Solving the Coupon Conundrum
Shared coupons are more popular than coupons sent directly by firms, but are redeemed less often. Switching the focus to the coupon’s social benefits changes the results.
Retail has increasingly moved online in recent years, accelerated by COVID. Competition has followed it, becoming just as competitive online as it is in bricks and mortar stores, perhaps more so. An online presence—whether it’s a company website or a mobile app, or both—allows marketers to access a wide range of online tools to draw attention to their company’s products and services and convince consumers to buy.
One of the most valuable and versatile of these tools is the coupon. Coupons are nothing new. In paper form, they have been offering special prices, savings or deals for decades and have become a mainstay of marketing. Now, digital coupons sent online can be closely monitored and their offerings quickly changed, offering many more nuances for marketers to experiment with, including tracking customer preferences, responses to differentiated offers, and the ability to connect with consumers in new ways.
Today, the most important channel for connecting with consumers is through social commerce—the selling of products and services directly through social media. As the name suggests, social commerce takes place at the intersection between e-commerce and social media. Onn many of the platforms where people connect socially, they can now also directly buy products and services from companies and service providers. The most popular platforms include Instagram, Facebook, Pinterest and, in China, WeChat.
Social commerce worldwide is estimated to be growing at 31.4 percent annually. According to Statista, global sales made on social media platforms were worth an estimated US$992 billion in 2022, and are forecast to reach about US$2.9 trillion by 2026. Clearly, it’s a market no one wants to miss out on.
The changing face of coupons
Digital coupons are widely used on these platforms and are often sent directly from companies to existing or potential customers. Called direct coupons, they offer discounts, such as a percentage off purchases, or a cash discount upon spending a certain amount.
Shared coupons are increasingly popular. These combine two components: a financial saving and social sharing. Shared coupons are usually sent by companies to an existing customer or influencer (the coupon giver) who then shares it with someone in their network (coupon receiver).
Several companies have achieved huge success in social commerce, such as Pinduoduo. Pinduoduo launched in China in 2015 as a platform enabling farm producers to connect directly with consumers. It has since expanded to offer a wide range of products, including fresh food, beauty products and electronics. Pinduoduo—which translates roughly as “together, more savings, more fun”—encourages customers to share buying opportunities with their social networks in order for all of them to secure a bigger discount. The higher the number of the participants, the lower the price. This strategy encourages buyers to keep sharing until the biggest discount has been applied to the product price within a certain timeframe.
WeChat Moments is the social networking feature of China’s WeChat app, which has 1.3 billion active monthly users. As well as offering coupons on their own landing pages, companies often encourage their customers to post pictures of articles on their Moments pages and ask their friends to like them. WeChat is the preferred platform for distributing these shared coupons.
Companies already know that sharing coupons is an important way to build a successful coupon distribution campaign and improve sales. Online coupons supplied by a third part review platform, for example, are more effective at promoting sales than direct coupons sent by the company, and are more likely to be redeemed. Among millennials, 90 percent share coupons and 43 percent of them do so on social media.
For companies, shared coupons offer an added—and valuable—sales channel. By allowing a coupon to be shared with a customer’s network, companies are able to reach potential customers that they would otherwise not be able to reach. The fact that the coupon is transmitted from one friend to another enhances the coupon’s attractiveness and trust level.
Despite these advantages, shared coupons are not redeemed as often as direct coupons. Marketers have been struggling to understand what the problem is. Now, new research conducted by Eric Fan, Beibei Dong, Mengzhou Zhuang and Fengyan Cai has cast an insightful light on how consumers respond to coupons, and found an effective way to boost redemption of shared coupons: creating a co-creation experience.
The co-creation experience
The co-creation experience is an activity that the giver and receiver must complete together. They work together to create something, which builds a bond between friends. The activity can be, for example, designing a coffee mug together, working out an itinerary or playing a game. Once the coupon has been won through their shared effort, both the giver and the receiver can enjoy its benefits.
For example, the researchers designed a co-creation experience in which the coupon receiver was sent an online link that said “your friend (name of coupon giver) has invited you to play a game and claim the coupon.” Both the giver and receiver of the coupon had to play a 30-second game at the same time. They had to use a virtual basket to catch burgers falling from the top of the screen. Their combined total of burgers caught was converted to virtual dishes which they could share on their social media accounts. This made it a cooperative experience. After they finished the game, they were given in a link to claim the coupon.
