Friday, October 01, 2010

Coupons are dead; long live the coupons!

My main takeaway from spending the better half of last week at SF TechCrunch Disrupt conference (an event some may call “Silicon Valley’s Academy Awards”) is as follows: 2010 will go down in history as the year a swarm of startups finally managed to kill traditional coupons. 

The “traditional” coupon industry is doomed to die a slow death-by-a-thousand-cuts, inflicted by a gaggle of mobile check-in startups taking advantage of the newly-found access to users’ locations. As each location-based startup came onstage at Disrupt, I could almost hear the Julius Caesars of today’s coupon empire yell out in anguished unison, “Et tu, Brute?”

Of course, the fundamental economics behind coupons (i.e., the concept of using price discrimination to distinguish customers by their reserve price and thereby generating the maximum sales/revenues/profits), has not changed. As a matter of fact, location-based startups are following the same economic principles by hoping to provide an efficient delivery mechanism for providing the ideal discriminatory pricing scheme; a task that is no less ambitious than Pierre Omidyar’s vision for eBay to materialize a “perfect market” (the theoretical economic concept where there is perfect access to information and zero transaction costs). 

Providing location-based coupons is not an entirely new idea. People have been handing out coupons and promotional material on the sidewalks at most metropolitan areas for ages. 

And the concept of virtual coupons is not entirely new either. I recall reviewing business plans at the start of the decade of a number of startups who wanted to send people coupons via SMS based on their location. And, just as I felt ten years ago when reviewing those business plans, I remain highly skeptical whether the new check-in Apps that tap into your social graph and GPS location data can actually overcome the negative emotions associated with someone disturbing your stream of activity by putting a “deal” in front of you (sort of like the feeling you get when as you walk down the street someone suddenly hands you a flyer). 

There is a fine line between annoyance and value. I get annoyed when I am distracted, but I love it when someone anticipates what I need and puts it in front of me (something Google tends to do very well with their search advertising). Whoever manages to get closer to the latter of the two will likely be quite successful. I, however, have not found such a service yet, and find all of the current location-based check-in Apps to be either useless or extremely invasive. In fact, the only "price discrimination" these Apps currently provide is to generously give discounts to folks who need them the least, as the iPhone/Android/smart phone demographic is among the least price sensitive demographic you can find!


  1. Absolutely brilliant to explain the ability of a mobile coupon to offer highly-targeted 1:1 price discrimination opportunities, particularly to first-time users. Canonical marketing theory is to incent me to trial the product by offering a discount with the goal of turning me into a regular customer at full price.

    And your point about not wanting to be bothered with intrusive attempts to lure me to use your product is well-stated. I never grab those flyers either.

    But there is another opportunity for mobile coupons that doesn't have those intrusive qualities, and that is to use them as reward and loyalty programs. If I have a loyal relationship with a product or a business, and that business wants to give me increased rewards for increased loyalty, then I am unlikely to see that as intrusive.

  2. Thank you Matthew, and I am curious to find out more about your last paragraph! Very interesting.