Free coupons vs paid coupons : What’s the benefit to user [Part 2]

[A guest post by Anurag Aggarwal, co-founder of coupon site Khojguru on the Free Coupons Vs Paid Coupons debate. This is the second of a three part series]

In the last part of the piece I concluded that the free coupon model is better than the paid coupon model for a merchant and hence has some inherent advantages;

–          Higher density of merchant offers as they can work across the spectrum of offers.

–          Higher merchant retention rates as they can cater to their different requirements at different points of time.

–          Deeper relations with the merchants with short term, medium term and long term analytics.

In this part I will share my take on the free vs paid with data and observations on the user side.

I define coupon users under the following 3 categories:

  1. Impulse coupon users : These are impulsive buyers in general. However, their impulse is fuelled by coupons and deals. This set is most likely to take a coupon immediately if they like it. This is the biggest segment for deal a day players or players selling deals. The redemption rate though is on the lower side for this set.
  2. Planned coupon users : These are the real deal seeker. The cliché goes that Indian consumers are always on a lookout for discounts. In my opinion, everyone likes a good bargain but very few are actually actively looking for one. This set actively looks for discounts. They search diligently and take an offer which gives highest savings. They do not have much brand loyalty and may switch even for a Re.1 extra. For them free or paid hardly matters. This segment provides the highest redemption rates. Hence, they form the core target for the industry. To capture these users accessibility and availability of offers is very important. A company either should have a very strong brand recall or should be ahead on search (available on major search engines) to capture this set of users.
  3. On the move coupon users : This is the most untapped audience though the biggest set. These users will use a coupon if they have easy access to it at the point of purchase. Due to lack of well marketed technology services offering solutions for this set, this set remains untapped and is the next growth driver for the coupon industry.

To give the readers a perspective of the size of each of the above sets, I would plot these sets on an overall market size estimation chart.

Segment 1 the smallest of the 3 has the maximum coupon buyers.

Segment 2 is where there exists tough competition between the free and paid coupon services. It is about reaching the user and with a better deal.

Segment 3 is most suited for free coupon players, since, free coupons is the easiest and most accessible coupon platform when it comes to on the go coupons.

So, if we go by these estimates, the debate tilts further in favour of free coupons. The sheer size of the current market available to be addressed by free coupon services is a significant multiple of the paid coupon service. I also think that COD does not fit well in the deal space (if it does it makes sense only to some users in segment 2).

As was mentioned by the readers on the previous post, I would also like to point out that I am talking about a model where the customer does not have to pay anything upfront. The coupons can be taken for free. The original Groupon model is where the customer pays the full deal amount upfront. I would say in India the model was started by companies like khojguru.com and medals (which is now inmobi) way back in 2007. In 2010 many coupon selling companies in India started charging only their commission from the users to further fuel demand in the segment 1 and also pull some people from segment 2 to segment 1.

Apart from the numbers, the free model has some inherent advantages for the users. I am sure that;

  1.  90 out of 100 readers would agree that they would not want to buy a deal if it is also available for free.
  2. They would also not want to make 2 transactions (one to buy the deal and then second to buy the product/service).
  3. They would love easy and free accessibility to a deal at the point of purchase.

So, I wonder if the free deal model is so good, then why aren’t more companies doing it, why does the revenue model elude so many and why is the paid model a preferred model with the investors? That bit in the next and final post of this series.

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