Of course, an effective and easy way to attract new customers for a young venture or product is to offer special deals in the form of coupon codes. With the help of promoters and referrers, success can be guaranteed. But giving away promo codes has its own downside: when uncontrolled, chances are, someone will certainly find a loophole to abuse the promotion.

Promo abuse occurs when an individual – customer, vendor or a partner agency takes advantage of a promotion, unduly benefiting from a coupon multiple times, or perhaps, using them to gain money and other items or valuable services. Though quick boost in sales transaction is a good thing ( especially if you’re running short of matching a monthly target), the coupled abuse of promotion might eventually take its toll on your profit margin and decrease the trust of investors.

Forms of coupon fraud.

Based on actual business experiences, “creative” individuals have devised several ways to misuse and abuse promo coupons. For voucher codes distributed online with the intent of attracting new customers only, abusers have learned several workarounds. There are even numerous websites, blogs, and videos dedicated to teaching users how to work the system. Naturally, it’s not a big deal if one of your users will take advantage of the code several times by creating 2 or 3 accounts with different email addresses. The real problem starts when company’s employees, affiliates or partners are the ones involved in the coupon profiteering. I will cover more fraudsters tactics in future articles, but here are a few examples of the most common types of coupon abuse:

– Referral payouts: refer-a-friend program is a great incentive to create fake accounts or post the referral code on social media. In the second case you at least increase your database, however, such practice increases your Customer Acquisition Cost (CAC); those users could sign up directly on your site.

– Cart abandonment voucher: customers already noticed, that each time they abandon the basket before finalizing the purchase, you send a retargeting campaign with a discount. Such a coupon incentivise to finish the purchase, but also to do it again when buying next time.

– Affiliate frauds: to increase their margin, affiliate networks, and agencies register each order as a new customer, using the voucher. Customer pays a full price, agency get’s the discount value.

– Reselling own inventory: it’s common in various marketplaces that sellers buy their own inventory using discounts, and.. put it back on sale. They earn a discount value, decreased by your margin. You earn, hmm, a fake KPIs.

– Generating fake orders: some vendors go even further, especially when they are the ones responsible for the logistics; they simply generate a fake order. Common in food delivery and car sharing services, a service provider – restaurant or the driver creates discounted order, which in fact doesn’t have to be delivered. Again, they earn a discount value decreased by your margin.

What can you do to prevent it?

So how do you protect yourself, your company and business’ viability against promo abuse? Here are some tips how you can decrease the risk of falling into discounting trap:

1. Take the control over your promo codes or coupons.

Offering promo coupons without a secure process that will track creation, monitor redemptions and control the budget, could mean a disaster. Invest into developing an internal system or use one available on the market. In any case, it should allow you to look at the real time KPI’s and set behavioral triggers which can automatically deactivate the promotion or the particular code.

2. Limit the promo duration and number of coupon usage.

If you are planning to distribute a generic coupon regardless of customer identity, the best way to control it and stick to your projection is to limit the promo duration, campaign budget and perhaps, the number of max redemptions for each generic coupon. In such case, change your code pattern often and make sure the old ones are fully deactivated.

3. Individualise coupon codes.

Still, the best way to control your promo coupons is to customize them. Individualizing coupons means creating unique codes intended for each individual or customer. Once that unique coupon or code has been used, it shall be automatically marked and deactivated by your monitoring system. Thanks to that, you can distribute coupons to valuable customers and target particularly those, with a high Customer Lifetime Value (CLTV).

If you continue to subsidize your customers, chances are low they will ever turn profitable.

4. Don’t reward cart abandonments too much.

Nowadays, basket retargeting is a must campaign in every company. It’s perfectly OK to send your customer a reminder about an unfinished transaction, however, don’t be too aggressive – if you’re going to send a 20% voucher after 1h since customer’s visit, you will actually reward the customer for abandoning the cart. That will only make them used to the scheme. Rather start from a simple reminder and ask your user if there’s anything you can do to help finalizing the purchase. Keep in mind: it’s not always about the money.

5. Limit promo to customer identity parameters, not account.

Based on the case example above, restrictive coupons can be abused by signing up with different accounts, using different email addresses and changing IPs. Fortunately, tech companies identified these tricks and suggested improvements. For a more secure coupon, use hard to tamper customer identity parameters and limit voucher usage to device fingerprint or user agent data, not account. Advanced enterprises can also observe and learn on common fraudster behavior to block voucher redemptions of similar patterns.

6. Use geo-targeting.

If you’re not able to individualize the codes, at least limit the campaign to particular area or location. Especially if you’re an international business, create geo-targeted codes by zip code, city or country, offering different discounts in different areas, then track where they are being used.

7. Control the distribution of your coupons.

Don’t distribute your coupons or promo codes just elsewhere especially if they are generic or free to use by everyone. Oftentimes, abusers are just waiting to grab that opportunity and won’t give genuine customers a chance to take advantage of your offer. To acquire new customers, distribute unique codes across social media campaigns or target those who are already engaged. A good idea is also to get into partnerships with companies that offer complementary products and distribute unique coupons directly to their customers. Make sure each coupon is attributed properly to each marketing channel, so you can easily (ideally in a real time) monitor each campaign’s Revenue On Investment (ROI) and act accordingly. If you’re using coupons to track your offline campaigns, track not only a Conversion Rate (CR) but also a CLTV to see how profitable those customers are.

8. Never fully disclose the limitations of your promo code.

Another loophole that abusers can use is the knowledge of your coupon’s limitations. If for example your coupon code is intended for new customers only, it’s enough to tell them that it is limited to new sign-ups or purchases only. Don’t discuss other details like in cases where you are only tracking the IP address, email address, etc.

9. Benchmark referrers and affiliates.

An effective way to discourage abuse especially from “illicit” referrers or affiliates is to control their KPIs. Monitor affiliates and agencies, track how much their revenue contribution is driven by vouchers and benchmark them all together – any anomaly might indicate dishonest behavior. To not lose a vendor, simply direct your partner to decrease the voucher usage or set a limit upfront.

Offering special deals can attract new customers and keep current ones engaged, but without a well-though coupon strategy, discounting can bring loses, even if generates lots of traffic at first.