Why Discount Vouchers Will Destroy Affiliate Marketing
Want to lose friends and alienate people in affiliate marketing?
Simply tell your peers that discount vouchers – the bedrock of monster affiliate sites, like My Voucher Codes – are BAD FOR BUSINESS.
Advertising guru David Ogilvy summed up why I think discounting to win business is a mistake:
A steady diet of price-off promotions lowers the esteem in which the consumer holds the product: can anything which is always sold at a discount be desirable?
Ogilvy’s Confessions of An Advertising Man – essential reading for any marketer – was published in 1963. But in an age when consumers can price compare any product in real time, I believe it is more true now than ever before.
People search for vouchers or cashback deals at the point of sale. Not while researching retailers: while they are a heartbeat away from entering their credit card details.
Question: Why discount goods that consumers are about to pay full whack for?
Voucher codes mean slashing margins to appease fickle, unfaithful consumers. The same shoppers who’ll likely buy elsewhere in future. Or return voucher-in-hand if they do come back.
“I cut prices harder and for longer!” sounds like a rather desperate customer acquisition strategy.
Discounting is a race to the bottom, just like cashback sites (witness GreasyPalm vs Quidco) and newspaper price wars. Sell at the market price and be done with it.
If you want proof, spend a little time reading the extraordinarily popular Money Saving Expert forums. The site can send a metric tonne of traffic, and presumably sales to match. But the clue is in the strapline: “consumer revenge”.
Skip the war stories like “the time I saved 50p on dented tinned goods”. Instead, read carefully what MSE users have to say about discount vouchers and how they use them. Here are some quotes from the first few threads I checked:
- “Good timing. Need to spend a couple of hunded pound there [at Homebase].”
- “Going [to a comedy club] for a couple of birthdays on 21/2/09 trying to find cheaper tickets….”
- “I know…I put 145.00 worth of stuff in my basket [at ASOS], expecting free delivery…not a sausage and then I tried about 4 different codes”
These don’t sound like incremental sales to me.
(Incidentally, MSE is what Arthur Daley would call a ‘nice little earner’. It’s seldom discussed – although disclosed on the site – that MSE is an affiliate and earns generous commissions on many finance products).
So why do so many retailers offer discount codes? For some, voucher codes work. But for the rest:
1. “Everyone else is doing it”. A weak justification for everything from teenage delinquicy to fascism. Next!
2. “Consumers love them”. I, too, am fond of free money. Vouchers make goods punters are about to buy anyway cost less.
3. Voucher sites earn a fortune for the industry. Big voucher sites earn millions of pounds a year in affiliate commission. The affiliate networks earn 30% override, the management agencies get their taste too. Could their loyalties possibly lie with their pocketbooks?
Retailers: Price competitively, cut out voucher affiliates who add no value and add 10-15% to your bottom line on these sales. You can thank me later.
The sorry state of credit crunch Britain (© Daily Mail) has already made some major retailers rethink their policy on voucher codes.
DRL Ltd – who operate kitchen appliance sites for the likes of Sainsburys, Boots and Next – have canned vouchers. Comet are testing a three month pause.
Expect more to follow suit.
After all this, I have a confession to make. Yes, dear reader, in spite of my distaste for voucher codes, I still promote them on a couple of sites.
The justification is simple: because my competitors do. How can I compete if rival affiliates swipe commission last second using ‘click to reveal‘ at checkout?
At the risk of sounding like the odious Richard Littlejohn: am I merely saying what everyone else is thinking? Your thoughts, please, in the comments. Hate mail to the usual address.
A very useful and important coverage of how the current state of the industry can be summed up.
I don’t necessarily buy all the points as explained above but I think there are elements of truth here that are worrying for all concerned.
I agree discounting continuously via codes or cashback or a combination of is a risky strategy. It dilutes your offering, potentially damages brand equity and possibly upsets your customers who start to question whether you’ve just been ripping them off all these years.
I also think there’s a degree of mania surrounding incentivised traffic at the moment, with merchants jumping on the bandwagon before carrying out due diligence about cannibalisation and new customer acquisition. I find it slightly surprising that a merchant is happy to part with bigger parts of their margins without working out whether all they’re doing is passing this margin onto an existing customer.
Finally Money Saving Expert is a significant worry for any large merchant or brand. Any casual look at their forums demonstrates how savvy online consumers know there are savings to be made and therefore now expect them. If they don’t get them or have a tracking issue with a cashback site they don’t hesitate in demonstrating their irate views with fellow users.
Having painted that seemingly doom and gloom picture for those merchants who have their wits about them there are elements of all points mentioned above that can be used to their advantage.
Targeting key product pushes, working closely with ethical voucher code sites to bulk up online content and coverage as well as setting your commission or cashback rates accordingly to match the quality of this traffic are three things all merchants working these affiliates should do.
Good quality affiliates who you value and are interested in working with you will always be on hand to speak to you and offer consultation. This is a useful benchmark all merchants should bear in mind.
I also think networks are now making inroads into properly understanding voucher codes. This will be critical in 2009. Those that fail to do so are simply holding back the tide. Failure to understand and advise in the best interests of all concerned will only lead to rash decisions and backlash.
So a mixed picture all in all but there are ways through the murk and confusion. Merchants with the time, advice and resource to work intelligently with the right affiliates are best placed to reap the benefits.
Good post Rich.
Personally I think that the main “problem” with issuing Voucher Codes is that most merchants don’t do them correctly; they have the ability to add incremental sales and other networks should really start explaining to their merchants how to do this.
For example, issuing codes that are valid only for new customers (via address lookup), issuing codes for product level items (where there is surplus stock) of issuing codes based on the spend level (and base the code over the AOV).
