Submitted by:

Maggi St. Germain

Rachel Simon

Yenling Soh

Allyson Spindler

Neeloo Sah

History of Coupons 
 Traditional coupons, or paper coupons, began in the United States in 1909, when C.W. Post first thought of the strategy to get more customers to purchase his products.  Coupons are certificates that entitle the bearer to stated savings on the purchase of a specific product or product bundle. Coupons have become a popular marketing tool because merchants can provide consumers with incentives to buy their products in return for sales and potentially information regarding consumer demographics. Coupons are successful because they allow the merchant to collect information about current customers as well as indicate new unforeseen potential in other market segments. 
 Coupons can assist marketing strategies that satisfy such goals as promoting a new brand and persuading customers to switch to the promoted brand through manufacturer-issued coupons. Coupons can also aid in increasing sales of an existing product, both with manufacturer and merchant-issued coupons and attracting shoppers to a retail establishment through merchant-issued coupons.
 There are also disadvantages to using conventional paper coupons as a marketing strategy. First, conventional distribution channels are slow and have long lead-times. Hence, distributing coupons requires much advance planning. Second, lower cost distribution channels such as newspapers do not lend themselves to precise targeting. Thus, many e-coupons may be given either to customers not interested in the promoted product or who might have bought the product without the coupon. Finally, their redemption rates are quite low. Often, less than 1% of the distributed coupons are redeemed. This is largely due to the opportunity costs associated with searching for coupons. 
E-Coupons
 E-coupons can be viewed as the electronic counterpart of coupons, such as those commonly found in mailboxes or newspapers. In order to benefit from an e-coupon, a customer needs to interact with the merchant, which allows the latter to check the validity of the e-coupon and to obtain direct feedback of the impact of the ad campaign. As a result, e-coupons provide a new mechanism for advertising with applications to web marketing. 
 E-coupons are an adaptation of the coupon concept to on-line sales. An e-coupon is an offer by an online merchant to a shopper to discount some or all items within one order, possibly subject to conditions, within a specified validity period. E-coupons may be issued both by manufacturers and merchants. E-coupons are a very useful mechanism to perform marketing functions online, such as sales and promotions. In most cases, e-coupons are more successful at this than conventional coupons because they allow for precise targeting. The main events in the life cycle of an e-coupon are shown below:

(http://www.isoc.org/isoc/conferences/inet/99/proceedings/1d/1d_1.htm)

Why Companies Use E-Coupons

Over the past several years, many companies have chosen to include e-coupons among their marketing strategies. They have acknowledged and embraced the Internet as a dynamic marketplace and gateway for increased sales. Increased sales potential using e-coupons exist for both brick-and-mortar operations as well as on-line only shopping experiences.

Retailers can benefit from using e-coupons in several different ways. First, they use them as an awareness builder. Even when the redemption rate is low, the company’s name and brand are advertised to new potential buyers. They count on this brand awareness to fuel their sales, as more traffic is driven to the company’s website and/or retail stores.

Second, e-coupons, as well as all e-promotions and e-marketing plans, allow a company to engage in customization and individualization for a desired target market of consumers. E-coupons allow companies to transcend geographic boundaries and reach desirable demographics through Internet marketing, whereas traditional paper coupons rely on the hope that the targeted audience will find, clip, and use the intended coupon.

Third, e-coupons provide an effective way for a company to reduce marketing costs. Using an electronic channel reduces printing and distribution costs, as customers print only the e-coupons that are beneficial to them, at the customer’s printing expense. E-coupons also provide an effective way to automatic track usage, which reduces costs on the back-end to assess a coupon’s effectiveness.

