It’s only a few of weeks ago we posted webhosts that are using coupon and affiliate marketing to increase sales. We also looked at how these businesses are employing affiliate marketing while using coupon marketing by sending their coupons to large affiliate lists. In turn, these affiliates market the discounts using their newsletters and blogs. For their effort, the affiliates share in the companies’ revenues. And for the customers, the discount vouchers are able to lower the cost of the services they seek by about 20% to 50%.
However, an important issue was brought up by one of the readers – how can the webhosting companies tell between new and existing customers if the whole point of coupon marketing is to get new clients? What also, is the proportion of voucher users who are new clients; and what proportion is made up of old customers? For instance, if 80 per cent of those who take the coupon offers are existing customers, would not the companies lose out by giving discounted services to people who would have happily paid the full price?
Is the provision of coupon discount offers to existing customers a complete waste of money?
This is the question I would like to address today. The first thing you have to understand is that however deeply discounted a webhost’s service is, they still turn a profit. These business can afford to give big discounts on their services because their profit margins are even bigger.
There is another angle to using these discount vouchers – these companies can persuade buyers to pay for more services than they would have bought without the discount offer. This is easy for websites since they don’t have to ship their products; they deal in software alone. So, when the webhost offers a deal such as 50MB of free hosting, the offer typically costs them server maintenance costs; a measly expense for organizations of such magnitude. There are no deliveries to make, and that makes such deals cheap. Consequently, even if no significant business comes from such offers, the company will often lose little money through the deal.
Are webhosts concerned that current customers using vouchers would have happily paid the full price?
Who can say for sure? But though it might be a little difficult to understand if these customers would have still paid the full price for the services, what’s clear is that there are returning customers who would have stayed away if they were not offered the discount vouchers. The competition in the webhosting world is fierce, and discounted deals are not that hard to find. So, it pays off to keep an existing customer interested in the services they are already using. For this reason, offering the discount vouchers to existing clients might hold more financial rewards than drawing in new customers.
The 80/20 Rule as t relates to coupon marketing
The question is – is a coupon marketing deal where 80% of the offers are taken by existing customers and 20% are taken by new customers unprofitable? First of all, the assumption that the only way to make new customers is through the use of vouchers is misguided. In the end, having a satisfied customer, new or existing, is what makes that tell others about the webhost. This brings in more business for the webhost. This, hopefully, can have a domino effect that will bring in a constant stream of new customers.
I am well aware of the fact that there are merchants selling physical products at very tight margins. Forgetting the arbitrary 80-20 rule for a moment, businesses in this situation should take a keener interest in how many of their vouchers are ending up in the hands of existing customers. For them, it might be more financially prudent to ensure that the discount vouchers they are offering go to new clients only.