The Drug of Discounts: Couponing Addiction and What to do About it

Jun 25, 2012

A woman clipping coupons.

I recently googled “list of controlled substances” and came across an 11-page US Department of Justice report from April that categorizes and groups all illegal drugs from A to Z. Everything from the active ingredient in Marijuana (THC) to Ketamine, Demerol, granulated opium and Heroine. I bet you didn’t know that the sleeping pills Ambien and Lunesta are on the list too?

Before you start drawing the wrong conclusions, I sought out the list out of curiosity following an article I’d read about J.C. Penney in the Harvard Business Review. It occurred to me their customers might be hooked on a type of drug that gets almost no press and certainly didn’t make the DOJ’s illicit roster.

I’m talking about discounting and couponing. The article, by Alexander Chernev, an Associate Professor of Marketing at Northwestern University’s Kellogg School of Management, explained how J.C. Penney’s “Fair and Square” pricing initiative, launched in January, has pretty much fallen flat. By so suddenly abandoning their decades-long commitment to frequent sales and discounting, Chernev argues JCP customer perceptions of what constitutes a “fair price” became entirely suspect. Even if non-sale prices were lower, JCP customers remained more eager to buy if the sign, promotion or coupon said “SALE.”

But J.C. Penney isn’t the only retailer struggling with coupon creep addiction. Just think about the TLC (The Learning Channel) hit Extreme Couponing and its season three rebranding of Extreme Couponing All-Stars. If the occurrence wasn’t commonplace, you can be sure this show and programs like it wouldn’t have a chance. For marketers, especially as we inch toward the end-of-summer sale season and the back-to-school rush, “it’s important to remember that couponing is only one promotional tactic, and while it builds loyalty, it is not a panacea.”

Ron Johnson, J.C. Penney CEO states that, 10 years ago, a 38% off deal was enough to entice shoppers to buy; that sales threshold today is as high as 60%. And not only are the percentages up, the frequency of such fire sales are up too with a reported 590 promotions in 2011 alone. That’s some kind of offering every single day for one and a half years! I don’t know about you, but when you start talking about something whose continued effectiveness requires increased dosages at heightened frequencies, that to me has all the markings of abuse, resistance and dependence. Sounds a lot like a drug doesn’t it?

Loyalty is a strategy and includes many tactics aimed at rewarding good behaviors—not just couponing or accumulating points.  JCP rewards has some interesting elements, albeit with an underfunded value proposition, but creating personalized engagements, building fans through social media and other ongoing outreach programs are also critical to the mix to leverage the full scope of opportunities to build brand allegiance. In other words, like every-day-low-pricing or couponing, building loyalty itself must ultimately be the endgame in any comprehensive marketing strategy.

While capturing that big picture can sometimes prove elusive I guarantee you this: concentrate on crafting a superior shopper experience in-store, online and via mobile, and do that with seamless integration throughout the customer lifecycle and then you’ll begin to wean your customers off their couponing drug of choice. That is the beginning of the loyalty equation. And it didn’t come in an envelope or email saying “deal, deal, deal.”

Unlike JCP’s “Fair and Square” pricing plan, the company’s loyalty program has promise.  The opportunity is to shift value away from coupons and into the loyalty value proposition. Either way, for retailers, it’s time to break the couponing habit once and for all. In my continuing blog series on couponing and loyalty, you’ll learn how your loyalty program can become like rehab for your coupon-addicted customers. Still don’t think couponing can be a drug?

How Much Couponing is Bad for Your Brands Health? Read the next post in the series.