Wednesday, May 23, 2012

The Problem with Coupons

Having become a convert of Groupon (who doesn't like to save money these days?), it struck me that smartphones and coupons was a marriage made in heaven. The phone becomes a real-time, geo-coded search tool and simultaneously an electronic wallet for storing these coupons to be handily produced at the right moment. In fact, according to a CouponCabin survey 40% of smartphone users aged 18+ have redeemed a coupon on their phone.

We can put aside Groupon and company as they are really vouchers in which value is exchanged with the merchant in advance (and hence is very sticky). What about the rest? Are coupons on smartphones a good idea?

Paper Coupons?

Knowing the insane cost of parking in NYC, I usually print a couple of coupons, as the savings are quite significant over just pulling into a garage. I was thus quite surprised to see the text on one of the coupons:

"Coupon not valid on phone or mobile device" sure does not bode well for the the idea of virtual coupons. Certainly reading the barcode is not a problem. Neither is the need for paper documentation, as the payment is only made by credit card. So what is really going on here?

Commodities and Stickiness to Physical Locations

Quite simply, the parking garage company is afraid of being one click away from a better deal. There is little to differentiate one garage from another a block away. Their one weapon in creating switching cost is to force the user to invest their time in printing, thus making a choice or two in advance (there is a limit to how many coupons anyone will print!).

This may well be true for undifferentiated businesses, however parking garages are not unique. Even with other differentiating factors, on-the-fly coupons will certainly shift power into the hands of consumers.

Perversely, Amazon is concerned with the same issue of switching costs, though in their case it is to create a disincentive to shop brick-and-mortar retail by offering a discount just to use their app when shopping in the store (and presumably leave without making a purchase). Thankfully, this was just a trial.

Still, as we enter a retail environment with a networked computer in our pocket, I am sure retailers will come up with yet more inventive ways to create friction and switching costs.


  1. Good read, Tim.
    I wonder how long it'll be before bricks and mortar stores have signs asking customers not to use their smart phones to read barcodes.
    I also heard recently that people are referring to Best Buy as Amazon's showroom.

    1. I suspect policing is a no-win situation. More likely is "if you can't beat them, join them". I noticed Sam's Club (and I think all Walmarts) have WiFi, no doubt to serve you some coupons on the landing page!

  2. Interesting to know. I thought with the smartphone usage increasing and people cares more of sustainability, we don't need to print coupon anymore! Look at JCPenny no more coupons!

  3. Ultimately the goal of all coupons is to create brand loyalty so that you come back and buy at full price. Groupon is a good example of a system where many merchants wonder if it is worth it. But in a down economy it becomes the new normal.

    The parking garages have very little brand value, thus this kind of behavior.

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