Tuesday, May 6, 2008

Cutting Costs with Online Coupon Sites

Web sites that offer money-saving discounts are enjoying a resurgence in the current economy, as consumers surf for bargains

Coupons are making a comeback. In the face of rising food prices and a slowing economy, consumers are clipping coupons once again. Only, they don't need scissors and a local newspaper so much as a computer, printer, and maybe a mobile phone.

The number of page views on Web sites that feature money-off coupons for all manner of consumer products surged 38%, to 281 million, in March from a year earlier, compared with 5% for the Internet as a whole, according to comScore (SCOR). Those visitors spent a total of 145 million minutes on the sites, a 37% increase. While the number of new users to coupon sites isn't growing faster than the larger Internet audience, existing coupon site users are certainly becoming more active. "User engagement by deal-seekers appears to be ramping up," says comScore analyst Andrew Lipsman. "As a general rule, something like online coupon site activity would increase as a result of macroeconomic trends."

Traffic Growth

Individual sites say they're detecting increased use. Coupons.com and RetailMeNot.com say they have seen large traffic spikes in the past three months. Visitors to Coupons.com, a decade-old site that lets users print coupons that can be redeemed in stores, grew 35% in the first three months of 2008, compared with the prior quarter, says the site's CEO, Steven Boal. Typically, quarterly growth averages 22% to 23%, he says. Similarly, RetailMeNot says its growth for February, which typically slows after the holiday shopping season, is already back at December levels. "There is definitely an increased use of coupons across the board," says RetailMeNot co-founder Guy King.

Fueling the traffic growth are rapid increases in food prices (BusinessWeek, 5/1/08) and signs of economic slowdown that are damping consumer sentiment and prompting consumers to hunt for bargains. Costs of staples such as rice have surged in recent months, reflecting rising fuel prices and in some cases, limits on exports. Some analysts also blame government policies that provide incentives for farmers to devote more crops to biofuel production (BusinessWeek, 5/1/08).

Bargains Via Computer or Cell Phone

In recognition of the rising demand for bargains and in hopes of luring cash-strapped consumers, retailers are making coupons more readily available online. In April, Coupons.com featured more than 120 coupon offers from the retailers that distribute coupons on its site or use its technology to offer discounts on their own sites, Boal says. Typically, the number is about 100. "Coupons move products off the shelf," he says. "That is their No. 1 job."

Digital coupons typically work in two ways. On Coupons.com, store owners create coupons, with unique serial numbers, that can be printed and redeemed in stores. Coupons can also have unique promotional codes that shoppers can use on e-commerce Web sites to receive discounts on online purchases. RetailMeNot lets users post and share such digital coupons on its site.

Retailers are also relying on wireless technology to capitalize on consumers' bargain-hunting tendencies. According to a recent report by Juniper Research, retailers will send as many as 3 billion mobile coupons to wireless phone users by 2011, resulting in $7 billion in discounts redeemed.

Consumer Pain, Coupon Gain

It hasn't always been a given that consumers would warm to online coupons. After the circulars tucked between newspaper sections began disappearing, coupons began surfacing online. But the time involved in finding coupons and the cost of the ink to print them seemed to negate much of the cents in savings. Coupon sites have taken off as more consumers have become motivated to look for even small discounts to reduce ever-increasing grocery bills.

The commodities price hike has caused everyone from boxed cereal giants General Mills (GIS) and Kellogg (K) to meat producers such as Tyson Foods (TSN) to hike prices. More price increases are to come. After reporting a $5 million loss in its second quarter on Apr. 29, Tyson CEO Richard Bond said prices will continue to rise.

Consumer pain is turning out to be coupon sites' gain. Coupons.com provides retailers with coupon-marketing and -serving technology. The more consumers printing and using their coupons, the more retailers are likely to work with the site. RetailMeNot sells ads on its site through Google (GOOG) and collects commission from the coupon-driven traffic to retailers' Web sites such as Amazon.com (AMZN). "The net effect is that people are trying to get the most of their shopping through coupons," says King.

For a look at the sorts of coupons that are particularly popular right now, check out the BusinessWeek.com slide show.

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