Wednesday December 15, 1999
E-tailers learn a lesson -- the hard way
Margaret Kane, ZDNet

A well-worn radio spot by a New York haberdasher proclaims that an educated consumer is the best customer -- but it's an advertising tag line that's likely to haunt e-tailers this holiday shopping season.

Looking to drum up new business, increasing numbers of e-tailers are mailing out promotions and coupons to Internet users. But unlike promotions in the so-called world of brick-and-mortar retailers, online discounts are not necessarily limited to one per customer.

And savvy consumers are catching on.
Users are sending e-mails to friends and family members containing messages from e-tailers offering discounts. Some have even created Web sites featuring lists of promotion codes and ID numbers offering everything from free shipping to price cuts.

It's a problem that's forced the e-commerce community to get more aggressive about eliminating loopholes.

Loopholes galore
In October, a code that guaranteed a $20 discount at office supply store Staples got posted on the Internet. After scores of people used it to get discounts. Staples was eventually compelled to cancel some orders.

With the flood of offers being sent out as the holidays approach, the potential for abuse has only gotten larger.

"Our job is to bring you the most fantastic deals on the Internet," reads the notice on one Web site that lists hundreds of promotional codes. "You will want to check this site before you shop on the Internet ... Check this page daily, as you will find tremendous bargains and FREE items every single day of the week!"

While there's no way to know exactly how many consumers are taking advantage of the freebies, a recent survey by Jupiter Communications found that 73 percent of online shoppers wait for a promotion before making purchases.

But once they learn they don't need to first wait for coupon offers, things could get messy, according to Jupiter analyst Mike May.

'Bloodbath' coming
"Merchants who use a single coupon code that can be accessed by as many consumers who want to -- will see a bloodbath," said May. "If regular customers find out that all they have to do is start their shopping at sites that list coupons, (they'll stop paying full price). All that's doing is cutting into top line and, ultimately, the bottom line."

Some e-tailers are working on ways to curtail the practice. For example,, an online gift-giving service, puts strict time limits on its offers.

"We very selectively do promotions and the odd one that we've done, we limited the amount of time it was available," said Katherine Carroll, director of marketing for the Waltham, Mass., firm.

Similarly, (Nasdaq: AMZN - news) has safeguards to ensure that gift-certificate codes can only be used once before they are disabled.

But promotional codes listed on several Web sites were still able to access a $10 discount on books purchased only the day prior.

Scott Wilder, vice president of product development and online marketing at, said some of the sites that list deals and freebies are actually members of affiliate programs.

Those programs allow sites to refer buyers to online stores, and reward the sites if someone makes a purchase. and other companies sometimes offer discounts and promotions through their affiliate partners. monitors the traffic to its site and the code date to ensure that the codes aren't being abused, Wilder said.

Traffic generators
"There are times when people try to abuse it. They're taking the coupon codes and posting them on their sites," he said. "The onesies, twosies are hard to capture. But if the numbers are significant and we notice it's coming from a site that's not part of our partner program or affiliate program, we'll contact them.

"If that site's bringing us traffic, maybe we should do more with them," he said.

Other coupon codes were actually designed by their creators so as to be passed along. This so-called viral marketing encourages consumers to pass along coupons to friends in hopes that a friend's recommendation will carry more weight than a traditional advertisement.

So what about the adage that the customer's always right? If the offer of a bargain convinces someone to buy a product, didn't the store achieve its stated objective?

Not necessarily, says Jupiter's May. He said online promotions are also supposed to help stores target their consumers more efficiently. Stores often send out discounts to groups selected for special reasons, offering music discounts to book buyers, or finding people who never shopped at that store before.

But if there is a mass response, the idea of the coupon as a data-gathering tool loses its value.

Goodbye, profits?
And easy access to discounts just reinforces the bargain-hunting scenario.

"Otherwise what happens is that sites already relying on price promotions will see an even greater percentage of orders (get a discount)," said May.

"Profitability is already loosened for these companies. And pass-along coupons, if left unchecked, postpone that even further."

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