Implementing E-coupons
 When a merchant decides to promote products using e-coupons, the first step to do is to design the e-coupon. Some of the decisions needed to be made during the design phase including identifying the product to be promoted, deciding the amount of discount to be offered, and deciding the conditions and the validity period of the e-coupon. After designing the e-coupons, merchants need to target shoppers who the e-coupons will be offered to. This is the most important stage because it will “make or break” the success of the promotion. Some e-coupon providers such as Coolsavings.com have special technology to help advertisers target consumers based on gathered household information, previous activity on the site, shipping and shopping habits, and indicated interests. E-coupons are then distributed once the targeting process has been completed. Consumers can receive e-coupons from both merchants and third-party providers. 
 E-coupons can be divided into two categories depending on the validity period. The first type of e-coupon can be valid for only a short period of time such as minutes, hours or the duration of the browsing session. If the consumers decide to purchase the item featured on the coupon the discount will be applied automatically to the purchase. The second type of e-coupon stays valid usually weeks or months from date of issue. This type of e-coupon would be stored in the shopper’s virtual wallet, maintained either on the retailer’s or the consumer’s computer. When the consumer decides to purchase the item with the coupon, the consumer can get the discount by applying the e-coupon number stored during the checkout process or the retailer’s application can automatically retrieve the e-coupon from the customer’s virtual wallet and offer the discount. Lastly, merchants can now utilize technology that allows them to analyze their promotions in much greater depth. Marketers can now see e-coupons usage rates and other useful information regarding the consumers to help make the next promotion even more successful.
Measuring Success
 Advertising is the major revenue producer for the World Wide Web. In the physical world, a multitude of methods have been developed to measure the visibility and degree of success of an ad or commercial. These methods range from measurements of the number of viewers/readers along with the demographics, to methods giving direct feedback to the advertiser. It has been found that many of these methods perform very poorly in an Internet setting, due to lack of trust, lack of reliable metering methods, and a lack of direct feedback.
 Currently, the most employed method on the Internet to measure the success of an ad is based on the number of click-throughs of banners and other ads. The merchant counts the number of times his site is accessed from various advertising sites, and pays these a fixed amount for each such access. This method is rife with problems. It does not distinguish between successful and unsuccessful visits, which makes it economically unpredictable both for the advertiser and the merchant. It creates an incentive for advertisers to trick visitors to visit the merchant, a visit that is likely not to result in revenue. The method also does not distinguish between a “human visit” and a “computer visit.” 
The Advantage of E-coupons
 Companies benefit from e-coupons by strengthening brand loyalty and building greater awareness with new customers. Electronic coupons also provide security codes for merchant validation and expiration dates for the consumer. Merchants can present e-coupons online using coupon generators and software programs that create coupons for special promotions. Therefore, creating e-coupons is simpler, faster and cheaper than traditional paper coupons.
 E-coupon issuers enjoy a high degree of flexibility in choosing which e-coupons are given to shoppers and when they are offered. For example, e-coupons can be offered to shoppers when they enter an online store, when they view a product description, or when they finalize their purchases. 
 Similarly, e-coupons can be offered for a product for which a shopper has expressed interest, a product related to the product a shopper is buying, or a product the shopper never buys but the storekeeper is interested in promoting.
 The main advantages of e-coupons over conventional coupons are: 

• Precise targeting of e-coupons to the shoppers on whom the e-coupons would have the greatest impact along with a useful set of e-coupon delivery options.
• Ease-of-use for merchants: because the merchant is not at the mercy of print schedules, they can create and issue e-coupons quickly to address short-term business situations.

· Ease-of-use for customers: there is no need to clip, save, and organize e-coupons because tools for these functions are provided online. In addition, unlike paper coupons, shoppers do not have to remember to bring coupons physically to the store. In an online store, a single mouse click will allow the shopper to review their e-coupons at any time.

· The opportunity cost associated with conventional coupons does not seem to be as great as a factor with e-coupons as searching for coupons from online advertising grew from 23% to 27% within 6 months in 1999.

Disadvantages and Limitations of E-Coupons

There are several limitations involved with e-coupons. The first, and most crucial, is the potential for fraud. It is estimated that up to 20 percent of all redeemed coupons are fraudulent. On the other side, coupons generate over $8 billion in transactions annually. Since on-line coupons are easier to tamper with than copying traditionally printed materials, it is incumbent on the e-coupon provider to develop a system that eliminates this type of fraud. The fraud system would also need to have a mechanism that prevents an e-coupon from being used more than once.

A second limitation may occur with compromised target marketing. It is very easy for consumers to email their friends with promotional offers and trade e-coupons with each other. This may defeat the purpose of target marketing.

A third limitation is consumers’ distaste for spamming. Many on-line consumers do not appreciate receiving dozens of unsolicited e-mails from retailers, even if they have a great deal to offer. It not only clogs their inbox, but also raises issues of privacy on the Internet and how retailers know to target them. E-coupon providers may have a difficult time contending with this (http://www.research.ibm.com/irl/projects/ecoupons/).

