The Monster is in the House

I read an article recently about disaffected merchants who tried Groupon, LivingSocial and other online marketing strategies. And hated them.

It’s like the old garment center joke, “I lose money on every sale, but I make it up in volume.” Honoring these downloaded coupons cut deeply into merchants’ profits and did very little to drive repeat business.

“I pretty much had to take out a loan to cover the loss, or we would have probably had to close,” the owner of a Portland, Ore., coffee house told The New York Times. “We will never, ever do it again.”

There’s a lot here about the way 21st Century consumers use the Internet and about how the price-sensitive, bargain-hunting, brand-disloyal millennials shop. But, in fact, it’s not a new story.

I googled “coupons” and discovered it began with Coca-Cola in 1894. The company mailed free-drink coupons to customers and then gave the soda fountains free syrup to cover the cost of the free drinks. An estimated one in nine Americans drank a free Coke between 1894 and 1913. Coke has since more than made back its investment.

The consumer products brands jumped in during the Depression, desperate to drive business, and the retailers, particularly supermarkets, began couponing in the 1940s.

But I can’t help thinking of department stores in the 1990s. They began putting 10 percent-off coupons in the mail, in the newspaper, in their circulars. And if you opened a store credit account, you’d get an additional 25 percent off. It began as a Labor Day special or “this weekend only,” and only on certain special items.

Then it was not just Labor Day weekend, it was every weekend. And the few special items became nearly everything in the store. And that 10 percent coupon became 15 or 20 percent, to the point where you had to wonder how the retailers were surviving. Were they making it up on volume?

And when there were no coupons, many shoppers just stayed home and waited for the next one to show up in their mailboxes. “Don’t buy it now,” they thought to themselves, “it will go on sale in a week or two.” And it did, of course.

In 2005, as it expanded its empire across the country following its May Co. acquisition, Macy’s told an IRDC audience that this dependency on a coupon strategy was ending – now! Or, well, after the holidays. Or maybe by the summer. Or certainly before next year’s holidays.

But once you’ve conditioned the shopper to wait for the coupon – whether in the mail, in the paper or online – you’ve created the monster. He was such a cute little creature in 1894, doing all sorts of helpful things for you. When did he take over your house?