Understanding the problem
The researchers found that the reason for low redemption of shared coupons is rooted in consumers’ expectations of different behaviours. Consumers differentiate between the way they expect a company to behave towards them, and the behaviour they expect of friends and people in their communities. The key to understanding why shared coupons are not redeemed as often as direct coupons lies in understanding this norm conflict.
Companies are expected to make suggestions that involve spending or saving money, such as offering a coupon discount. In personal relationships with family, life partners and friends, economic transactions of most kinds are generally not acceptable. Gifts and sharing, for example, are typically exchanged between friends without seeking payment and without any obligations being incurred. The question of money or compensation is not appropriate in these circumstances and conflicts with the invisible red line that makes it unacceptable to talk about money with friends. The perception of social inappropriateness also makes the receiver hesitant to engage with a coupon offered by a friend.
This hesitation contrasts with relationships with strangers or businesses, where most kinds of interactions usually involve money.
Friendships and personal relationships focus on a social goal of boosting or deepening the relationship, whereas business relationships focus on the economic goal of making money. Stepping across this invisible boundary between the social and the economic can alienate potential customers.
It follows that a friend or influencer—whose relationship with followers is typically of a friendly nature—is not an appropriate source of a coupon that offers economic savings.
Why the co-creation experience works
So what to do? The researchers believed that building a deeper social connection between the coupon giver and receiver could resolve the problem—in effect, switching the emphasis of the coupon sharing process from the coupon’s economic-driven benefits to its social interaction-driven benefits. If the two parties had to work together to earn the benefits of the coupon, say by a shared co-creation experience, this would create a bond of achievement and friendship between them that would be strong enough to override the norm conflict.
The idea proved correct. The team found that direct coupons were redeemed more often than shared coupons because consumers struggled with the overlapping economic and social benefits of shared coupons. That was as expected. But when shared coupons were combined with experience co-creation, their redemption rate outperformed direct coupons, even though consumers had to make more effort to get the benefits of the coupon.
This experience co-creation coupon was more successful because “… the norm conflict is reduced by the shared experience, which both achieves social goals and enhances the attractiveness of the shared coupon. In addition, we know that consumers are more attentive to messages shared with them by friends than those they receive directly from companies,” explain the researchers.
Boosting redemption rates further
The research had proved that coupons with experience co-creation were a hit with consumers, but still, not all consumers redeemed their coupons. Often, they languished unused in customers’ online accounts.
One tried and trusted way to increase coupon redemption is to increase the value of the coupon. Making the offer just too good to refuse has been shown to increase redemption rates. However, the cost to the company is high. Moreover, customers could come to expect increasingly big discounts if they wait before redeeming the coupon, making this a potentially treacherous path for marketers to follow.
Another trusted alternative is to send a quick reminder to the consumer to use their coupon. Sometimes, a simple nudge in the form of a short email can do the trick.
What would happen if both options could be combined in a way that wouldn’t incur an additional cost to the company and that would increase the redemption rate? The researchers had already proved that coupons based on experience co-creation were the most successful. It followed, then, that sending a message that reminded the customer about the fun experience—rather than emphasizing the cost-saving on the coupon—could boost redemption rates, perhaps to an extent that would negate the need for the company to increase the coupon value.
And so it proved. A low-value coupon increased its value by almost 50 percent when a follow-up social message was sent compared to when no message was sent. The social message was worded to remind the customer about the friendship and experience rather than the monetary benefit: “you still have a coupon you earned together with your friend [name]”.
Key takeaways
Social commerce is complex and involves deeply embedded values about relationships and appropriate behaviour. Customer expectations of different types of relationships needs to be understood and respected in order to identify the best path for companies to achieve their desired results. Marketers who understand the nuances of social commerce can find creative ways to make it outperform traditional e-commerce without additional costs for the company. One of those ways is by offering an experience that is co-created.
The three-step process that has been proven to work here is share, co-create and communicate.
First, design an experience to require the joint participation of the coupon giver and the receiver in a shared co-creation activity, such as a game.
Second, encourage consumers to share coupons and then deepen a social relationship by taking part in the experience.
Finally, communicate with the receiver to remind them of their coupon and its social value by emphasising the way they came to receive the coupon. This enables companies to achieve the same result as a higher-value coupon without increasing their costs, a win-win for both customers and the company.
About this Research
Eric (Er) Fang, Beibei Dong, Mengzhou Zhuang and Fengyan Cai. (2023). “We Earned the Coupon Together”: The Missing Link of Experience Cocreation in Shared Coupons. Journal of Marketing, 87(3), 451–471.
