Discount Fraud Keeps Small Merchants from Coupon Marketing – Study Reveals

Recently, SheerID performed a survey of 76 US-based companies in order to analyse how discount coupons affected their customer base over the holiday season. This gives us a unique numbers-based look at the effects that vouchers have on both attracting new customers and retaining existing ones.

Here are some of the interesting results of this research:

  • 84% of businesses surveyed indicated that they would run promotions before the holidays
  • 75% of the companies examined said they sacrificed profits in order to give exclusive discounts
  • The survey indicated that both promotions and discounts were key factors that drove customer loyalty programs
  • 63% said that they offered promotions year round. 68% of these promotions occurred online, while 37% utilized mobile devices and 39% of the promotions were in-store.
  • A majority of responders (64%) offered or were planning on offering exclusive promotions to people the meet certain demographic criteria, like military members, teachers, or students.
  • Companies expressed a concern about discount fraud which is when exclusive promotions are being taken by people that do not belong to the targeted groups.


Digging Deeper

These results weren’t exactly groundbreaking, but they did confirm a bunch of facts that have been “known” in the retail industry for some time. However, when you examine the study from the discount fraud perspective you start to uncover some facts that aren’t as well known:

  • While companies can attempt to verify customers via username or e-mail most current methods of verification are vulnerable to fraud. For example, internet savvy digital clippers might use fake names or throwaway e-mail addresses to use a “new customer” discount multiple times.
  • Most of the companies that abstained from issuing coupons did so because they felt they lacked the IT resources necessary to combat coupon fraud.
  • Almost half of the businesses surveyed indicated that they would increase their exclusive discounts if they knew that only qualified customers were receiving them.

How to deal with discount fraud

While this survey makes it clear that discount fraud is a major issue, it’s not the easiest thing to fight. Experts offer two perpendicular methods of staving off discount fraud. One approach involves increased security in order to verify customers more accurately and prevent users that are not entitled to the discounts from using them.

The other revolves around using discounts to reward customer loyalty, making discounts available to all users instead of restricting them to certain groups only, thereby reducing opportunities for fraud. There’s plenty of room for improvement with both of these concepts within the retail industry.

VerificationTechnology is advancing pretty quickly. It will soon become easier to prove that a customer is exactly who they say they are. Integrating new identity verification in coupon applications will allow a business to have confidence that their coupons are used by customers who actually qualify for them.

The other school of thought takes a different approach. Rather than scorn the customer who comes to your online store four times with the same “new customers only” or “students only” coupon, welcome any business from anyone with open arms. By giving all users equally attractive offers, you’ll completely eliminate many common forms of coupon fraud. You’ll also build customer loyalty and ensure that your customers keep coming back for more.

Wikigains, a UK-based coupon site , recently found close to 80% of people were willing to take their business to a competitor after a single poor experience as a customer. Reserving your discounts for certain groups only is likely to leave a sour taste in the mouth of your loyal customer base. Instead, consider rewarding their loyalty with a generous discount so that you can count on their business in the future.