Why Coupon Codes Are A Double-Edged Sword

Image credit: Carol Pyles

There is a store here in the US called Kohls. They sell clothes and items for your home and kitchen. It’s the kind of place you can buy a coffee maker, pillow cases, some cheap jewelry and a pair of socks – all in the same store.

I was just there the other day actually and my bill was $120 – however, after they applied their discounts it was more like $60. For this reason I call discounting like this the Kohls selling model; but it may not be the best model for your software business.

The Problem

When I started IM Autobots I wanted to think up ways to sell more software at a faster pace. So naturally I took advantage of a feature in Easy Digital Downloads and started to create discount codes. This seemed to work well and so I kept doing it – over and over again.

There was something happening that I didn’t realize though and it didn’t quite click until I read this post on Social Triggers about how “Discounting is for dummies.” I highly suggest you go there right now and watch the video before you continue with this article.

Now that you have watched the video and understand the situation I was in you can probably understand why I kept doing this model – even though I now know that it is not always the best path.

It’s difficult to go from a model where you discount products to one where you don’t. I feel like I already add extra value with source code videos, comments in the source code and recently the marketing videos in my SEO Indexer software; so it will be hard to stack even more value on top and remove the discount.

So Never Discount My Products?

I wouldn’t actually say that – there is still a time and place for discounts. However, you really should think about what direction you want to take your site in before you decide to run specials. One of the big questions I would ask before considering discounting is this: am I going to have repeat customers? This is something that we should take a look at because it makes all of the difference in the world.

When you sell a standalone product you won’t have repeat customers (except for addons/upsells/etc) therefore you are not training them to buy on discounted prices. You are however lowering your brand value – but I don’t think this is a big issue in this particular case. I can think of several products that are loved by the community but also carry a discounted price. The most notable is probably Scrapebox (discounted price here) – a quick peek on any SEO forum will show you that Scrapebox is probably the most loved SEO product of all time.

Another thing that a lot of companies do is run periodical sales. A company man run a holiday sale for example or a New Year’s sale. In this case it might be better to just discount the price rather than use a coupon code – like Derek explained in the video just having a coupon code box on the page may be enough to lose you some sales.

What To Do Instead

If you want to take the route of not discounted anything ever then there are other things you can still do to drive sales. Like Derek suggested in the video you can always add more value to your products to justify the price. I think that is an excellent starting point.

Analyze Your Competition

This is going to be your secret weapon, every industry is different and has it’s own nuances; software is no different and there are a million directions you can take software – each with it’s own nuances.

The only way to be better than your competition is to study them. You need to find out what they are doing, how much they are charging and where they are getting their traffic from. Only then can you establish a baseline.

Crush Your Competition

Now that you have your baseline established you can decide on how to position your product. The idea here is to position it as a superior product but for the right price. The higher your prices are to the competition the more value you are going to have to give. This is something people rarely look at – instead they just blindly price things. By doing this you can give yourself the advantage.

One thing to note right here is that if your competition only has a one-time fee you can offer a lower barrier to entry by offering your customers a monthly subscription. This will make it easier for your customers to buy the product and it will give you a recurring income. Hopefully soon I will write a blog post on why I think this is the best business model there is.

Conclusion

Coupon codes are probably not the best idea to have on your software sites. However, discounting things may be okay as long as you first understand why it can be bad. You don’t want to end up having to run sales just to make them.

I’d love to hear your opinions on this topic, feel free to leave a comment below!

3 thoughts on “Why Coupon Codes Are A Double-Edged Sword

nick, i agreed with your point here, if you make a monthly membership with all kind of source code added regularly, i will be the 1st to subscribe.

i felt easier to study the advance method from a ready working source code compare to watching demo video and try to figure it out.

Thank you for the comment Andrew, that’s not a bad idea you have with the source code membership site. I was thinking more along the lines of having a software product that you charge a monthly fee for but your idea is solid as well.

Great article Nick. One thing most people should note is that at checkout if your customer finds a link for a discount code, they will immediately pause the order and search google for a code to use.. Its this reason that I prefer a special discount offer page and button over entering a code. Its certainly worth testing. Thx Rich

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