Thoughts on the Convergence of Coupons, Loyalty, Analytics, Mobile and Payments

I answered this question recently on Quora: Convergence of Coupons, Loyalty, Analytics, Mobile and Payments – Who are going to be the Winners and Losers? Why? in the following way:

The biggest issue for loyalty programs and coupons is an analytics one: namely demonstrating incrementality. Without the ability to demonstrate that the sales that are being driven by these devices are incremental to what you would have gotten otherwise, you’re not ever going to be able to scale successfully. Loyalty and coupon vendors have done a poor job so far of developing analytical devices and models that convincingly demonstrate incrementality. Technology for tracking redemptions and also tying transactions more directly to actual unique customers and households is crucial.

Today we have a very jumbled and confusing picture where (inter alia):

  • Merchants are subsidizing sales from already-loyal customers
  • Companies pay extra to drive a sale today they would have gotten tomorrow anyway at a higher margin
  • The transactional/tracking overhead of paying coupons to customers further dampens already-depressed margins
  • There is a timing issue (this is especially demonstrated with Groupon or LivingSocial-type programs) where, by the time the full negative impact of deep discounting is known, it’s too late to rectify
  • The customers that merchants think of as their best ones, are not really loyal but look good because they buy frequently. Merchants need to be measuring whether these customers buy in the absence of discounts and also whether they are promoters/influencers and tell others about products (something inherently difficult to do)
  • Incentives are misaligned between vendors and advertisers – some of them are hoping for breakage and others are trying to get more redemptions. Also the vendor salespeople selling these programs/software add further complication depending on the business model they are employing
  • This is a big one: Good, loyal customers often feel like they’re getting screwed when new customers get big discounts for joining/signing up

There’s plenty more here to think about, but the fundamental issue to always think about is the ability to drive incremental transactions. Also, I believe social media analytics and social referral/loyalty programs can help answer some of these questions by tracking referrals, identifying influencers and creating programs that have a better shot at being incremental, and are more transparent with clear criteria that won’t annoy existing customers who are not eligible for new customer promotions.