Coupons, co-buying, eyeballs and affiliate marketing

I started thinking about coupon sites after having a chat with Salim back in December and was reminded of my thoughts recently when coverage appeared about Groupon having a valuation of 1.35 billion USD. I’ve bundled co-buying and coupons together for one reason, your average consumer doesn’t care how they save the money or what the multi-faceted business model is of the site that they are on; they are only bothered by how much they can save.

In the past local newspapers, point-of-purchase displays and door-to-door leafleting were the primary ways of getting discounts. Clipping the coupons from newspapers was a ritual for many frugal old people and some retailers became defined by their discounts, notably US retailer K-Mart. Co-operatives were consumers club together to use their buying power are not a new concept either, it was commonplace amongst Irish farmers though these organisations eventually evolved into food industry businesses; in the US commune houses acted as a co-operative for shopping which suited student budgets and was a hangover from the countercultural 1960s.

Coupons, eyeballs & affiliate marketing

So why online, and why now?

Affiliate marketing is well established online, co-operative buying got a bit of a bad reputation from the LetsBuyIt debacle during the first dot.com flurry in Europe. Voucher sites can be viewed as affiliate marketing operations, depending how they are operated it can also extend to offline businesses.

One of the things that has changed is consumer behaviour. Looking to Japan as trend spotters often do, they are confronted by a new generation who have turned away from consumption: luxury goods and car sales are down, purchases are very carefully considered. Admittedly this maybe because of the deflation that the country has undergone for a number of years.

Couple this with the economic uncertainty with companies breaking their agreement with workers, no longer are jobs for life. Indeed may young people are in the unforunate position of ad hoc temporary work with little pay and no rights – what the Japanese call freeter フリータ. It is hard to tell if this move away from consumerism is a genuine cultural change by a generation who saw the sacrifices their parents made for shallow materialism or forced upon Japanese consumers due to present economic circumstances.

Closer to home, I frequently see friends and colleagues make restaurant choices on whether they have a voucher for a particular chain. I can remember the fallout of a similar credit binge by the early 1990s, houses in negative equity and frightening debts on credit cards. I remember speaking to people when I worked at MBNA who had 14,000 GBP in long term debt on their cards and wanted to transfer over more debt from store cards.  I also remember the words of banking veteran who said that the market has a collective memory of about eight years, meaning that similar mistakes can be made roughly every generation. The housing bubble is a classic example of this, mirroring the housing bubble fo the 1980s

It is this generational amnesia that makes me wonder about the current prominence of discount-dependent businesses.

Is discounting a viable long-term strategy for businesses?

In marketing terms, it often means brand erosion, reducing customer choice to price rather than value. However, it is also a handy way of challenger brands being able to drag down leader brands to their level.

How much longevity is there in coupons and co-buying?

Much of the coupon business traffic is derived from search, many of my friends will search for the brand that they look for with an added key word like ‘coupons’ or ‘vouchers’. Voucher sites don’t generally engender that much brand loyalty. It is essentially an arbitrage play for both customers and the businesses themselves. If Google sold vouchers directly or local paid search really took off vouchers could be toast – the only thing holding this back is likely to be perceived anti-trust considerations.

Some of the more interesting things are happening in co-buying where private label sales allow luxury brands to discount in safety by maintaining an exclusivity to their brand.

Keynoir has tried the trickier route of developing a classier version of the Groupon mailing list.  The problem that Groupon and Keynoir both have in my opinion is that they are at the heart of it a mailing list. If the likes of Qype, Yelp, Yahoo! or Facebook got into this game everything would change the 1.35 billion dollar valuation of Groupon would go out the window.