Coupons, Groupon and Cocaine

         These days marketers are going in exactly the wrong direction.

         The recession has caused a lots of companies to panic. And when companies panic, they print coupons and throw up sale signs. Look in your mailbox, your email inbox or your newspaper and you will see what I mean. Everybody is having a sale.

         But does this coupon-sale-discount strategy work?

         Yes and no.

         Yes, in the short term coupons, sales and discounts do work. Discounts bring in customers and ring up sales. But the short term is not the only thing that needs to be considered when building a business and brand.

         Coupons are like cocaine. The first time you do it, it is the best feeling in the world. But over time it takes more and more of it to achieve that same feeling. And then you need it just to function. You are a cocaine addict. From the mug shots of Lindsay Lohan and others we know how personally destructive cocaine is, yet we fail to realize the similar brand-destroying danger of coupons.

         Think about it. The effects of coupons, sales and discounts are exactly the same as cocaine. The first time you get a discount card in the mail you are elated! Wow! 10% off, 20% off, 2-for-1! You might rush out to the store and take advantage of the offer. But next time you drive by that store you think, I’ll just wait and see if there are any more coupons coming. Next time you drive by that store you get mad since you forgot the coupon. Eventually you refuse to step into the store without a coupon.

         Try checking out of one of these stores without using a coupon and even the sales clerk looks at you like a pathetic loser. Nobody pays full price here what’s the matter with you! She may even reach down to pull out a coupon of her own to give you.

         Coupons and discounts do one thing every well. They teach consumers that your regular prices are too high. A lesson consumers learn very quickly. Once they think your regular prices are too high, they won’t buy from you until given a discount. And desperate companies are too quick to oblige.

         High-low pricing is devastating to the consumer’s opinion of your brand. It’s also devastating to your bottom line. If you are giving away the merchandise, you aren’t making any profits.

         You might be thinking in this economy what other choice do I have? My competition is doing deals so I have to do them too.

         Wrong. Its peer pressure. But Mom, all the other kids are doing cocaine so I have to do it too. No parent would buy that argument. And no marketer should either.

         What is even scarier is that there is excitement surrounding the rise of coupons. Look at the recent love affair with Groupon. A recent front page article of Advertising Age magazine proclaims “Suddenly, Everyone wants to be on Groupon.”

         Suddenly, everyone wants to damage their brand by undermining its position with Groupon! Great.

         Many marketers make it even worse by thinking that Groupon can help their brand and don’t acknowledge any downsides. Instead of a Valupak delivered in your mailbox, Groupon is an electronic coupon delivered via the internet.  

         It is new? Yes.

         Is it a cheaper form of discounting? Probably.

         Do consumers like discounts? Yes.

         Do discounts build your brand? No.

         Do discounts damage your brand? Yes.

         For local and small businesses, the rise of Groupon is seen as the obvious answer to the decline of the Yellow Pages. The marketing dollars for local businesses used to be predominately spent on a listing and an ad in the Yellow Pages. And for decades, this approach was enormously  effective.
         Of course, today the internet has made the Yellow Pages obsolete.

         So how do you build a business whether you are Joe, the Plumber or JC Penny? It comes down to basic marketing philosophy.

         Do you build a brand by:

         1) Standing for something in the mind of the consumer?

         2)  Offering coupons and discounts?

         My answer should be obvious, you build a brand by standing for something in the mind.

         If you are Joe, the Plumber you might be the leading plumbing company in your area, you might be the 24-hour plumber focused on fast service, or you might be the high-end plumber focused on custom work, or you might be the plumber focused on commercial jobs or you might be something else that is focused and clear.

         In any case, Joe needs a good name and a strong, unique visual. He needs to verbalize his focus so his customers can pass along his message. He needs to put his message on his truck, website, business cards. He may also need to advertise his message and credentials.

         Many small businesses today are desperately looking for an easy replacement to the Yellow Pages. So they have jumped on Groupon as the Holy Grail.

         I’m sorry to tell you, but Groupon isn’t the messiah as the hype promises. To me it looks more like coupons in sheep’s clothing.

         Coupons don’t build a brand, they destroy it.

 

Comments

[Traduceri]

You are right. "Discount coupons" is a national sport nowadays.
Hope you have a fantastic 2011!

