Promo code abuse: how to protect your business against Coupon Fraud?
Updated: Apr 21
Coupon codes and e-commerce promotions are an effective and easy way to attract new customers for young ventures or products. With the help of promoters and referrers, success can be guaranteed. But giving away promo codes has its downside: when uncontrolled, chances are, someone will certainly find a loophole to abuse the promotion. Below, you will find our tips on how to protect yourself against coupon fraud without jeopardizing revenue and valuable customer relationships.
What is Coupon Fraud?
Promo abuse or coupon fraud occurs when an individual - customer, vendor, or a partner agency takes advantage of a promotion, abusing the Coupon Policy. Fraudsters might benefit from redeeming a coupon multiple times, or simply using them to gain money and other valuable items or services. Though a quick boost in a sales transaction is a good thing for businesses, 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. In the worst case, it might also ruin your brand, pushing away high-value Customers.
Is Coupon Fraud a big problem?
In the previous post, we have listed the common forms of coupon fraud. Through our research and experience, we found how to make money on Tesla Motors referral bonus, caught vendors creating fake orders with coupons, partners using coupons to increase their margin, customers creating fake complaints to get a discount and tons more. But, is it a big thing? Forter Fraud Attack Index 2018 claims that coupon abuse is the one fraud trend that has remained consistently on the rise. This abusive behavior hit a high in Q1 of 2018, increasing dramatically by 217% from the last quarter.
What can you do to prevent it?
So how do you protect yourself, your company, and your business’ viability against coupon fraud and promo abuse? Here are some tips on how you can decrease the risk of falling into discounting trap:
1. Implement a transparent and easy-to-track process.
Offering promo coupons without a secure infrastructure that will track coupon generation and monitor redemptions could mean a disaster. Invest in developing an internal system or use one available on the market. It should allow you to look at the real-time redemptions data, limit the number of redemptions or budgets, restrict to product categories or specific business goals and set behavioral triggers which can quickly and 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 maximum redemptions for each generic coupon. Going further, you can specify which products or categories you'd like to promote. In any case, change your code pattern often and make sure the old ones are fully deactivated.
3. Generate unique coupon codes & assign them to Customers.
The best way to control your promo coupons is to individualize 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), eg. offering Referral Bonus to Customers, who accomplished minimum 3 transactions. If you continue to subsidize your customers with discounts below your margin, chances are low they will 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 the unfinished transaction. However, don’t be too aggressive - if you’re going to send a 20% voucher after 1h since the customer’s visit, you will 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 to finalize the purchase. Keep in mind: it’s not always about the money.
5. Limit promo to customer identity parameters, not account.
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 about 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 a particular area or location. 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, coupon 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 to partner 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 and in 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 Customer Lifetime Value (CLTV) to see how profitable those newly acquired 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 vendors & affiliate partners.
An effective way to discourage abuse, especially from “illicit” referrers or affiliate partners is to control their KPIs. Monitor affiliates and partner agencies, track how much their revenue contribution is driven by vouchers, and benchmark their redemption data altogether - 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-thought coupon strategy, discounting can bring losses, even if generates spikes of traffic at first.
Interested in a free coupon strategy consultation? Write an email to email@example.com with the subject ‘Consultation’ & we will get back to you to schedule a call.