These days, more web hosting companies than ever have resorted to combining coupon marketing and affiliate marketing in a bid to drum up their businesses and increase revenues. The companies have invested a lot in the affiliate model. One of their methods includes sending coupon offers to their vast database affiliates. The affiliates then promote the discounted services through their newsletters, blogs or websites. The coupons may result in a price reduction of a product or a service by 20-50%. The affiliates also make significant amounts of money from these webhosting companies.
Given that the idea of coupon marketing is to acquire new customers, one wonders, how then can web hosting companies know whether or not they are offering the discounts to new customers? How much discount vouchers do existing customers redeem? What percentage of the coupons is redeemed by new customers? If for instance, more of the people using the vouchers are the existing customers, then the company would be offering discounts to people that could have paid full prices anyway, right?
Low production costs mean high margins
Business like software companies can make money through discount vouchers either because their margins are high or because they can convince customers to purchase more goods or services than the vouchers offer. The fact that web hosting services are often software-related and they do not require shipping presents a better chance for these companies to make money from coupon promotions. For instance, a web hosting firm can develop a large server, and offer every customer, say, a 50MB space in it. Because their products do not involve any shipping or deliveries, the entire hosting service present no costs other than maintenance of their server. Ultimately, whether or not they have acquired new customers, they hardly end up being out of pocket.
Old customers need incentives too
One may also wonder whether these web hosting companies consider the possibility that the existing customers using the discount vouchers would have come in and paid full prices anyway. While it may be quite hard to know that the existing customers would still have come in without the vouchers, it is important to note two points here.
- Firstly, these discounts are more likely going to result in more customers returning and buying products, which in fact, they would not have made without the discount vouchers. Increased business attests to this.
- Secondly, in all honesty, it is also hard to determine whether the existing customers would have ever returned had there not been a coupon. In the web hosting business, at times, more significant revenues may result from bringing in inactive customers than trying to get new ones.
Coupon marketing is not the end. Factor in word-of-mouth
Another concern may also be whether or not a coupon marketing campaign in which existing customers redeem 80% of the vouchers while new customers redeem 20% of the vouchers is a losing coupon marketing strategy.
Let’s reason this from the word-of-mouth marketing perspective. There is a chance that a company will win one or two new satisfied customers from coupon marketing (especially if the company’s customer service is excellent). These customers will recommend the firm to friends, and consequently, the company will have more new customers. Therefore, one should not assume that the new customers a business gets as a result of discount vouchers are the only new customers the business will get in the long run from its coupon marketing strategy.
However, if a business is selling physical goods which involve tight margins, coupon marketing needs to be planned from a different strategic perspective. Small fashion retailers in the UK using coupons should consider carefully the size of discount that existing customers get in order to ensure that they maintain good profit margins. In this case, it would be a better idea to offer coupons only to new customers