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Social Coupons and Your Bottom Line

So you have been hearing about these social coupon and you have been wondering if they make sense for your small business. Social coupons refer to sites such as Groupon, AmazonLocal and Homerun. These sites act as a social hub, offering coupons for third parties – such as your online store. Here is the basic breakdown of how that works. These sites have tremendous amounts of traffic. You give them your business information and the discount or coupon you want to offer. They put the discount/coupon on their site; customers see the coupon and purchase it. Customers then redeem the coupon at your online store when they make a purchase.  Sounds like a good deal so far, right? The “fine print” may make you look twice. Social coupons can be an effective tool in your pricing and marketing strategy, but you need to make sure you are looking at the big picture.

These sites all charge around 50% of collected revenue. What that means for you is that if you are offering a 50% discount, and the site is charging you 50% of what you actually collect, you are really offering a 75% discount. Can your business afford to offer that much of a discount? While you may get a sudden influx of new purchases, many of these new customers may be “coupon chasers”, and as soon as they find a better coupon, they are gone. Your online business is in the business of growing real customers, coupon chasers are generally not repeat customers and are not necessarily a reliable revenue source.  This is especially true when considering the real discount you are offering as we discussed above.

Given the sheer traffic volume of these sites, if your coupon is more popular than you planned (which is generally a good thing), you run the real risk of crashing your site, and if your site is down you are not making any money (and that is a bad thing in case you were wondering). Additionally, you need to be aware of pricing conditions in your market to ensure that any coupon you offer is actually “worth it” for a potential customer. {For more information on how to ensure that you have accurate, real time market pricing conditions, feel free to reach out to us here at Wiser – pricing data is what we do!}

OK. So now, these social coupons are starting to sound like they may not be such a great idea, right? That may not be the case either. Let us take a step back and look at that big picture one more time.

These social coupons are actually more effective as a marketing tool than as a real moneymaker. With social coupons, the customer actually purchases the coupon before receiving it. Since they already paid for the coupon, these types of coupons have a very high redemption rate – roughly 90%, which is significantly higher than standard coupons. With such a high redemption rate, they are an extremely useful tool to get the word out about your online business and help you being in new long term customers. Additionally, users of social coupons tend to purchase more than just the coupon item. Ensure that your coupon item ties in well with other non-couponed merchandise and you have just opened the door on a completely new batch of sales. Finally, while these types of coupons may only be getting you coupon chasers, that may be exactly what you need at the time. If you know that certain products have a slow sales cycle, utilizing a social coupon may be a great way to get them a quick boost. Although you will be sacrificing on your profit margins, the added volume may make up the difference.

Social coupons can offer some great benefits to your online store, however as with all things related to your pricing, there needs to be a strategic plan in place.


Arie Shpanya

Arie is the former COO, Executive Chairman, and Co-Founder of Wiser, a dynamic pricing and merchandising engine for online retailers and brands. He has extensive experience in business development with a focus on eCommerce (eBay and Amazon), and is a guest blogger on Econsultancy, VentureBeat, and more.

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