Free Coffee and the Incremental Discount Coupon Tactic

As I headed out the door the Lovely Mrs. McKay handed me a coupon from the new C store in our neighborhood, saying “You've got to stop for gas anyway. Here's a coffee for the road.”

The coupon offered a “free coffee beverage” from, oh, let's call 'em “Comfort Brothers Gas Station and Convenience Store.” I thanked her and slipped it in my pocket.

Does a lower price boost sales?

Will the availability of a discount, or a membership card, or a “get one free after purchasing ten” punched card appeal to everyone? Of course not. Some shoppers enjoy clipping, collecting, and organizing coupons to take advantage of reduced prices on household goods. Others see the time required by that process to be part of the price they pay for your service (or product), and will happily agree to full rate not to be bothered with it.

If you offer a discount to shoppers who would have paid full price, you lower profitability. On the other hand, not discounting for the undecided leaves some inventory unsold. That reduces potential gross sales.

How can you tell which is which?

The answer is to let them select themselves.

Make multiple offers at different price points to maximize sales. Those who wish to pay full price may do so, and those who won't will find a subsequent price/value ratio which works for them.

Here's how to make it work:

Let's imagine you have purchased a mailing list of high probability prospects for your new service. Send a letter, or post card, or other mailing piece to the entire list. Offer to sell them your service. Explain why you offer a good value. Some will purchase. Move their names from your “general” list to the “paid full price” list. Guard this new list. The names are golden.

A couple of weeks after your first mailing, send a twenty percent off coupon to everyone who remains on your “general” list. Segregate the names of those who respond to your second mailing into a “twenty percent discount” list.

In ten more days send the remaining names on your “general” list a thirty percent off coupon. See how this works?

You're accomplishing two things through this process.

First, you're maximizing sales at every price point. Second, you're segmenting your general list into groups of people who have now revealed the price at which they're likely to find your future offerings appealing.

The percentage who bought from your very first mailing, divided by the total number of pieces mailed, is your base conversion rate. Over the next few months you might get as much as ten percent more than your base conversion rate, by offering these incremental increases in discounts. Expect the biggest response to be to your first coupon mailing. Each successive offer will produce a smaller number of buyers who will decide the price is finally right.

Of course, the biggest factor which determines your base conversion rate is the offer itself.

Specific dollars (cents) off tend to be more appealing than do percentages, although that can be affected by the market and the range of prices. Another proven appeal is to offer a reward such as free shipping or gift wrapping, or a free upgrade to anyone who spends a minimum amount.

And you'll always want to print expiration dates as part of your call-to-action to force a decision. “This offer good this weekend only,” or “Offer limited to the first 100 customers or close of business Friday, whichever comes first.”

But, I digress from my personal coupon story.

After gassing up the car, I went inside to pay and to pick up a cup for the road.

The coffee menu offered “a full-line of latte and mocha beverages served hot, iced and frozen, with gourmet flavored syrups and chocolates." Every conceivable latte, espresso, and cappuccino. Full caffeine, half caf, caffeine free. With and without sweeteners, cinnamon, or chocolate. Iced lattes and mochas. Frozen lattes and mochas.

Thinking of my blood sugar, I finally decided on a simple cup of house blend.

I presented my coupon and was told that they couldn't honor it as payment for plain coffee. The offer, as I could plainly see, was for one of their prepared coffee beverages. Not for a simple cup of coffee.

“Are you serious,” I asked? “You're willing to make a generous gift of a $4.50 banana caramel iced mocha, but you won't let me have a simple sixty-nine cent cup of coffee?” Again, the attendant pointed out that the coupon clearly offered a “free coffee beverage,” and not a free cup of coffee. I handed the woman a dollar, took my change, and headed down the road.

Years ago I watched an older lady present a coupon for a Big Mac at a Burger King restaurant. The young man behind the counter said, "Ma'am, this is a coupon for a McDonald's sandwich. We have a very similar sandwich called the Whopper. May I get one for you at this same price?" This young man gracefully helped his customer avoid embarrassment. Care to bet she became a loyal customer?

I hope my experience was not typical. I hope that the tens of thousands of coupons the Comfort Brothers spent on their grand opening paid off handsomely. In truth they have a beautiful store. It's spotless, modern, and well laid out. The staff is friendly, well trained, well dressed. Shopping in their store should be a pleasure. I'm sure for most people it is.

But I only remember that when I presented my coupon, they told me "No." And that's a tough first experience to overcome.

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Chuck McKay is a marketing consultant who helps customers discover, and choose your business. Questions about implementing an incrementally discounted coupon tactic may be directed to ChuckMcKay@ChuckMcKayOnLine.com.