landing experience!
  6. Restrict affiliates/partners from bidding on “[your brand] + coupon code” keywords and variants.
  7. Provide an explanation of coupon codes via a tool tip or help box.

If you have any more ideas or experiences here, please do share! There were a few thoughtful posts/articles that inspired me to share my thoughts here. Thanks to:

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