Using Coupons to Drive Engagement and Retention

How to use coupons to drive engagement and retention

Whether you sell online exclusively, have a brick-and-mortar location, or both, coupons can become part of your marketing strategy. Here are three tenets to follow for executing a coupon strategy effectively and driving engagement and retention. 

1. Send coupons that deliver value to the customer.

Here’s an essential point for retailers hoping to gain relevance and grow customer relationships via coupons: It’s not all about you — it’s about them. If you want your offers to stand out amid the communication onslaught consumers receive on any given day, you must understand their needs and deliver value — not just provide a discount. 

“Timing and context matter more than the discount itself,” explained Sunil Dua, director of client success at 108 ideaspace, a digital marketing company that helps nonprofits and associations drive engagement and retention.

For example, you won’t score sales by sending discount coupons for child care or pet care products to consumers who don’t have children or pets. Your coupon offers must be relevant to a customer’s specific situation. 

Dua noted that coupons can be highly effective when used with intention, such as when they’re part of a loyalty program rewards strategy. “The key is to tie coupons to meaningful behavioral triggers — not just time-bound sales cycles,” Dua explained. “We’ve seen great success when coupons are positioned as ‘rewards’ for loyalty, reengagement or advocacy, rather than generic discounts.” 

Shauli Mizrahi, co-founder and CTO of Rep AI, agreed that discounts can easily fall flat when they aren’t personalized. “While we all love getting stuff for free, we don’t necessarily appreciate the free stuff as much,” Mizrahi explained. “Discounts work in a very similar way, especially when they’re ubiquitous.” 

Mizrahi noted that simple discount coupons may motivate shoppers once or twice, but when they see the offer is available to everyone all the time, it loses its impact. 

“We actually just released data that shows how higher discounts don’t always mean higher conversions,” Mizrahi revealed. “We looked at conversion rates when discounts were offered as a means to rescue abandoned carts, and could clearly see that offering a strategic discount at the right time was more effective than simply offering the largest discount possible.”

2. Use technology when creating coupon promotions.

Tech tools can be enormously helpful and effective when creating relevant, compelling coupon offers. Consider the following tips: 

• Use customer data to create compelling offers. The best customer relationship management (CRM) software features robust data management capabilities that allow you to access deep customer insights. “CRMs make it possible to trigger incentives based on actions or inactions,” Dua explained. For example, you can use coupons to reengage past customers by examining their purchase history and preferences to craft a custom offer. 
• Utilize mobile coupon technology. When issuing coupons, you should pay attention to the technology that’s familiar to your customers. For example, most consumers are comfortable using smartphones, so mobile coupons are desirable. You can send mobile coupons as part of your text message marketing efforts. Other options include issuing coupon images via email and social media and offering web- or app-based coupons.
• Make coupon redemption seamless. Policing coupon expiration dates or making redemption difficult can backfire. However, creating a seamless coupon redemption process can boost trust and loyalty. For example, if you allow offers to be used multiple times or shared with non-customers, the impact can be dramatic. Still, you must carefully weigh the benefits of permissive couponing and ensure it won’t hurt your bottom line (more on this below).
• Syndicate your coupons and discount codes to aggregators. Sites like Savings.com are used by consumers who search for a discount code prior to making a purchase.  Having a discount code or deal is often what it takes to get a shopper over the finish line and complete a purchase.
• Use AI to predict disengagement. AI-powered retail predictions (available as a feature in some CRMs or through third-party tools) can proactively predict when your customers are likely to disengage and help you provide gentle brand reminders at just the right times — including well-timed, personalized coupon offers. “Instead of a static rule like ‘send a coupon after 30 days of inactivity,’ the [AI] system can learn patterns and recommend personalized offers based on engagement history, timing and even sentiment,” Dua explained. “This takes incentive marketing from reactive to predictive, helping businesses use fewer discounts more strategically.”
• Optimize your coupon strategy with smart tools. Mizrahi recommends pairing A/B testing (available in many of the best email marketing software solutions) and AI tools (built into numerous marketing platforms) to improve coupon targeting. “For example, Monocle … can analyze behavior to predict what will appeal to a specific shopper the most,” Mizrahi explained. 

Mizrahi also advised ensuring your entire tech stack is integrated as you use technology to improve your coupon strategy. “This way, you know all of your channels are in sync and that customers aren’t gaming the system by using different email addresses or sales channels.”

3. Prevent coupon abuse. 

Targeted, personalized coupon offers can yield excellent engagement and retention results, but it’s crucial to ensure that customers don’t take advantage of you. To ensure coupons don’t backfire and turn into lost profits, many retailers use the “single-use” coupon model to prevent reuse and coupon sharing. 

Here’s how single-use coupons work:

• Retailers can generate millions of unique, single-use coupons or promo codes daily. These offers can be accepted, validated and redeemed by POS systems or e-commerce platforms in real time.   
• Consumers can obtain only the offers intended for them.
• Consumers can obtain an offer only once, even if they try to access it multiple times across different channels.
• An offer can be redeemed only once, even if customers try to redeem it via a different channel.

