Without question, it’s a difficult environment for many small businesses these days as they are challenged to compete with a growing universe of big brands, online retailers, and box stores. But, there’s still a place for small, local businesses to thrive, because people love the sense of community when they shop in their local stores and they like the distinctive personality these smaller businesses offer.

However, to be successful, many of these small businesses need to adjust their marketing activities and reach customers in an online world. With more than 2/3 of people in the U.S. owning smartphones and nearly everyone living more connected lifestyles, it’s become essential to have an online – and ideally mobile – presence to ensure a prosperous business of any size. To this end, digital coupons are an effective way for small businesses to reach a much broader base of both existing and prospective customers who are increasingly connected.

This article was written by Gary Cowan, senior vice president at DataSphere. DataSphere is a mobile marketing company focused on helping local businesses.

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The New Era of Coupons

Gone are the days of the housewife searching the Sunday papers and weekly store circulars to find coupons offering the best deals for the coming week. Fewer people than ever are cutting along the dotted line of these printed coupons. Now, people often read their news online instead of in a newspaper and more search for information related to shopping online. While the medium may have changed, one thing remains the same:  people are still looking for a deal. While clipping coupons is passé, the use of digital coupons is exploding. In fact, more than 31 billion digital coupons were redeemed last year, almost double the 16 billion redeemed in 2014, according to Juniper Research. 

While the thought of creating a digital coupon may seem daunting for many small businesses, it doesn’t have be that way. Here are three ways small businesses can create great digital coupons to reach these connected customers and grow their business significantly:   

1. Make your ad compelling

Many digital ads fail to connect with the customer in a meaningful way, so think about the types of offers that will most appeal to your customers. Coupons should give customers a specific benefit and headlines should be simple, concise and use commanding language.

One type of coupon that generally performs well is a discount, such as “30% off carpet cleaning” or “$25 off on a salon haircut.” It’s also often worth stating the amount of savings if possible (e.g. “Manicure for $20 – regularly $40.”). Another popular type of coupon with consumers is a bonus, such as “Free pair of wiper blades with every oil change” or “Buy two gallons of paint, get the third gallon free.” Ideally, the coupon should apply to the most popular products or services offered by the business.

Short headlines that are 20 – 25 characters in length are best to grab the prospective customer’s attention, as long as it gets the main point across. Often, a particular ad format will constrain the number of characters, so there is a limit on headline length. Additional information about the coupon should be put into the description field. Also, be sure to include any limitations on the offer, but don’t make the coupon too restrictive or it won’t appeal to a broad base of consumers. In addition, restrictive coupons can result in customer frustration and disappointment if they arrive at a business expecting a discount, only to find it does not apply. Finally, using eye-catching images can also significantly impact the appeal of a coupon, if supported by the ad format.

In general, less established businesses should use more aggressive discounts (i.e. “75% off”) to encourage new customers to engage with an unknown business. In contrast, more established businesses with a strong local reputation can achieve good results with lower discounts since viewers are already predisposed toward engaging with the business. A coupon offering a mere 5% at a popular, well known business may perform just as well as high discount coupons for businesses that are just starting out.

2. Ensure your ads are geo-targeted

Customers are more likely to come into your store and make a purchase when they’re in the neighborhood. Geo-targeting means your digital ads will be presented to customers at the right time – when they’re in your area. More sophisticated geo-targeting can even intelligently adapt to the specific needs of your business. For example, a fast food digital ad may be optimized to reach customers when they are within a radius of one mile, whereas an oil and lube service center may see the best results when targeting customers within five miles.

For local business advertising, we recommend starting with a radius 5 of to 15 miles from the business address. After evaluating the results from the initial geo-targeting settings, the radius can be expanded or reduced by as much as a factor of five, depending how aggressive the campaign is meant to be and the size of the intended consumer audience. Here are some factors for determining the optimal radius for geo-targeted ad:

• Is your business in an urban or rural area?