[bathroomsguru]

Likening cocaine to coupons. I think there's an underlying reason to this little story.

[Joel]

But as your sales decline while every competitor is discounting, what are you supposed to do? Wait it out until they stop? By then, you won't have a job or your company has gone under. No one likes to discount but when you are directly responsible for sales and that's what the competition is doing, you must.

When you have to hit a sales number but won't because you didn't discount a little, see how well that goes over. Sorry to say, but most companies are about the bottom line, not the brand image.

[Retro Air Jordans]

Our feet are standing in your gates, O Jerusalem.

[Dave Sutton]

So I guess the Groupon execs should have taken that $6 billion offer from Google...

[Garfinkel]

I don't entirely agree. We rarely shop at Bed, Bath and Beyond without 20% off coupons, of which we always have more than we need. I depend on these coupons because I know I will find them in my email, or snail mail, or in the newspaper.

What I think may work in some cases are sites like Groupon and RueLaLa, which have limited sales: by time period, or quantity; so many purchase decisions are based on knowing gone is gone. So, for example, on Groupon I have bought discounted meals for restaurants I have been interested in, but have not yet tried. I go into the sale understanding that it is a limited off, and I should not except further offers from that vendor. It i a trial offer. And it has worked. I've bought on Groupon, and have returned to places I like and happily paid full price.

My first pair of Cole Haan shoes was purchased on RueLaLa. They always seemed too expensive. My first pair was an eye-opener. Quality, style, and COMFORT. Since then, I have purchased several both at discount, and in the retail locations. Sure, I want to get them as cheap as I can, but if I can't, I am now willing to pay for a product I would have never bought in the first place.

While I agree in general that discounts set up user expectations, I think there are ways of limiting the expectations to help generate loyalists, but the product needs to be strong enough to support that.

Take Apple for example. You might think Apple never discounts. Well, they do. In a subversive way. Take the iPhone 3GS. A little over year ago, it cost $199 (with contract). When the iPhone 4 came out, the iPhone 3GS price was lowered to $99. Wisely, Apple does not discontinue the older model, but sells it half-off, and yet still manages to sell more than expected units of the iPhone 4. You may think they are cannibalizing potential iPhone 4 sales, but there seems to be a limit to what people will pay or can afford. This is a built in discount: someone right now may have the mindset, "why buy the iPhone 4 now for $199 when it will be $99 in just six months?" I don't doubt people do, but that hasn't stopped Apple from being the second most valuable company in the U.S. after Exxon.

[Chris Houchens (Brand Zeitgeist)]

Laura -- To extend your cocaine analogy, coupons are not the disease/addiction. They are a symptom of a larger problem. Most brands can't/won't think long term. All marketing & branding strategy is built to get customers this week or this quarter.

[viagra online]

Natlfy- It's VERY difficult to come by flour in Norway that is not all-purpose, rye, whole-wheat, spelt, or barley. Meaning, self-rising or any other type of enriched white flour is not common in the Norwegian kitchen, so i just use the regular old all-purpose for most of my baking needs.

[Noah]

Does anyone remember when Bed, Bath, and Beyond and Linens & Things both had 20% off coupons in the Sunday paper?

Neither chain wanted to compete based on larger selection, better service, or anything else to differentiate themselves, instead they waste their money on discounts that put right back even with each other.

[Brent Davis]

Too many discounts and sales make it difficult to put the genie back in the bottle. I guess it is hard to "take the road less traveled". Good article.

[Paul Dushkind]

They say that people in advertising burn out because they fight the same fights over and over again. Complaints about too many coupons now span generations. Still the coupons fall out of the Sunday newspaper.

A paradox: Kohl's advertises storewide sales every day, which is ridiculous, but the chain is rapidly expanding.

One of the reasons that I don't like the TV show, Mad Men, is that two episodes in the first season advocate coupons.

[Kamil Ali]

I spent too much on the discounting strategies, in the end, it all coems to destroy your brand.

People learn to have discount and they are addict to it. They buy from you becasue you offer discount, not due to you are a specialized brand that would solve the problem.

AL Ries taught me this when i interviewed him here: http://www.kamilali.com/2009/09/al-ries-interview-father-of-positioing.html