Single-use offers have another significant benefit: You can collect valuable data because you know where and when each offer was used. You gain crucial information about your customers and their purchase patterns and preferences that can be applied to future marketing initiatives. 

Beyond single-use coupons, additional strategies can help you prevent misuse and protect your promotions: 

• Put stipulations on your offers: Dua advises controlling coupon misuse by making them specific, conditional and time-bound. For example, add a stipulation that only one-time use per account is permitted, have them expire in seven to 10 days, and tie them to a specific behavior (e.g., refer-a-friend, first renewal, or comeback campaign).
• Limit the coupons a customer receives: Greg Zakowicz, a senior e-commerce expert at Omnisend, says limiting coupons can help stop abuse. “Another common option with automated marketing is limiting customers from receiving multiple coupons over a period of time,” Zakowicz said. “For instance, if a person abandons a shopping cart and receives a coupon to complete their purchase, the brand can limit the recipient from receiving the discount message again over the next 14 days.”
• Offer tiered discounts: Zakowicz said tiered discounts — discounts based on how much customers spend — can help you limit abuse and use coupons to your advantage. “This strategy often increases the average order value (AOV) of customers by providing a larger discount as more money is spent,” Zakowicz explained. “These types of discounts can limit the number of customers who are only looking for a discount on a small order and can make higher-discounted orders more profitable.”

Pros of using coupons

Offering coupons is an excellent way to expand your target audience and increase sales. They can also encourage existing customers to boost their spending or purchase frequency. Here are some additional benefits of using coupons:

• Coupons help you connect and reengage with customers. While some consumers are wary of retailers’ customer tracking methods, most still welcome personalized offers based on their shopping history — even if they’re from a brand they haven’t interacted with in a while. Dua applied this coupon-based reengagement strategy for member retention. “For example, in one nonprofit engagement, we offered a 10 percent event registration discount to lapsed members who renewed before a set deadline,” Dua recalled. “Because the coupon was framed as a personalized benefit tied to renewal, not a mass promotion, we saw a 17 percent lift in retention — without training members to wait for discounts.”
• Coupons help you attract new customers. Coupons and discounts can help you attract new customers and boost your overall brand awareness. And new customers are likely on the lookout for coupons. According to a 2024 SimplyCodes study, 62 percent of U.S. consumers actively seek out and use discount codes when making online purchases. Offering coupons can also encourage brand switching, turning curious shoppers into loyal customers.
• Coupons help you meet customer expectations. Many buyers expect discounts from the companies they buy from, so distributing coupons may be considered standard practice. Customers also see coupons and discounts as rewards for their shopping loyalty, and these rewards may even exceed their expectations. “[Coupons can] reward milestones,” Dua noted. “When used to celebrate a renewal anniversary or purchase threshold, coupons feel like recognition — not bait.” 
• Coupons give retailers a competitive edge. Offering discounts and coupons can help you gain an edge over your rivals and stand out from the competition. Consistently providing these offers can also help you earn repeat business, rather than sending customers to your competition.
• Coupons can help capture valuable data. Coupons can encourage consumers to provide data that would otherwise be costly to gather. Dua uses this strategy to improve a company’s data quality. “We often tie coupons to CRM enrichment activities — like profile completion, event registration or onboarding steps — and see a measurable lift in data capture.”

Cons of using coupons

Coupons do have some downsides. Consider the following potential drawbacks before you implement a coupon strategy: 

• Coupons can cut into profits. Too much emphasis on coupons can reduce your profits and even devalue your product or service, leaving customers waiting for a new coupon instead of impulse buying at full price. “Coupons shouldn’t become your default engagement tool,” Dua cautioned. “They work best when used selectively — as nudges or thank-yous — not as an expectation.”
• Coupons can reduce your offering’s perceived value. With coupons and discounts, you run the risk of diminishing the perceived product quality or value of your offerings, further eating into your profits. “If customers know a discount is always around the corner, they’ll hold off — and your full price starts to feel arbitrary,” Dua explained. Zakowicz agreed, warning that reduced profits are a risk. “Each discount means there is less profit per purchase,” Zakowicz cautioned. “This trade-off may be acceptable for businesses with higher margins, but others may be challenged to effectively balance this.”
• Coupons can be expensive. Before offering a discount or coupon, ensure you understand your profit margins. Failing to do so can increase your risk of losses. Consider your overhead costs, along with the costs of materials and production. Also, factor the cost of a coupon service into your calculations.
• Coupons may increase online shopping cart abandonment. Many retailers have inadvertently caused customers to abandon their online shopping carts by regularly offering coupons or discount codes. Now, a customer who may be willing to buy products without an added incentive will hunt for a good deal and abandon their cart if they don’t find one.

Sean Peek contributed to this article.