Urban areas benefit from tighter targeting since there is more competition from other businesses. It takes more time to travel any distance and the population density is higher, so the business can reach a large enough audience with a smaller radius.

• How motivated are customers to travel to your business?

People will travel farther to reach businesses with fewer nearby competitors or businesses that offer unique or significant products or services. A unique recreational experience, luxury retailer, or specialized lawyer may justify a longer drive than perhaps a dry cleaner or florist.

• How favorable is the business’ reputation?

The more differentiated a business is from its competitors, the larger the area to effectively advertise. A restaurant with a regional reputation can draw patrons from a much larger area than a lesser-known, generic one.

Geo-targeting can also be achieved using different targeting methods including city, zip code, and radius from a specific point. In general, zip codes are a great option since they provide more granularity than city level targeting and also allow results to be matched against other sources of data which is more difficult to do with radius targeting.

Finally, it’s important to understand how the geo-targeting is calculated. For example, many services provide zip or city level targeting based on IP-lookup tables. In other words, the consumer’s location is inferred by the way the user connects to the Internet. This approach is less accurate and results in poor performance when compared to alternatives such as user-supplied information (i.e. from a Facebook profile) or latitudinal – longitudinal information derived from a mobile device.

3. Determine what works best for your business

Test Multiple Options

When it comes to coupon offers, one size definitely does not fit all. So, consider the various needs and interests of your customers and offer a variety of coupons to appeal to these different customers. Multiple coupons can ensure your advertising remains fresh rather than repetitive, and more likely to catch more readers’ eyes.

Try different coupons to see which perform best. A business may decide to use a loss leader in one coupon and discount the main product in another. If both are an option for your company,  test both and measure the results. A good approach is to try up to three coupons and see how each one performs. But remember, the rule of thumb is focus on quality coupons since it is better to focus on fewer top notch coupons rather than offering a wide of array of coupons that are less compelling. In addition, an offer or discount that attracts a new customer may not appeal to an existing one. Consider offering ‘preferred customer’ discounts or other special offers, to keep your most loyal customers coming back to you.

Recommendations are a great way to start a coupon campaign, but there really is no substitute for actually testing different offers to see what works best for your individual business. Test up to 3 coupons. Allow a coupon to run for at least one month, since the time between coupon discovery, claim, and redemption can take several weeks, particularly for businesses that are only used occasionally by a consumer. The metrics related to coupon claims and other indications of interest in the business leading up to coupon redemption can measure the effectiveness of a coupon campaign.

Advertising Your Coupons

It should also be stated that the success of any coupon is not only dependent on how popular it is with customers, but also how aggressively it is advertised. Businesses should advertise their coupons rather than relying only on organic traffic. Without adequate advertising, businesses will typically experience a decrease in how many people click on their digital coupons (click through rate).

These click through rates can vary dramatically based on the specific channel where the coupon is viewed. Click through rates on a business’ own website, for example, may be 30% or more, since that traffic is well qualified, but is usually limited in terms of volume. At the other end of the spectrum, display advertising has a low click through rate (fractions of a percent are common), but can drive a significant increase in overall activity since the number of people seeing the coupon may be very large.

Don’t Forget to Capture Information

After you’ve established your campaign, don’t forget that one of the great advantages digital coupons offer over printed ones is the ability to easily capture information about both existing customers and potential customers. So, be sure to track these leads. The names and email addresses of people who viewed and redeemed your coupon are a tremendous asset for populating your customer database for ongoing marketing activities, future sales and – ultimately – increased profits.  

Digital coupons are a new frontier for many small businesses because these offers allow businesses to reach a new universe of “connected” customers. It’s a relatively small investment that can reap huge rewards.

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About Gary Cowan:

Gary Cowan is a senior vice president at DataSphere, a leading mobile marketing company focused on helping local businesses get the most from mobile advertising. Gary has helped many small businesses develop mobile marketing strategies and realize new business benefits. Prior to joining DataSphere, Gary was Director of Search Traffic at Amazon.