Avoid the Pitfalls of Online Coupons

In recent years, a growing number of companies are issuing coupons that can be redeemed online. Though evidence suggests these coupons may be as popular with online shoppers as traditional coupons are with in-store shoppers, it would be a mistake for companies to use the same coupons in both contexts.

Online coupons are redeemed differently than are traditional coupons and, therefore, are subject to different risks. Failure to pay adequate attention to these risks could leave companies open to fraud and public relations nightmares.

For example, Disney recently issued coupons that could be redeemed at any Disney store, by phone or online at DisneyStore.com. To redeem by phone or online, customers were asked to provide codes that were printed on the coupons. Though the terms on the coupons specified that each could be redeemed only once, Disney did not take adequate steps to prevent multiple redemptions. Because the coupons lacked unique codes, Disney had no way to identify which ones had already been used. After the codes were spread on the Net, the site was flooded with orders and Disney had to act to stem fraudulent redemptions.

Disney’s experience is just the latest coupon gaffe. Last year, Spiegel also issued coupons that contained non-unique codes. When the codes were disseminated on the Internet, the company experienced many multiple redemptions. To make things worse, Spiegel’s customer service representatives allegedly told some customers that they could use codes that already had been used. The company later irked some customers by retroactively charging their credit cards for amounts that originally were covered by the coupons. Other online retailers, such as Macys.com, Buy.com and eZiba.com, experienced similar problems the year before.

Though these stories highlight some of the risks inherent in issuing online coupons, companies can take steps to reduce these risks.

Drafting clear, effective coupons. When advertising your promotional offer, it is important to clearly communicate all of the requirements that customers must satisfy to take advantage of the offer. Obviously, the terms you include on your ads and coupons depend on the elements of your offer. However, here are some terms that you may want to consider incorporating into your copy:

· Specify the product(s) consumers must buy. Be specific. If the coupon is valid only for a particular model or size of a given product, that information should be clearly disclosed.

· Include an expiration date for the coupons. Without an expiration date, customers could try to redeem coupons years after the promotion ends.

· Specify the geographic area in which the coupon is valid. You don’t want customers in other countries to try to redeem coupons if your promotion is not open in those countries.

· Clearly state the amount of money the customer will receive off the purchase price. You also may want to state that the customer will be responsible for paying sales tax on the full price.

· To comply with some state trading stamp statutes, you may have to include a face value on your coupon. A nominal value such as 1/100 of a cent is usually sufficient.

· Include terms on the ad copy and coupons to help prevent fraud or multiple redemptions. For example, you should state that only one coupon may be used per person or purchase and that coupons may not be combined with other offers. You should specify that the coupon is void if it is reproduced, copied, purchased, traded or sold. As a practical matter, these provisions may be tough to enforce. Nevertheless, these provisions may provide you with grounds for rejecting coupons from individuals who submit an unusual number of requests.

Steps to detect and prevent multiple redemptions. The terms on your coupons generally are only as good as your ability to enforce them. It does little good to state that a coupon can be redeemed only once unless you set up a mechanism to detect multiple redemptions.

Because you cannot require consumers to physically surrender their coupons online as you can in stores, you need to establish an alternative method to ensure that coupons are not used more than once.

Here are tips for detecting and preventing multiple redemptions:

· If you distribute coupons to specific customers via e-mail, ensure that the coupons are redeemed only by a customer at the e-mail address to which the coupon was issued. You should easily be able to detect if subsequent redemptions are made from that address.

· If you cannot link a coupon to a particular person or e-mail address, it is wise to include a unique code on each coupon. Once a coupon code has been entered on your Web site, you should not provide discounts to subsequent purchasers who use that code.

· Timing is everything. Ensure that whatever mechanism you use to detect multiple redemptions works before you charge a customer’s credit card. Once you have let a customer redeem a coupon, it will be difficult to ask the customer to pay more money.

· Ensure that your customer service representatives understand the terms of your coupons as well as how the coupons interact with other offers. These people provide a direct link between you and your customers, so it is important that they can accurately answer questions.

When designing an offer that includes an online coupon, it is important that your company’s marketing team communicate with its legal and technical teams to ensure that you have taken appropriate steps to detect and prevent fraud. Make sure that customer service reps understand how the coupons work. Once a promotion begins, monitor redemption patterns and compare them against previous promotions so that you can detect any unusual trends that may indicate fraud.

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