Free coupons vs paid coupons : What’s the business model behind free coupons? [Part 1]

[Editorial Notes: The recent move by TimesDeal, to reverse the deal/ coupon business in India by making it free has triggered the free Vs paid deal debate. The original model, pioneered by companies like Groupon in the US was the free model where you collect money from the merchants later. However, in India, perhaps because of the lack of bandwidth to collect from the merchants later, sartups that offered deals reversed the model and started charging the customer upfront for deals. Now the Times group has reversed the model again. Here’s a guest post by Anurag Aggarwal, co-founder of coupon site Khojguru. This is the first of a three part series. ]

Retail in India is growing both online and offline. While discounts coupons and deals work well in organized retail, free gifts work wonders in the relatively unorganized market or retail without any fixed retail price.

Moving of TimesDeal from a paid coupon model to a free coupon model has sparked the free coupons vs paid coupons debate. With over 5 years of experience in the couponing space with khojguru.com, I am sharing my thoughts on this debate in a 3 part series.

In the first part, I will share various reasons why vendors give coupons and why a free coupons platform can address more of these reasons than a paid coupon platform.

There are several reasons why merchants would want to dish out offers or coupons:

  1. Improve conversion of footfall: This is most prominent on e-commerce portals. Many websites place coupons on their own homepage/landing pages to try and achieve higher conversion rates. Typically 5% to 15% discount is offered in these cases.
  2. Induce Trial and User acquisition: To spread awareness and get customers to try newly launched product range, service or business. Free gifts and aggressive offers mostly fall under this category of reasons to give discounts.
  3. Sales promotion: For a short term push in sales to achieve short term targets. The offer varies depending on the shortfall J
  4. Push average ticket size: To temporarily improve the average ticket size and thus try to induce the customer to buy a wider range of products. Higher ticket value based offers are most common in these cases.
  5. Inventory clearance: The offer varies depending on the size of inventory and the urgency to clear it.
  6. Me too: My closest competitor is doing it hence, I must do the same. This is most common with beauty salons.

Thus considering everything else the same a free coupons platform is a better proposition for a merchant and has the following 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 part 2 I will share my take on the free coupons vs paid coupons debate from a user’s perspective.

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