4 Ways Coupons Are Changing

NEW YORK (MainStreet) -- The big story late last week was the long-anticipated initial public offering of stock in Groupon, the Chicago-based daily coupon company. After initially pricing its offering at $20 a share, the price climbed as high as $31.34 Friday. While some business news outlets have gone as far as to call the company – with its sometimes-questionable accounting practices – a “Ponzi scheme,” there’s no doubt that it’s the tech stock of the moment. Meanwhile, countless competitors have cropped up, with everyone from Google to various niche upstarts trying to get a cut of the action.

Couponing has taken the TV world by storm, too. TLC’s Extreme Couponing, a reality show that follows people who make a business of saving money on groceries, has been a smash hit among viewers who love watching people save tons of money at the grocery store

Yes, couponing, once the province of cost-conscious homemakers, has transformed itself into a multibillion-dollar industry that captivates both the traders on Wall Street and the viewers at home. And it’s done so by undergoing fundamental transformations, adapting to advancing technology and broadening its appeal to people who once wouldn’t be caught dead clipping coupons.

Here’s how couponing has changed, and what we can expect to see in the future.

The Demographics Have Shifted


The Demographics Have Shifted


Perhaps this is the most shocking trend in couponing: The popularity of the movement once affiliated with the budget-conscious middle class now cuts across all gender, age and socioeconomic groups. And when you look at the most popular online manifestation of couponing – daily deal sites like Groupon and LivingSocial – we see that the biggest adopters tend to be high income earners. In other words, the people least likely to need coupons are the ones buying them

A recent survey conducted by management consulting firm Accenture contained an interesting tidbit about how Americans use daily deal sites. According to the survey, 54% of people from households earning more than $150,000 a year subscribed to a daily deal site, compared to just 27% of people from households earning less than $35,000. In other words, affluent people are twice as likely to engage in online couponing as low-income people.

When did couponing become so popular among the rich?

The short answer is “2007.” It’s long been clear that the recession brought about a shift in spending habits even among the well-to-do; MainStreet observed earlier this year that wealthier Americans adopted couponing during the height of the recession, in the process driving the growth of the daily deal industry.

“We’ve been seeing this trend since late 2007 when the banks collapsed,” says Brad Wasz of CouponTrade.com, a marketplace for coupons and gift cards. “Now it’s cool to save and be a savvy shopper.”

But the recession is only half the story. The other half is the deals themselves. Where traditional coupons appeal to middle-aged mothers and retirees trying to save a few bucks on groceries, the daily deal sites apply couponing to a whole different class of products and services.

The most popular sites traffic in deals on restaurants, travel, classes and services like teeth-whitening. These aren’t exactly luxury items, but they are aimed at people with disposable income – and that’s exactly who’s buying.

“It’s really a question of what the role of couponing is,” says Tom Jacobson, who authored the study for Accenture. “The affluent… are using it for leisure activities, for restaurants for upscale services. It’s not your grandfather’s couponing.”
There Are Fewer Players in the Game


There Are Fewer Players in the Game

When Groupon became a runaway success, no one was surprised to see a slew of imitators.

Last year, Groupon CEO Andrew Mason fumed to MainStreet about the various companies seeking to replicate Groupon’s success, comparing one competitor, SocialBuy, to an imitation “Chinese iPod.”

Meanwhile, larger competitors like LivingSocial have seen success in their own right by tweaking the business model to include more national deals and a greater emphasis on sharing through social networks. Other deal sites have gone off after niche markets by offering deals on comic books, pet items and even weapons. And then there was Google, which launched its own Google Offers service after being spurned by Groupon in an attempted buyout.

But what was perhaps more surprising is that many competitors have started to drop out of the daily deal space just as quickly as they came in. Facebook spent just four months experimenting with its own deal service before officially shutting things down in August, while Yelp has significantly scaled down its investment in the deal space. And many investors have argued that the daily deal space essentially constitutes one big bubble – a bubble that’s slowly deflating rather than bursting.

