To Coupon Or Not To Coupon, 6 Tips To Do Them Right

That's the question. Customers love them, businesses hate them, but what's the right balance.

A recent article in the NY Times details how Macy's felt the results of eliminating coupons where it hurts most - at the register. Terry Lundgren, the company's CEO, has since changed the company's policy and promises lots of coupons for the upcoming holiday season.

According to the article, Macy's isn't the only one who has felt the pain of weaning customers from coupons. Ruby Tuesday's and Procter and Gamble have also had horror stories.

Basic human nature says people want coupons. Same store sales show coupons drive sales. Everyone knows addicting customers to coupons leads down an unhappy path. What's the solution?

The answer is two parts: embrace coupons for what they are and use them to modify behavior, not bribe customers. Macy's reports distributing 15%-20% off coupons to customers, the goal being to remind folks "we're still here". But this type of coupon makes them hoes for the dough. There's no behavior modification in it.

Restaurants, hear this: the dumbest coupon you can do is $1 off. It conditions customers to wait for a coupon. You might as well be in the pizza business.

Here are 6 ways (you get a bonus) to make sure your coupons don't create a welfare state out of your customer base:

1. Focus your objective. Do you want more customers? More frequency? A higher ticket average? Make your offer reflect that goal. Buy one, get one free after 6pm; FREE upsize with any purchase; come back tomorrow and get 20% off. Don't give something for nothing, but make it look like you are.

2. Think like the customer. Too often we see stores give out offers they don't mind giving, regardless of whether or not the customers want it. 10% off bookmarks, for example. Another problem is that the audience isn't right. Buy one, get one free is worthless to someone who is driving to work, or working out, alone.

3. Use a loss leader. Grocery stores are good at this. Buy one, get one free gallons of milk, for example. Nobody stops at the store just for a gallon of milk. If they win share of wallet from their competitors the coupon held a strategic purpose as well as a tactical one.

4. Daypart the coups. We alluded to this earlier, but special offers "before 9am", "after 6pm", or "weekends only" help to build other dayparts. No one should mind giving away something that builds other dayparts.

5. Encourage trial of new items. Anyone who is currently in your store or restaurant is already a fan, they don't need too much more convincing. Coupons to try different menu items or purchase complementary items simply increase frequency and ticket average. If you can make it a habit to always get a scone with my morning coffee, I only need the coupon once.

6. Incentivize your core, don't discount them. Dollar off coupons distributed through the same media again and again erode profitability. The same people will see them again and again. It's like standing at your door and giving people a discount - you might as well lower your prices and be done with it. Incentivizing your core with short expiration dates for additional purchases or to bring a friend, however, modify their behavior to your advantage. Likewise, if you find a new pocket of potential customers, don't be shy on the discount. Make it a killer offer to incentivize behavior.

Remember, coupons modify behavior (sometimes on the current visit, sometimes on future visits). They are neither inherently bad nor good. It's how you use them that counts.