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17Sep/120

Are Coupon and Promo Code Aggregators Doing it Right?

Coupons and promo codes, as a marketing strategy, have been successful since the dawn of marketing. However, there's a current trend that's introducing fundamental changes in how the coupon ecosystem works.   The problem is, these fundamental changes aren't purposeful, and could affect retailer's ability to use them as a successful strategy.

Coupons and promo codes work on the theory of  "price discrimination".  For example, if you use a Virgin mobile promo code when buying a cell phone,  Virgin is hoping that you're one of the few that was able to find the promo code.   If everyone has the promo code, there's a flaw in the logic of why they work.  Ideally, Virgin wants to sell phones and plans to different buyers, at different prices, calculating those prices on their psychological willingness to buy.  In other words, there's a set of consumers who will buy an  "unlimited everything" plan at $60/month, but there's another segment that won't bite until the price is at $50/month.   A smart business finds a way to market to each of those segments separately, and show them the highest price they are willing to pay.

In the past, one of the easiest ways to achieve this segmentation was to put a printed coupon or promo code in the newspaper or a mailing.   Then, the consumers that would only buy at the lower price would hunt to find the coupon.  Those that were happy with the list price just bought straight from the website without coupon hunting.

For example, they would like to get all the 2,500 consumers who will pay $2.50 for a product, but also get the 1,000 who are willing to pay just $2. A coupon is a way to make this happen. A coupon clipper is the consumer willing to take that extra effort (at some personal cost), like rummaging through a newspaper and clipping coupons, to get the lower price. Others continue to buy at full price.

Now, with the proliferation of online coupons, promo codes, and sites that aggregate them, there's no longer any work involved to find one.   It's effectively effortless to find and use a promo code, and "daily deal" type sites push them out to you if you forgot to look. This destroys the model of pricing elasticity, and therefore, isn't a sustainable model.

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