You have to remember that discount code sites like MVC get a huge amount of traffic, especially in the current financial state and if merchants use them to their advantage then they are on to a good thing!
J
To clarify: I’ve been stuck on a train in the snow for several hours, and had intended to clarify a few points prior to publication. But since the post is now live and generating some interest, I’ll address them here in the comments.
@Kevin – An interesting and considered response. I agree entirely about your ‘mania’ comment. I think a lot of businesses are desperately clutching at ways to cut costs at any cost.
Much of the controversy around voucher codes in recent months appears to have been about the tactics used – ‘click to reveal’ et al – rather than the bigger question of “why discount to win business”. I believe this is the more interesting of the two questions.
I should make clear that my opinions are about the broader merits of voucher codes and not a dig at Mark Pearson or My Voucher Codes. I don’t think any serious affiliate could fail to be impressed with what MVC has achieved in a relatively short period of time.
My take on the tactics we’ve all seen used: they have seen a huge opportunity to do something that was within the rules of the game, gone to town with it and made a lot of money. The fact that the tactics pioneered by one site have spurred the IAB into introducing voucher guidelines shows exactly how well it works.
@James – I agree that it is possible to use vouchers and discounts in an intelligent way. I think your three examples are excellent: vouchers for new customers, product specific and to increase AOV. Alas, all too often it seems to be a case of ‘Save 10% on all our stock for no good reason’.
I had planned to give the example of how Buyagift encourage repeat business: they send first time shoppers a £5 voucher with their order.
Its a long time since I read the Ogilvy book and can’t remember if this is in there, but an interesting exercise is to work out what effect increases in price have on profit – basically its a compounding effect, which is reversed when discounts are used willy nilly.
A lot of retailers seem to be obsessed with volume, whereas the thing that keeps you liquid is profit.
Perhaps when everyone has destocked, flirted with liquidation and downsized, we’ll get back to a ‘you get what you pay for’ consumer economy.
Do Aldi do discounts ?
You can search the full text of the Ogilvy book online, but I think a hard copy is irreplaceable. Just spotted that Todd Malicoat also recommends Ogilvy’s book for SEOs.
Obviously the extent of this effect depends on price elasticity of the product.
Hi Rich,
Excellent article which I feel backs up the point that a few of us have been making for a while, namely merchants need to understand where their traffic is coming from more. I completely agree with Kevin and James, that there are numerous ways to utilise this sector intelligently, but in order to do so you have to a) understand how people use codes and b) understand how it effects your sales.
The points you make on discounting are very valid, and merchants need to weigh up their margins. However when they have done that and come up with an idea as to what they are looking for from this sector (eg. increased AOV or sales of a particular product), then they should work closely with the network and a few selected voucher code partners to achieve those aims.
Looking at the US, the “coupon” sector is huge and significant research has gone into showing that it does work. I think the issue in the UK is a combination of naivety by merchants and opportunism by some site owners. I think that when these two issues are addressed the voucher code sector will become a significant part of the online mix.
Interesting post Richard
Another book recommendation..
“The undercover economist” Tim Harford. If my memory serves me correctly there is whole chapter on why you ultimately make more money by having sales/discounts than not. The key, as already mentioned, is to be intelligent with your offers to capture both those customers who are only looking for a bargain, without losing the high margins from the price indiscriminate shoppers.
This is a very well written post, I’m going to check your blog more often from now on!
It’s ok to have a comment.
If voucher hunting becomes the de facto behaviour for buyers, it means shoppers have an incentive *never* to just visit merchant.com and buy direct but to always go looking for a discount with the double whammy for the merchant of discount and commission, which is a perverse state of affairs for merchants to have got themselves in to.
Fantastic article.
Ultimately in today’s climate advertisers must protect their margin. The hot topic for 2009 (it was definately on the lips of many marketeers in 2008!) is profitable volume. With established voucher and incentive websites it is easy to quickly drive volume to your company – however, each Marketing Manager must be fully aware of the effect on the bottom line. Both as a cost per order (CPO) or acquisition cost and product margin.
The advertiser knows their own margin levels – then they can work out if selling one product at full price and protecting their margin is “better” than pushing out a £10 off voucher code – where they will need to sell XX amount more (tip – remember the other variable costs too – especially from an operations point of view).
Richard, I was going to chime in with what James said about using them wisely, but he beat me to the punch. My mom clips coupons, but the issuing supermarkets typically upsell/crosssell her on related items she wants/needed too (often those competitively priced relative to other merchants, which goes to your concluding point…).
Anyways, will you be at SMX Advanced? I’d love to meet you in person, as you’ve been on my radar since the 44 ways to contact webmasters article. I’m hoping to attend.
Finally, if you’re looking to buy out a site, I have a small blog I started a while ago on Site Flipping which ranks fairly well and has already been the object of a buy offer in the past.
Obviously consumers link discounts and they can be very good for some businesses as long as they are not available all the time. Lots of checkouts have a space for discount code and many consumers now gust google company name and discount code every time they are making a purchase rather than going to purchase because they have the code.
I was going to comment but then I noticed that my email was mandatory – why is this? You’re an online marketer so I presume you’re actually passing these on for spam purposes?
And, no, before you ask I have not ready and T&C’s or even looked for any. I do’nt care if your reason is all laid out for everyone to see in full clarity – you just do not NEED to take email addresses from people to make comments.
@Surprised – The site is powered by WordPress, WordPress as with most blog platforms requires an email address to leave a comment. I don’t spam my readers. Period.
Great Post!
I think that the biggest “problem†with issuing Voucher Codes is that most merchants don’t know how to do them correctly. Really interesting. thanks for posting.