The Rise of Online Couponing
Ever since Coca-Cola founder and marketing genius Asa Candler introduced his first “paper tickets” in the 19th century, coupons have been a staple for merchants. Thriving across many distinct product categories, they have become standard fare for shoppers—savvy and unsophisticated alike. Coupons quickly found their way online in the early years of the web. During this time, the internet primarily served as a distribution channel for shoppers to locate and then print coupons they would later use in-store. Once e-commerce became more widespread, some opportunistic marketers developed a new, more streamlined approach: the coupon code. The advantages were clear. Rapid creation, simplified distribution, as well as improved tracking and accountability resulted in widespread adoption of codes—often supplanting their printable predecessors and rendering them obsolete. This result, a fully digital version of the coupon, has shown itself to be incredibly versatile and effective for online merchants.
Table of Contents to Jump to Each Section
- Risks and Threats Posed by Coupon Codes
- Warning Signs of Coupon Abuse
- The Strengths and Limitations of Common Preventive Measures
- Affiliate Agreements and Next Steps
Risks and Threats Posed by Coupon Codes
While codes can be a great tool for online marketers to drive traffic and increase sales, they also present their own challenges and unique threats. As the market has matured, new opportunities have become available to clever affiliates and websites looking to profit off of visits from deal hunters.
When online merchants were just starting to adopt codes, there were few risks outside of technical concerns regarding their own systems’ functionality. So the first codes appeared—usually in specialty email outreach campaigns. Believing their audience would simply use or ignore the codes, marketers were comfortable targeting specific customer subsets with certain offers. And these marketers were right to believe so. Why should codes have spread to unintended audiences? No major social network existed. No coupon sites existed. No bargain shopping blog was widespread. Merchants were the channel for coupons.
The “Content Race” of Coupon Sites
One of the first coupon code websites, Coupon Mountain, launched in 2001 following the adoption of coupon codes at retail websites. The idea made sense: web-savvy shoppers wanted a place to find coupons. By attracting all that traffic, surely Coupon Mountain could start to make some money.
And thus began the coupon affiliate business model. Coupon Mountain found they could make money from commissions by directing coupon traffic to retailers. And soon, many other coupon sites started sprouting up. Today, just a cursory search for “coupon codes” reveals dozens of options for the discount shopper.
This introduced an all-important factor: competition. And the market changed significantly. Now that coupon sites were competing for users, they needed something distinctive to attract visitors. Somewhere along the line they had to be better: deeper discounts, wider selection, exclusive codes, increased timeliness.
That was when the Content Race started. The major incentive for each coupon site: have more coupons than your competitors. Do not let others have a larger inventory of valid coupons than you.
Sites and Forums with User-Generated Content
Some sites, such as Slickdeals.net, source their codes from users rather than from their staff or merchant partners. In this model, sites do not copy coupons with the express purpose of gaining a competitive edge. Instead, their focus is on fostering a trustworthy community—one where members can rely on each other to post for the community’s benefit, not for their own personal advantage.
But while these sites prevent intentional violations for competitive gain, they do not prevent accidental infringements by their members. In fact, they tend to reward these behaviors with responses such as “nice find” when a fresh code is posted. Users are often unaware of any foul play or code misuse on their part. The result: these sites may actually be more likely to copy coupons.
Misuse and Other Issues: How Coupon Codes Can Become a Liability
These dynamics create difficulties for many marketers, each with their own distinct coupon strategy. Whether the marketer uses a group of coupon sites as affiliates, only promotes certain offers through specialty sites, or has no direct relationship with any coupon sites at all, they are likely to be affected.
Some common forms of abuse include:
Targeted Codes Leaking to Outside Channels
Let’s say, for example, that an online retailer notices that some of its usually loyal customers have not logged into their accounts in a while. To encourage these customers to return, the well-intentioned marketer issues a specialty coupon code through an email campaign. Although the coupon creates a small short-term loss, the retailer expects to recoup that by motivating long-term loyalty from those customers.
But unfortunately, just one site posting the code can start a chain reaction. Once it makes it onto its first coupon site, it will soon appear on many others. At this point, the key becomes mitigating the losses. A wave of unwanted couponers can rapidly crash through the system and cause serious losses.
Take It, or Leave It?
Once the chain reaction starts, merchants are left with a difficult choice: A) deactivate the code or B) leave it up? Either way, the merchant absorbs a significant cost. In option B, the cost is more obvious—losses associated with the widespread discount in price.
But option A’s costs, though more hidden, can become more of a threat to the merchant. These costs are to the brand image: negative customer experience, frustration, and even account desertion. In the long run, these may be even more significant than short-term monetary losses.
