Wednesday, January 11, 2012

4 Reasons Custom Coupon Programs Work

Why shouldn't we just go ahead and blast coupons, they're cheap?

My mailboxes, both online and off, are stuffed to the gills with generic and gratuitously personal offers.  The majority of which don't even get a read.   The low cost approach of throwing spaghetti on the wall and seeing what sticks might work for direct response products but it dilutes brands. 

Consumer insights tell us the following:
  • We like to be recognized as special
  • We respond to rewards better when they are delivered intermittently
  • We take advantage of opportunities we perceive as unique
A recent Journal of Marketing article applied this thinking to retailing coupon strategies by comparing 'custom coupons' with other forms like FSIs.   In the research, 'custom coupons' are defined "as campaigns that, unlike sales promotions and FSI coupons, retailers provide only to their best customers and include offers that are customized to consumers’ preferences."

The questions are:  Is it worth it?   And why does it work?

Financially, custom coupon campaigns resulted in higher spend among customers yielding a 14% increase in contribution net of marketing.  In short, they work - not only for the promoted products but for the whole basket.

So what explains the lift? Why do people put more things in their basket?
  1. Exposure - the mere presence of a custom coupon program generated results.  This suggests that coupons, and the surrounding space should be treated like any other brand advertising element.
  2. Redemption - the coupon itself acts like an attractor or stimulant, so is necessary but not sufficient to product the gains (otherwise there would be no improvement over manufacturer FSIs)
  3. Atypical Frequency - because coupons are chosen based on preferences and behavior (or lack there of) the result is an unpredictable timing pattern, and this creates a sense of surprise and delight; improving results
  4. Rewarding - choosing products for the best customers, and telling them you did so, adds to the effect.
The simulations were based on two years of loyalty shopper data sampled from across a number of retail chains, so provides a basis for a number of recommendations:
  • Build a custom coupon program as part of any loyalty or points program, targeting the top tier
  • Highlight items within flyers and other generic distribution means that are unique to the recipient
  • Make the communications personal - in tone, message and offers; turn the creative team loose
Maybe I'd pay better attention...

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