social couponing noun Giving steep, local discounts with an incentive to share the deal with friends.

The news media is buzzing to consumers about the social couponing craze while alarming small businesses about the perils of advertising through these new marketing services. The formula is simple for the consumer: you receive an email offer daily consisting of a dramatically discounted (50-90% off retail) product or service in your area or online; you buy and share the offer with your friends. As a local business, you provide no cash upfront, tout your dramatic discount, and await your sales to flow. But, is that really the whole story? Perhaps the history, business models and rise (and fall) of these social couponing services will shed some light on your marketing strategy (and pitfalls to avoid) in this new media marketing world.

Paper → Internet → Email → Social Media → Mobile (is here too!)
At the turn of the 20^th century, coupons were birthed by the owner of the formula for Coca-Cola giving out handwritten coupons. Coupons went to the printed and mass-produced variety in the next five to ten years; they were a staple of the American household by the 1930s thanks to the Great Depression and the print news media.

Coupons went digital in 1990 with the advent of Internet leads, downloadable-printable coupons, emailed coupons, clickable coupons, and coupon code for redemption on eCommerce websites. These new forms of coupons have changed the game of discounts and rebates.

With the coming of our contemporary “Great Recession” as it’s being called, no wonder Groupon found success in 2008 when it launched, and this onslaught of competitors have jumped into the market. What happens when the recession(s) end?

Who uses coupons?
Discount shoppers and anyone else that’s provided them at the point of sale who are not price-sensitive but understand the value of taking a dollar amount off their price. Ask yourself if you’re selling a commodity product/service.

Marketers should consider any form of deep discounting program carefully. Think about the type of customer you’re attracting because a huge spike in one-time deal hunters who will never pay full-price may not be valuable in the long run. -Derrick Day [BrandStrategyInsider.com]

Who really wins with coupons? Facebook and Google, naturally.
Groupon and LivingSocial are the heavy-hitters in the market. They’ve secured the most venture capital and they’re talked about the most because they were early players in the market. Groupon just issued their IPO with a valuation in the billions of dollars! What does this mean for you? Not much, except that Groupon and LivingSocial will likely lead innovation for the next few quarters (or if they’re lucky, years). Otherwise, pay attention to the much larger players in the online advertising market.

Facebook launched Facebook Deals in select cities early this year and will be expanding all over the United States very soon. This tightly integrates with the 600 million users on the Facebook social networking site where they will share directly among friends. Google is planning to do the same soon (with a service called Google Offers, that launched in Portland, OR, and will also soon expand nationwide) so that the online advertising giant will now be able to use the ubiquity of Google Maps to push coupons directly to people locally in every city around the globe. Groupon, who?! Also, keep on the lookout for large online players also jumping into the game, such as Amazon (who invests in LivingSocial also!), Yelp, Yahoo, Wal-Mart, and more. Consolidation in the market must occur for the viability of the entire social couponing industry.

There are many more local and national services such as Daily Candy, Tippr, DealOn, What’s the Deal DC, The Capital Deal, Service Alley, Bing Deals (Microsoft), and QuiteUnique. See: http://www.localdealsites.com for a comprehensive list of social couponing services.

Spend the time necessary to research the right service (one that has your target audience and penetrates that audience deeply enough that you’ll get what you need and not less (or too much) from the many selections. Who’s going to write the marketing copy and will you have editorial license over it? What information and analytics will the service share with your business about their customers that purchase your social coupon? (Don’t expect them to share very much. It’ll be up to you to get the marketing information you need.) Also, ask for several quotes from services to compare and contrast.

The real function of coupons for the successful entrepreneur is to create long-term clients through these short-term, niche discounts that pique their interest about the value of your service or product.

There are many different types of coupons such as discounts, free shipping, first-time customer coupons, and free giveaways.

Coupons can be used to research the price sensitivity of different groups of buyers (by sending out coupons with different dollar values to different groups). In addition, it is generally assumed that buyers who take the effort to collect and use coupons are more price sensitive than those who do not. Therefore, the posted price paid by price-insensitive buyers can be increased, while using coupon discounts to maintain the price for price-sensitive buyers (who would not buy at a higher price). [Wikipedia.org]

Let big business spend the money on trial-and-error.
Look to closely related industries for inspiration, since you’re not going to always find your specific industry represented in case studies in the news. For example, visual and physical medium artists don’t get very much coverage the business marketing community. However, musical artists get a great deal of coverage. While their products are not quite the same, we can take the “artists” parts of their strategy as examples of good-to-great (a la Collins) tactics.

If I were a local artist, I would use coupons as a marketing research tool, for buzz about upcoming show openings or art expos (giving away free merchandise to the 100^th or 1,000^th visitor to my booth or gallery via signing up for my email newsletter) and to unload my end-of-season inventory to the discount consumer market (but require that they buy more volume than if they walked in off the street with the same offer).

As I stated earlier, my reasoning comes from viewing the related music industry. Do you see musical artists use coupons regularly to generate sales? No. Generally, they avoid them like the plague. They leave them to retailers. Are they missing opportunities? Yes. I don’t believe in giving away your product for free, almost ever. But, to great buzz, musical artists use these vouchers and free merchandise offers all the time. This may not fit your industry, so again, use other industries that are affinity or marketing alliances and use them as precedent for your social couponing campaigns.

Don’t discount email.
Pardon the pun, but many people think email is going away but the reality is that email is just changing from one “dot com” to another. Whether you still have an Prodigy, AOL or other ISP email account as your “professional” email service provider or you have your own domain-branded email hosting ([email protected]) or you end up using [email protected] as your primary email address, you’ll still be using email ten years from now in some way.

The most notable brand using coupons via email effectively is Bed Bath & Beyond. They offer their well-known “20% off a single item” coupon from their circulars (that seemingly never expire!?) in their emailed circulars on occasion. Customers open every one in hopes of finding that coupon; they also save those emails for the future.

At least today, email marketing is still the most powerful, direct digital marketing tool available to small businesses.

What are you selling? (Hint: not a product or service.)
Never, never, never forget you are selling value, to paraphrase the inimitable Winston Churchill. In all this frenzy about social couponing, I cannot reinforce this message enough to small business owners. If a small business sells a product or service, they ninety percent of the time sell a bunch of features with a most-likely bad logo, and environmentally-unfriendly and difficult-to-open packaging. According to the latest research in neuropsychology, the American consumer is overburdened by features, getting usually four times the choices needed to actually satisfy the average human. Blinded by options, we oft determine that the least important options of a product are the reason to purchase! Guy Kawasaki recently spoke at an Entrepreneur Magazine small business workshop and told an anecdote about his LG washing machine, which had a “steam cycle.” It was the reason he chose it, he claimed. It turns out, he has never used the steam cycle. Sadly, his experience is much more common than Winston Churchill. Please limit your features, maximize the value (ergo, benefits) to your target audience, and strategically use coupons for your thriving enterprise.

Further, recommended reading

Some businesses are victims of social-couponing (Groupon, Living Social) success – http://goo.gl/hiolY

Rapt by Winifred Gallagher [book]

Facebook Deals Takes Aim at Groupon and LivingSocial

Groupon Counts on Writers and Editors to Build Its Audience

What Groupon and LivingSocial Cannot Offer

How Small Businesses Can Cash in on Facebook’s New Deals Feature

Google Offers, Day 1: Portland Coffee Shop Calls It ‘Jaw-dropping’

Groupon and Living Social Causing Impulse Purchases?

Paradox of Choice by Brian Schwartz [book]