Coupons and discounts: business digging its own pit - an article by Helen Edwards

Here is the translation of the article by Helen Edwards, SKOLKOVO Library Project Manager, published on Slon.ru. The original text in Russian is available here.

Coupons and discounts:

business digging its own pit

If you are willing to get a large discount for a product or service – ask your friends how, as they probably have already discovered the world of coupons. Popularity Sites as Groupon or Biglion become more and more popular. But are they really that efficient for sellers and buyers? And which coupons are worth buying? Finally, will the growth of coupons in the social media continue in the future or is it just a fad with which people are already getting disillusioned?

There is nothing new about coupons. In USA paper coupons have been around for over 100 years, mostly offering discounts on groceries. Highest usage of coupons in the US was during the recession of the 1990s where coupon redemption reached 7.7 billion US dollars in 1992. But, as the economy recovered and as some stores began to focus on everyday low prices, by 2006 redemption was down to 2.6 billion dollars.

Now coupon use is on the rise again although not yet at the level of 1992. We see the rise of the fashionable use of coupons for services amongst a new demographic of younger and more affluent consumers, as well as the rise of popularity of specialized TV shows that help save money and plan family budget. Such TV shows have appeared on the Russian screens as well; the participants of “Couponomania” show (that is running on one of the channels and rapidly getting its viewers) manage to lower the prices from, say, $2000 to several cents. It may seem that such a fashion is advantageous both for the sellers and the buyers, as the products are rapidly sold and the customer may return and become a regular client. But actually producers may dig their own pit when taking part in this coupon fashion.


Modern technology lets people not only buy coupons on the Internet but also spread the information about them among their friends. Brand loyalty is falling down: people tend to buy not what they like but what they have a discount for; while they may not buy anything “in addition” to the discounted product.

Coupons for beauty treatments, restaurants and tourism agencies may bring nothing but a loss for business: people become cynical “deal seekers” and instead of being enticed to the service by the deal and then investing further in repeat business, they can be demanding, determined against additional spending and often fail to tip.

Still, academic studies have a number of findings about the effectiveness of different types of coupon offers:

• Internet coupons can bring you more customers than paper ones, and not only because Internet has more users than a newspaper, also because technology allows showing these ads to targeted groups of people interested in your service.
• Front loaded coupons, those offering an immediate benefit, get a higher take up from the consumer. However rear loaded coupons, money off a subsequent purchase, are more profitable and do more for the brand.
• Front loaded coupons are more effective when introducing a new product. International data shows approximately 20,000 new food and beverage products are introduced each year, and coupons with discounts to the first customers are the best tool to get the market share.