Proliferation of Partner-Specific Codes Around the Web
In other cases, marketers may develop strategies for spreading their coupons via coupon sites, affiliate blogs and other sources. Whether their goal is gaining a new set of customers or clearing out inventory, they are very intentional about what sites they partner with and how they engage with them.
For instance, take a coupon site that serves as an affiliate for a merchant. The merchant has a special relationship with this affiliate coupon site, in which the coupon site prominently displays the merchant’s coupons. In exchange for this treatment, the merchant provides the coupon site with special, deeply discounted coupon codes.
All is well if only this website displays the unique code. Just a portion of potential buyers find the coupon. But what if the code were to reach other, unauthorized sites? The merchant cannot afford for everyone to find this same code. And if they start to, the merchant might be on the hook for a slew of slashed prices that they did not intend.
Fake and Fraudulent Codes
These may be the most insidious threat of all. Easier to ignore because they do not directly affect the bottom line, fake and other falsely manufactured codes can go unnoticed by merchants for quite some time.
But current and prospective customers will notice. They actively search for codes. And unfortunately, they cannot be sure whether or not a given code works until they test it for themselves. The main precautionary measures taken by coupon sites: 1) displaying the success rate of a given code, as reported by their users, and 2) taking down codes that are confirmed as false.
This often creates significant lag time between a false code being published and being taken down. The majority of coupon site users give no feedback about success rate, so a false code can easily go unreported for a significant period. During that time, each visitor attempting to use the code has a negative experience—exactly the opposite of the brand’s intent with their coupon program.
NOTE: These can also affect brands who do not issue coupon codes at all. For example, although Brand X’s website may not even support coupon codes, a user might submit a false code to a website for others to see. The end result is the same: a poor experience for the customer. This topic is explored further in the following section.
Affiliate Blogs, Discount Shopping Sites, and Other Coupon Publishers
Outside of pure coupon sites, there are incentives both for affiliates and non-affiliates to distribute codes. Whether it’s to increase their organic search traffic or improve click-through to a merchant’s site, they generally stand to gain by posting codes.
The main deterrent: the penalties these websites might incur if they are found to be in violation of the merchant’s policies—or of other legal regulations. But the policies and laws surrounding these issues are often complex and/or unfamiliar. And for that reason, managers of these websites can easily be unaware of their responsibilities. When they misstep, they may need to be informed or reminded of the rules. Therefore, to ensure compliance, merchants must actively monitor coupon codes regularly.
Affiliate Sites Co-opting Codes
Consider, for a moment, the cost-benefit equation for a given affiliate. Let’s call it “Wade’s Widget Website.” This affiliate runs a content-heavy blog that covers everything widget-related, and gets paid on a CPA (cost per acquisition) model at merchant “Widget World.” When a coupon code appears on another website, should Wade place the code on his own website?
By posting the code, Wade will almost surely increase his commissions from Widget World. The conversion rate of coupon users is high. These shoppers tend to be highly motivated to purchase, as they believe they are getting a deal. The clicks that Wade can push through to the merchant’s site are likely to result in sales—and plenty of commission money.
But can the merchant afford to pay those commissions? By skimming even more off the normal selling price, the commissions can cause harm—especially if Widget World never intended for the code to be used by affiliate traffic. In fact, the merchant could even end up losing money as a result of this behavior by Wade.
So what’s stopping Wade? If Widget World finds out, he could receive a warning—or simply be expelled from their program entirely. The key is that “if”: whether the merchant will find out or not. If Wade believes he can get away with publishing the code, he can take the risk for some short term gains.
Non-Affiliate Sites and the Chain of Copying
One rather interesting dynamic often occurs with coupon codes. It generally goes like this:
- Merchant publishes the code outside of the affiliate channel (email campaign, merchant website, social media, or elsewhere).
- Affiliate copies that code and posts it on their site.
- A non-affiliate site scrapes the code from the unauthorized affiliate site, then posts it to their own site.
The process tends to follow this pattern. Affiliates do the work to uncover codes, enticed by the potential for better click-through rates and higher commissions. Then, not wanting other sites to gain an advantage (by offering a greater selection of coupons), non-affiliates copy the codes.
For merchants looking to maintain order in their coupon program, early detection is very important here. It is generally simpler to ensure compliance with affiliates than with non-affiliates. Affiliate contracts and the threat of program removal provide the merchant with leverage in those cases. And since the non-affiliates usually follow the affiliates, taking codes down from unauthorized affiliate sites can prevent codes from going viral. It cuts off so many sites down the line.
