Sunday, August 21, 2011

How to Estimate Value of an Online Coupon Program?

Online coupons are often used to boost Facebook fan base. But they come at a cost to the company. Brands looking to throw a coupon out there need to have a good estimate of redemption rates for their category and the value of actual purchases couponing fans will generate. Consider this:

CPG brands can expect 17% online coupon redemption: The U.S. Mid-Year 2011 CPG Coupon Industry Facts report by NCH Marketing Services shows Internet home-printed coupons' redemption rate in second place with 17%, right after instant on-pack coupons (23%). (Source: In other words, online coupons have become the next best option for deal seekers after finding the coupon on the package. 

Online coupons bring in new customers: Another important finding comes from Knowledge Networks, which found that nearly half (46%) of CPG digital coupon redeemers from 2008 to 2010 had not previously bought that product. (Source: 

This is terrific news so far, but we need to add a few more variable to the equation to make sure that the online coupon will be worth your efforts:

Organizational cost based on:

  • Cost of product * expected number of redeemed coupons
  • Cost of fulfillment

Agency cost based on:

  • Cost of designing/programming the coupon
  • Team hours to promote the deal
  • Team hours to manage the process before and after posting coupon

If the coupon is on a Facebook fan page, adding all costs and dividing them by the number of new fans will give us the cost of acquisition for a new fan

Will each fan be worth the same? Probably not, considering some will never come back to visit the page while others will recruit friends. Let's think of a scenario where

  • 50 percent of new fans never visit the page again, nor do they purchase the product at full price
  • 20 percent visit the page again, but do not purchase again at full price
  • 30 percent become loyal fans who visit again and purchase at full price

The real value of the coupon effort will come from those who become loyal fans and customers. In this case, we'd need to take 30% of those new fans and multiply their number by the average profit they bring to the brand.

Gain from new fans:

(Total number of new couponing fans * % who become customers) * Average profit from new customer

Take the cost of acquiring new fans through a coupon out of this gain and you'll find the real value provided to the organization. 

Coupon Program Value = Gain from fans who became customers - Cost of acquiring all fans

In a low or negative value scenario, you may find that you spent too much to acquire the few fans who became customers. In a positive value scenario, you'd find that enough fans converted to customers, covering the cost of the program and bringing profits. 



Posted via email from dotwom's posterous

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