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The Perils of Social Coupon Campaigns

Social coupons have become a popular form of marketing promotion. Scores of businesses such as restaurants, car washes and dry cleaners pitch coupon discounts through Internet sites such as Groupon and LivingSocial in hopes of attracting a new crop of customers. But a poorly designed coupon campaign can do serious harm to a business's profit margin. While the coupons can generate value for customers and the social coupon service providers themselves (who earn a percentage of the revenue), they can lead businesses into a thicket of problems. Authors V. Kumar and Bharath Rajan explore the impact of social coupon campaigns on three businesses located in a southeastern city in the United States. Each business captured significant numbers of new customers with their coupon offers, but saw substantial losses during the month the coupon campaigns were launched. The authors identify general guidelines that can help businesses avoid the pitfalls of social coupon campaigns, including strategic offering discounts, using coupons to build relationships with new customers and guarding against cannibalizing existing revenue.

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