CouponCabin, Inc. v. Coupon Chief, Inc.
In certain situations, affiliates may take it upon themselves to protect codes. Given the complexities resulting from merchants’ degrees of removal from third-party sites, this would be a welcome alternative.
CouponCabin took this exact approach in a 2009 case against Coupon Chief. After noticing that its exclusive vanity codes were being repurposed on Coupon Chief’s site, CouponCabin filed a complaint asserting trademark infringement, unfair competition, tortious interference with contractual relations, and unjust enrichment.
The case hinged upon the fact that CouponCabin’s vanity codes each included its brand name—or at least some variation of it (the primary example simply being the code “couponcabin”). Ultimately, the case was settled out of court, with Coupon Chief agreeing to cease posting codes that include any CouponCabin trademarks, develop software to prevent users from submitting such codes, and pay an undisclosed amount to CouponCabin.
Despite the lack of a final verdict, this has set an interesting precedent. Vanity codes seem to be the key to developing some form of recourse against third-party sites. By providing coupon affiliates with trademark-based vanity codes, those unique codes can at least establish a reasonable basis for legal action. Although indirect (relying upon affiliates to take such action), this may prove to be a useful point of leverage for merchants.
CouponCabin’s current Terms of Use contain some language that may be relevant to coupon affiliates, and to merchants considering this as an option for their affiliates. The section reads:
“Except as may be explicitly permitted through the Site, you agree not to save, download, cut and paste, sell, license, rent, lease, modify, distribute, copy, reproduce, transmit, publicly display, publicly perform, publish, adapt, edit, catalogue, aggregate, or create derivative works from materials, code or content on or from the Site.”
For further implications of this significant case, see the Justia page for CouponCabin, Inc. v. Coupon Chief, Inc. Unfortunately, you will need a PACER account to access the documents.
More Information
We have noticed a few scams in which sites pose as legitimate coupon sites, requesting personal information from visitors. Articles about these can be found on our blog here and here.
Other Causes for Concern
Though less malicious than their fraud- and abuse-based counterparts, there are other dangers to leaving coupon codes unsupervised. These include:
Expired Codes
Though they were once legitimate, these end up giving the customer the same experience as a fake or fraudulent code. The customer logs in, works through all the steps leading up to checkout, and enters the code in the promo box—only to be denied then and there.
While some shoppers may choose to simply shell out more money, many others will respond negatively to the brand. And their complaint can easily go public, given the convenience of social media sharing. Ultimately, the merchant may be risking the loss of far more sales down the road.
Slowed Ramp-up of Coupon Campaigns
If a coupon code is taking too long to move the needle, the promotion itself may not be to blame. Certain affiliate sites may simply have forgotten to post the code—or could be slow to respond.
By monitoring codes from the moment they are launched, merchants can keep track of which partners may be lagging behind. And accordingly, merchants can remind these affiliates to post their codes.
Reluctance to Use Coupon Codes in Marketing
Concerned about the exposure and vulnerability introduced by coupon codes, some marketers have elected to strike these promotions from their marketing plans. This narrows their options. And unfortunately, also makes it more difficult for these marketers to respond to fluctuations or buying cycles.
With a system in place for monitoring abuse and other issues, marketers can reclaim the opportunities afforded to them by coupons.
Warning Signs of Coupon Risks & Abuse
Overly Successful Coupon Codes
It is generally a plus if your coupon code is generating lots of traffic. After all, this is often a goal of the coupon strategy. But when a code is far more popular than anticipated, it may have found its way into unexpected channels.
Some sample cases where this might come into play:
A) If the coupon was sent out as a targeted email campaign, the number of redemptions might be greater than the number of people it was sent out to.
B) The entire site is experiencing an abnormal spike in visitors.
C) The code is being used on accounts that it was not issued to. For example, if it was distributed to specific email addresses but then redeemed on accounts associated with different email addresses.
Throwing a Wrench in Your Campaign Data
Unfortunately, any unanticipated coupon distribution can invalidate the data you use in your coupon evaluation process. That makes it very difficult to track success of special email offers, offline mailings and other promotions.
If coupons are showing up in unexpected places, it can be nearly impossible to get any meaningful insights from the campaign. With such compromised data, everything from ROI analysis to evaluations of your affiliates can be rendered fruitless.
Anomalies in Website Behavior
Coupons should change your visitors’ habits. They are supposed to. However, if you start experiencing a dramatically different response from what you expected, there is cause for concern.
For example, if coupons intended for loyal customers have resulted in high traffic from one-time shoppers and new accounts being created, perhaps your coupon channels need a closer look. Likewise, if a coupon targeting recent shoppers ends up being redeemed on many accounts that had not logged in for months, be on alert.