The coupon industry’s major players obviously reject the contention that the industry is one big bubble, but most of them do agree that we’ll continue to see industry consolidation as the more ancillary players drop out.

“I don’t think the industry will contract, but I do think it will consolidate,” says Mike Cashion of the daily deal site CouponMob. “It would contract if consumer demand waned, but I think growth will slow and the players will consolidate. It’s just not economically viable for many [companies] to be able to do this.”
It's All About Mobile...


It’s All About Mobile …

Smartphones (and their accompanying data plans) can be awfully expensive. But they can also be money-makers for their owners if you download the right apps and use them to locate the best prices and deals.

And now coupons – or at least the 21st century version of coupons – have come to the smartphones. Location-based apps like FourSquare have teamed with businesses to provide coupons and special deals to users who “check in” using the service. And then there’s the ShopKick app, which provides special incentives and coupons for users who simply walk in the door of a participating merchant.

Most experts agree that couponing will come to smartphones very quickly, though there remain some barriers to widespread adoption.

“I think that things are going to go mobile very fast,” says Cashion. “Consumers are going to get there, and the technology is there. Though I’m not so sure all the merchants are there just yet.”

Meanwhile, the ability to use a smartphone like a clipped coupon is also on its way, though it faces similar hurdles.

“[You’ll have a] 2-D barcode image,” says Rob Seward, product line manager for payment systems firm ACI.  “But do [merchants] have the right type of scanning equipment? There are practical things that have to be worked through.”

As physical coupons migrate to expensive smartphones, the concern is that low-income people who can’t afford the phones will get left behind – and these, of course, are the people who need coupons the most. But as smartphone technology gets cheaper and adoption becomes more widespread, that gap will begin to close.

“[Low-income people are] maybe not as tech savvy, but they will find the coupons,” says Wasz, of CouponTrade. “There’s a huge gap as far as technology goes, and only 30% have smartphones. But billions of people are going to be adopting smartphones in the next five years.”

While those projections may be optimistic, there’s little doubt that smartphone adoption is accelerating. Smartphone sales have begun to outpace feature phones, and as low-income consumers catch up, they’re going to be using their phones to find coupons.
...But Don't Lose Your Scissors


… But Don’t Lose Your Scissors

As daily deal sites, location-based apps and smartphone-based coupons grow more popular, the idea of actually using a pair of scissors to cut a coupon out of a newspaper may start to seem quaint. But experts don’t expect it to go away entirely in the near future.

“I don’t think the paper coupons are going to go anywhere,” says Wasz. “They’re on the back of your receipt at the grocery store, they’re on the pizza box, they’re on the catalog at Target. They’re everywhere.”

Still, that doesn’t mean they’ll look the same.

When it comes to traditional coupons to use in stores, the manufacturer’s coupon remains king: You’ll save 20 cents on a jar of peanut butter, $1 off a bottle of window cleaner, 20% off all Huggies products. Someone who takes the time to clip out a huge stack of coupons can save a lot of money at the grocery store or pharmacy (while making everyone behind you in the checkout line crazy, of course).

But it’s this very usage, and what it means for merchants’ profit margins, that may begin to drive a sea change in what in-store couponing will look like in the near future.

“You’re starting to see some restrictions on coupons,” says Jacobson. “[Merchants] are getting so razor-thin on profitability, that they have to spend time making sure the promotions are optimized.”

So what might these new promotions look like?

“I don’t think you’ll see 20 cents off this or that item,” says Seward. “You’ll start to see something more along the lines of, ‘You’re a frequent shopper, so we’re going to give you a total basket discount.’ Or, ‘Buy from X department, get a percentage off Y department.’”

At least for the foreseeable future, though, the clip-out manufacturer’s coupon will still be a fixture in checkout lines, just as you still the occasional shopper paying with a paper check.

“It’s such an ingrained behavior and pattern,” concludes Seward. “Clipped couponing will still be around.”

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