Promo code campaigns have long been used by eCommerce retailers as a way of driving conversions and increasing revenue. They have become so ubiquitous that they are now a regular part of the online customer journey.
At the same time, the value of promo codes as a marketing tool to entice online customers has been a long-running debate. The biggest question is, are they worth it?
On the one hand, they can be an effective marketing strategy that gives customers another reason to make a purchase. On the other hand, they have serious drawbacks that can negate their perceived value. Let us take a deeper look at the pros and cons of promo code discounting.
What Are Promo Codes?
Promo codes (also known as coupon codes) are a computer-generated combination of letters and numbers that make up a specific code. This code can be entered into a promotional box on an eCommerce site’s shopping cart for price discounts or services like free shipping.
Promo codes are usually around 5 to 10 characters in all capital letters. They can appear to be random (SK01616SF) or they can spell out actual words or portions of words (FREESHIP50). The code itself can give clues as to what kind of discount it provides. In this case, FREESHIP50 would mean free shipping with a $50 minimum purchase.
To get a promo code, customers need to look for it. A Google search for “promo code” will generate a list of websites like RetailMeNot, DealsPlus, Coupon Cabin and Slickdeals that offer codes for discounts. More definitive searches like “Macy’s Promo Codes” can help customers narrow their search to specific online retailers.
The Pros of Promo Codes
Online shoppers love to feel like they are getting a deal. Promo code discounts or incentives give customers a positive, reassuring feeling. This fact is rooted in psychology, as studies show that scoring a promo code can actually increase an online shoppers’ oxytocin levels. Oxytocin is the hormone that makes people feel happy.
“Getting a coupon, as hard as it is to believe, is physically shown to be more enjoyable than getting a gift,” said Paul J. Zak, director of the Center for Neuroeconomics Studies at Claremont Graduate University.
Maybe this is why 90% of consumers used promo code coupons in 2020. It is projected that 145.3 million U.S. online shoppers will use promo code coupons by the end of 2021. Digital coupon redemptions are expected to surpass $90 billion by 2022.
Something is driving all of those consumers, as promo codes come with many benefits, including:
- Easy to track the progress of a brand’s marketing strategy
- Increases brand awareness
- Helps grow an email subscription list
- Introduces new customers to an online store
- Coaxes once loyal customers back to an online store
- Encourages customers to buy other non-discounted items
- Generates word-of-mouth advertising
- Reduces inventory
The Cons of Promo Codes
Promo code discounting is popular in eCommerce because it is an easy way to convert customers and increase sales. But that does not mean it is the best way. Despite the benefits, promo codes can actually hurt a brand by draining profit margins and tarnishing brand reputation.
They Negatively Impact Profits
In the long run, promo code discounts hack into a brand’s profit margins and reduce total revenue. When customers redeem online promo codes, the brand ends up selling products below their procuring price. And since most consumers find codes on an affiliate website, retailers must also pay commission to the affiliate. All of this cuts deeply into any profits earned from selling products at discounted prices.
They Attract the Wrong Type of Customer
While promo codes can increase brand awareness, they can also attract the wrong type of customer. By sharing promo codes publicly, brands run the risk of attracting customers outside of their target audience. These customers are bargain hunters looking for the best deals. While not necessarily bad customers, they are usually one-and-done shoppers and have little interest in brand loyalty.
They Cheapen a Brand’s Image
Being overly reliant on promo code discounts can actually decrease the perceived value of a brand’s products. They also send the message that a brand’s products are not worth as much as they are normally sold for. Worse, they can make a brand appear “cheap” in the eyes of consumers, and that is a hard reputation for any brand to overcome.
They Cannibalize Existing Income
Price cannibalization occurs when an eCommerce retailer discounts a product without understanding if consumers would buy the product without the discount. Even regular customers get used to buying at a discount and will not make a purchase unless there is a sales price. Over time, they may demand increasingly higher discounts to buy the same products. In this way, a brand gives discounts to those customers who would buy from them at regular prices anyway. This leads to cannibalizing of profits that were already being generated before the promo campaign.
They Interfere With the Customer Path-to-Purchase
Many eCommerce merchants do not offer the promo code directly on their website. Instead, they will place the codes within affiliate marketing programs or email campaigns, blog posts or print advertising. This means customers who want to use a promo code need to search for it. Navigating away from the original eCommerce site interferes with the purchase path. If a customer cannot find the promo code they need, they probably will not return to the eCommerce store and abandon the sale altogether.
They Often Do Not Work
eCommerce stores will often omit an exact expiration date for a promo code, meaning the offer can end at any time. Online stores may discontinue a promotion at any time and without notice. When this happens, the code will not work. Customers then need to look for another code or contact customer service. Either scenario might be enough to cause frustrated customers to abandon their cart and leave negative reviews about the brand’s customer service.
To Promo Code or not to Promo Code?
Brands that decide to go the promo code route need to put some serious thought into it first. Questions should be asked about the long term implications of adding promo codes to their marketing strategies. Will they improve the bottom line or cut into overall profit margins? Will they attract new customers or bring back old customers who may have gone elsewhere chasing other coupons? How will they impact brand perception?
The question is not whether brands should use promo codes, but how they can be used strategically. In the long run, promo code discounts should never be given out blindly and on a consistent basis. Those that think it out first can reap the many benefits that promo codes offer.
There are alternatives to promo codes. The team of eCommerce experts at Scalefast can talk to you about the benefits of flash sales, specialty stores and other sales events. We can even help to implement them for your brand. Talk with a Scalefast expert today to learn more about our end-to-end eCommerce solutions.