It’s useful to create a set of expectations based on behaviors observed in the past. By approaching a coupon campaign with a good idea of what you should be seeing, you will be more prepared to respond early.
High Incidence of Coupon Failure or Rejection
If coupon entries are failing at an abnormal rate, this is probably not attributable to user error. What’s more likely is a fraudulent or expired code appearing somewhere online. Unaware that the code will not work, customers go through to checkout and fill in the code box—only to end up disappointed. This can even happen a few times in a row for a given customer, who may be cycling through a list of fake or old codes found on a particular website.
When this happens, customer experience suffers. New visitors and long-time customers alike can be turned away—either by a single event like this or by a series of such events over time. But with a more proactive approach, a merchant can intercept most of this traffic and ensure a better outcome.
Extra High Commissions for Certain Affiliates
If you distribute specialty codes through certain affiliates, you may see some interesting results when coupons are copied by other sites.
Let’s say you negotiated a special partnership with an affiliate. In exchange for being featured in the affiliate’s “Top Deals” on their homepage, you provide the affiliate with a unique code that includes an extra discount (your normal discount code is 20% off, but you gave them a 25% off code). To balance out that extra discount, the affiliate takes a lower commission than normal.
Other websites would clearly be interested in providing that code to their visitors. 25% off is a better deal—and therefore more likely to result in conversions. And for systems that assign commissions based on cookies alone (either a first click wins or last click wins basis), this could cause some trouble.
If any of your other affiliates happened to copy the code, they would get their full commission and the sales they generated would be at an extra discount. Even worse, because of the higher conversion rate from the 25% discount, they would generate more sales. Highly discounted sales with a full commission. That’s a double-hit that most merchants cannot afford.
If You Use Commission Overrides:
One way to prevent those double hits is to automate commissions based on the code entered. Overrides can ensure that every time the specialty 25% off code is entered, the commission goes to the affiliate with the special agreement.
In these cases, you are unlikely to notice extra high commissions. Your system should prevent affiliates other than the special affiliate from cashing in on that code. And that special affiliate’s commissions will not jump too high, since they originally accepted a lower commission rate.
But while overrides can prevent unearned commissions, they cannot stop coupons from being redeemed at unexpectedly high levels. Excess coupon traffic from those unauthorized affiliates can turn your carefully targeted promotion into public knowledge—meaning no one pays full price. In other words: even if those other affiliates are not profiting, they can still cost you.
Resorting to Code Cancellation
Canceling a code is not an ideal outcome for a merchant. It generally means two things have happened:
A) the merchant was either about to lose, or was already losing money, and
B) customers who try to use the code later will be frustrated.
In such cases, coupons can become a liability for marketers. They persistently inhibit marketing efforts. And although codes may sometimes be canceled simply because demand was higher than expected, the coupon channel can often be responsible. If this is common, it might be a sign that some change is needed.
The Strengths and Limitations of Common Preventive Measures
Manual Search
Much can be done with the combination of an inquisitive mind and one’s favorite search engine. Fortunately, coupon codes are strings of text that search engines are perfectly equipped to handle. So when a merchant needs to check up on legitimate codes, they’re in luck.
Let’s say a code is “BIKEDEAL2013” at the merchant, and that the merchant wants to check up on where this code is distributed. A few targeted searches with “BIKEDEAL2013” in quotes and various modifiers such as “coupon” or “code” can quickly reveal many of the sites who have posted the code. From there, one can approach the violating sites and request removal of the codes.
Noisy Search Results
Although manual search is a valuable starting point for investigation, it is likely to return with a considerable amount of noise. Many coupon codes tend to be composed of common phrases or terms (such as in BIKEDEAL2013), as they are easier for shoppers to remember. But these search terms will often return incredible numbers of unrelated results, making the code difficult to research.
Even with more unique codes, it can be difficult to quickly track down all sites where a given code appears. One website may have dozens of pages that end up in the results, burying some websites deep within the rankings. And at the same time, the investigator may have to deal with completely irrelevant pages in the search results. This all contributes to a lengthy process, making it a challenge to respond effectively.
Google and Twitter Alerts
Alerting services, such as Google Alerts and Twilerts can send email notifications for specific keywords one wants to monitor. Even more useful, these sites can send notifications as they happen. (In Google Alerts, this is a standard menu option. And although somewhat hidden in Twilerts, entering “every 10 minutes” or some other variation into the When field can trigger alerts at such a frequency.)
