Thursday, June 24th, 2010

Coupon sites are, by far, the largest segment of affiliate marketing. The coupon site business model begins by aggregating coupons, sales, and promotions available on a retailer’s website or provided via other marketing campaigns (e.g. e-mail, search engine marketing). The coupon site then creates a separate page specific to each retailer highlighting all known promotions. In exchange, the retailer pays a commission to the coupon site for every customer who clicks on these promotions and then buys something on the retailer’s site. To be blunt, our advice to our clients is these coupon sites (note: we assume somewhere a coupon site adds value, but we haven’t seen one yet) are literally just diverting traffic already destined for their site and cutting into their profit like a toll booth on a highway.

The Coupon Site Misrepresentation

Coupon site’s claim their value is similar to the value of the coupon section of the newspapers. The theoretical value proposition is that consumers are perusing sales and by seeing the coupon code, the consumer is then motivated to purchase from the retailer’s store. In practice, however, the coupon sites simply target consumers who were already going to the retail store. To compound the lack of value, the coupon site usually just repeats the coupon or sale that is prominently featured on the retail website. This is critical for retailers to understand – the coupon sites SIMPLY TARGET CONSUMERS WHO WERE ALREADY GOING OR HAD ALREADY VISITED the online retail store. Additionally, the coupon site usually highlights the deals that are either ALREADY DISPLAYED PROMINENTLY ON YOUR WEBSITE or expired.

How the Coupon Sites Create a Toll

To illustrate how the coupon site toll works, let’s walk through two scenarios of how consumers interact on the web and how the coupon site gets a commission.

Toll Scenario #1:

The base case is that the consumer starts to type in the retailers store online (e.g. target.com). Google, in its effort to help consumers, defaults into the search box coupons. The retailer, however, should note that the consumer was already searching and intending to visit their online retail store and likely will see any coupons on the site directly. However, the consumer might skip the retail site and goes first to the coupon site who is offering ‘special deals’. In reality, the coupon site often repeats basic promotions and/or general policies. A common promotion on the coupon site is Free Shipping for orders over $X which is usually basic policy for any retailer. The user then clicks on the free shipping “promotion” and goes to the website to purchase a product. The coupon site gets a commission for the following:
(1) Re-directing traffic heading towards retailer in the first place
(2) Offering a basic promotion such as Free Shipping that the consumer would have gotten without going to the coupon site.

Toll Scenario #2:

The consumer is already on the retailer website and identifies a product to purchase. Before purchasing, the consumer decides to look for additional coupons and then searches for coupons and goes to a coupon site. The coupon site actually provides no additional discounts, but the user – for convenience reasons only – clicks on the link back to the retailer website to complete her purchase. In this case, the coupon site still gets a commission for the sale because of the convenience click even as the coupon site neither attracted the consumer in the first place nor added any additional value to make the sale.

www.RetailMeNot.com Toll on Target.Com Profits

To see an example of the coupon site toll in action, search on Target Coupons and click on www.RetailMeNot.com – usually on the first page results. I have attached a screen shot below. You should first notice that the coupons include a free shipping coupon on purchases over $50. Free shipping, of course, is just Target.com standard policy not something Target should be giving a commission to RetailMeNot. You should also note how much they encourage the visitor to click on their links as that is how they receive a commission. Finally, the other ‘coupons’ are out of date and thus worthless for Target but still provide a commission for RetailMeNot.

In summary, Retail Me Not provides no benefit to Target and simply collects a toll if a visitor happens to go to RetailMeNot.com before they go to Target.com. It is a great business model for the coupon sites and terrible for the retailer.

Posted by Jeff Aliotta