Coupons, Discounts and Promotions - Questions
Do I need to run a coupon, discount or promotion?
- Example – Jeffrey’s Restaurant and Bar, in Austin, TX, had been in business for 35 years. While the business was relatively stable, the owner, Ron Weiss, was starting to see a decline in sales. In 35 years of being in business the restaurant had never once issued a coupon or discount. Ron decided to take a chance and offered a Groupon deal. The deal was a one-time discount of $35 for $75 in gift certificates for the restaurant. The coupon was good for 90 days, during the restaurant’s slower time of the year. The restaurant takes half of the Groupon sales and Groupon takes the other half. Ron and his staff stayed unbelievably busy over the next 90 days and while he didn’t make money on the offer, he did gain a lot of new customers. (MP Mueller, NYPost.com, “Is Groupon Good for Small Business?)
How will this affect my business or brand?
- Example – PearlParadise.com owner, Jeremy Shepherd saw that sales were declining as the economy worsened. Sales of his pearly jewelry, above $1,000, were usually his major source of revenue and if sales continued to be off through his December busy time his company would be in trouble. After examining sales charts, Jeremy saw that jewelry under the $1,000 was still selling well. So Jeremy decided to discount his strands of Tahitian Pearls from $700 to $300, calling the jewelry line, “Luxury For Less.” By offering only one line of pearls at a discount price, Jeremy was able to keep his main brand from looking like a discount jewelry store, but still increasing sales for his company. (Ryan McCarthy, Inc., “How Low Can You Really Go?”)
Can my business afford this?
-Example – It is important to ensure that your business can not only handle the influx of customers who will come in during the promotional time period, it is also important to accurately calculate whether this is a cost you can afford. In order to calculate this you must first know the following: the cost of your goods or services, an estimated purchased amount for each coupon, discount or promotions customer, an estimate of the quantity that will be redeemed (this is more of a guess – to be safe, estimate an 80% redemption rate for coupons), the approximate number of return customers or new customers who come in after the coupon (figure about 10%), the cost to run this coupon and the percentage of existing customers (assume 40% for this example).
For instance say you sell widgets for $40. It costs you $25 to make this widget. So you make $15 on each widget. You run a coupon for 50% off your widgets. The coupon costs you $1,500 to run and you send 3,000 of them out.
So you get about 2,400 coupon redemptions and each customer buys your widget for $20. You don’t make any money on these sales, but you do break even. You then calculate that 60 of the customers who used the coupon were new to your business and likely to tell a friend. That is 1,440 new customers and if 10% tell a friend you’ve got about 140 new customers. If you’re making $15 profit on each widget, you’ve made $2,100. Subtract the $1,500 you’ve spent and you’ll end up coming out ahead of the game with $600 over the long-term.
What method and discount will work best for my business?
It is always good to have a good mix of coupon tactics to appeal to your diverse customer base. Use the space to write down your ideas for your business.
How should I distribute my coupon, discount or promotion?
Polling your customers on the types of coupons, discounts and promotions they prefer can be a great starting point for your business. It is also a good idea to look and see what competitors are using. What ideas do you have for your business?
How will I measure my campaign?
The best way to measure your campaign is to educate your employees on the importance of keeping track of coupons or promotions. You won’t be able to accurately calculate your total costs without this data. How will you encourage employees to be diligent?
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