Usage Rates of E-Coupons

The percentage of Internet users using e-coupons is anywhere from 25%-30%. However, most agree that the percentage of consumers using e-coupons is on the rise (www.ecommercetimes.com/perl/story/66.html). The redemption rate of a consumer who clicks on an e-coupon or receives one via email is 57% compared to the redemption rate of Sunday newspaper coupons at 1.2% (www.dwcdesignet.com/DWC/March’01/takenote.html). A study conducted by NPD Online Research found that forty-five percent of e-coupon users were male and fifty-five percent of e-coupon users were between the ages of twenty-five and forty-four. The following chart shows the household income levels of people who use e-coupons (www.nptd.com/corp/contentnews/releases/press_991110.htm).

As shown, there is not a significant difference in the different household income levels and how likely consumer are to redeem e-coupons.

Most consumers find e-coupons through browsing the web (www.nptd.com/corp/contentnews/releases/press_991110.htm). When a consumer is on a specific web page they may be offered a coupon, which is good for only a couple of minutes or a couple of months (http://domino.research.ibm.com/Comm/bios.nsf/pages/ecoupon.html). Companies also use banners, that pop-up on the screen, to entice consumers to click on them and lead them to a web site offering them a coupon on a specific protect. The click through rate for a coupon banner is 20%, which is much higher than a standard banner (www.ecommercetimes.com/perl/story/66.html). However, seventy five percent of Internet users feel banners are annoying (www.iowawebdesign.com/whatsnew.htm). E-coupons can also be emailed to consumers from companies. Fifty-five percent of online shoppers say that emails are the preferred way to get e-coupons (www.iowawebdesign.com/whatsnew.htm). Consumers can go to web sites that offer e-coupons to find the coupons they are looking for to use on-line. An example of a site is CouponSurfer, which has forty merchants and its revenue is generated by merchant fees and advertising (www.ecommercetimes.com/perl/story/66.html). Coolsavings.com has 4.3 million registered users and is said to be the most popular coupon site (www.post-gazette.com/businesnews/19991125etools2.asp). The NPD Online Research found the following web pages to be the top ten places where consumers found e-coupons:

1. Coolsavings.com

2. Valuepage.com

3. Web sites offering their own e-coupons

4. Valpak.com

5. Mypoints.com

6. Cybergold.com

7. AOL.com

8. Directcoupons.com

9. Hotcoupons.com

10. Value-mail.com

(www.nptd.com/corp/contentnews/releases/press_991110.htm).

Consumers can redeem their e-coupons through different channels such as on-line stores or retail stores. Of course some things like fast food coupons naturally are going to be redeemed at a fast food place and not on-line. The following chart compares the redemption rates between the channels of on-line and retail stores (www.ntpd.com/cor/content/news/releases/press_000502.htm).

Fast food and groceries were the highest items for redemption of e-coupons at retail stores. Toys and books were the top items to be bought with e-coupons on-line.

The Future of E-coupons

The future of e-coupons is bright as marketing to consumers becoming more and more individually customized along with advances in technology. The usage rate of e-coupons will only continue to grow in the coming years. New applications for e-coupons will be developed. For instance, consumers may be shopping in a specific part of town and will receive an e-coupon on their pager as they walk past a store at a particular moment, which will entice them to enter the store and make a purchase (http://todmaffin.com/speaking/). This type of mobile advertising through e-coupons is expected to become a $16 billion business by 2005, according to research firms (http://www.wired.com/news/business/0,1367,37577,00.htm.).

Redemption information for e-coupons will continue to be more precisely tracked as their use proliferates. New technologies will be developed that will enable companies to easily record redemption information immediately and then data mine the information for personalized offers at a later date (http://www.regisoft.com/bluetoothdemo.html)

The future of e-coupons is contingent upon consumers opting-in, and allowing firms to directly targeting them with their promotional materials. As new laws surrounding privacy and spamming become more prevalent, more and more firms will need to incent customers to opt-in to receive their e-coupon material (http://www.wired.com/news/business/0,1367,37577,00.html).

Conclusion

The marketing strategy of using coupons to generate new customers and increase sales is a tactic that has been being used for close to a century. However, it seems only of late, with its adaptation to the Internet that this tactic is finally delivering the desired results of the last century. Consumers can now either go right to the coupons (i.e. Coolsavings.com) or be targeted through banner ads or other on-line advertising to find savings and use them instantly online to make their purchases. The ability of consumers to find coupons with such ease and use them instantly is the largest contributing factor to these increased redemption rates and thus effectiveness of this marketing approach.