This makes them a worthy option when choosing to launch a new code. For an organization that generally runs a limited number of promotions at once (up to 20 or so), these alerts can be a useful tool.
Limited Filtering Capabilities
However, these alerts do not allow the user to whitelist or blacklist any results. Nor do they detail any affiliate relationships or associations that a site may have. They simply return all relevant content to the search terms, without much of a filter. A user might receive dozens of emails regarding legitimate coupon sites or affiliates before seeing anything suspicious.
Commission Reversal
In certain cases, upon recognizing that affiliates are misusing coupon codes or abusing their policies, merchants will elect to manually review commissions. When an investigator finds behavior linking sales due to affiliate traffic with coupon codes, the commissions for that sale is taken out of the affiliate’s payment.
This can be highly beneficial when such transactions are in high volume and are easy to find. Sometimes, with the right data set and the appropriate queries, thousands of these transactions can be uncovered in minutes.
Often a Slow, Inefficient Process
In cases with intricate forensics, the returns quickly diminish. The information is complex and the volume is usually lower. Furthermore, difficult investigations are more likely to result in errors—which can harm a merchant’s relationships with productive affiliates.
Commission Overrides
Commission overrides are mentioned in one of the sections above. But to recap: some systems can be automated to prevent the double-hit of discounted prices combined with affiliate commissions. In these cases, when a code is entered, certain affiliate relationships are ignored.
For example, let’s say a merchant provides a specialty code (at a deeper discount than normal) to an affiliate. To compensate for that exclusive promotion, the affiliate agrees to accept a lower commission rate than normal whenever that code is used. But what if a different affiliate copied the code? Would they still get their full commission?
Not with an override. The merchant’s system ignores all other affiliate relationships when this specialty code is entered, crediting the special affiliate with its discounted commission instead. This prevents other affiliates from profiteering off of the specialty code.
In other cases, a merchant may want to prevent all of its affiliates from earning commissions off of certain codes. In these scenarios, the system simply ignores all affiliate relationships entirely—granting no commission at all. The merchant absorbs only the discount, without having to pay any affiliate on top of it.
Does Not Prevent Code Proliferation
While this method can be highly effective for companies with the tools and resources to set it up, it only goes so far. Though it may prevent affiliates from taking unearned commissions, it cannot prevent the spread of coupon codes to websites. It will not assist marketers in limiting the redemptions of their codes. So although they may no longer be double-spending by paying a commission and cutting their prices, they may receive an unsustainable or unprofitable amount of orders.
Affiliate Agreements and Next Steps
What to Include in Affiliate Agreements
Merchants can promote healthier economies in their programs by providing clearer regulations. With more comprehensive guidelines, affiliates will be less tempted to cheat—and will have fewer bad examples to follow. We recommend including clauses that address the following issues:
- What Types of Codes Your Affiliates Can Post — for example, specifying that affiliates are only allowed to post codes distributed through the affiliate channel.
- Distribution Restrictions for Coupon Codes — clarifying where the codes are allowed to be posted. In particular, these can include clauses that prevent distribution of codes to third party sites.
- Responsibilities Regarding Expired Codes — both the merchant and affiliate should do their part. Merchants can be expected to provide valid expiration dates for their coupons, and affiliates should be expected to take codes down when this date comes.
- Policy Regarding Fake Codes — this almost always merits being removed from the program, especially if your program only allows the posting of codes that originated in the affiliate channel.
- Responsibility for User-Generated Content — the agreement should make it clear that the affiliate bears responsibility for removing any unauthorized, user-submitted codes.
- Penalties for Violations — including how an affiliate’s program status, commissions and privacy may be affected.
Next Steps
Given the sophistication of the online coupon industry—and the ease with which such codes can be distributed—it’s essential for merchants to proactively monitor their codes. Early detection offers many advantages over prolonged exposure: lower payout of unearned commissions, more precise targeting of coupon promotions, higher customer satisfaction, and better relationships with productive affiliates.
We recommend starting with manual search. Do a quick investigation into your most recently released codes. Are unauthorized sites posting the codes? Are they affiliate or non-affiliate sites? Have any fake codes appeared, or have expired codes shown up on the sites? Then, after that initial evaluation, it might make sense to start ramping up your monitoring with Twitter Alerts and Google Alerts. These can cut down the daily time investment of tracking your codes.
If you need a more comprehensive solution, BrandVerity’s Coupon Code Monitoring service can reduce the noise and investigation workload of other methods. Automatically crawling all sites that meet the user’s criteria, the service includes sophisticated tools for whitelisting authorized sites, identifying affiliate relationships with the sites that post your codes, and ensuring actionable steps toward compliance.
