February 4, 2003
NASHVILLE, Tenn.— Online consumers who are asked to enter a promotion discount code but do not have one are far less likely to complete their purchase than those who had a code or were not prompted for one, according to a new study by the Owen Graduate School of Management at Vanderbilt University.
Unlike the offline world, where customers redeem ordinary paper coupons, online promotion codes require keying in a series of numbers or letters to receive a discount on a purchase. The Owen School study showed a majority of consumers who were either “codeless” or did not have the means to obtain a code do not finish their transaction. Studies have shown that this phenomenon, known as “shopping cart abandonment,” is estimated to be in the range of 25 to 75 percent, with each desertion costing the retailer an average of $175 in lost revenues.
“When consumers traditionally ‘abandon’ a online purchase, it’s usually because shipping costs are too high or they’re unhappy with how long it takes a purchase to be processed on their computers,” said Mikhael Shor, assistant professor of economics at the Owen School and a co-author of the study along with Richard L. Oliver, Valere Blair Potter Professor of Management at the Owen School. “But our study revealed a shopper will not bother to complete the purchase because he or she believes there is a perceived inequality or injustice that someone else is getting a better deal than they are. It’s a question of “haves” versus “have nots.” Shor added the “have nots” will never know the amount of savings lost by not having a code, or even how these codes are obtained or distributed.
While most shoppers are familiar with regular coupons, Shor added, their online equivalent is a mystery because consumers generally do not know how to obtain the promotion codes, let alone how to use them, thus deterring purchases. Consumers also have no idea, according to the study, how the coupons are distributed.
The study was conducted using 206 participants recruited from advertisements, as well as e-mail lists and university student rosters.
To test their theory, Shor and Oliver created a fictitious website, ToyMart.com, complete with a product named “Cuddles Baby” for $39.99. The study participants were guided through an imaginary shopping experience, which included simulated searches for the item at the online store and adding it to a virtual shopping cart. Participants were divided into three groups: those that had a promotion code, those who had no code and a control group, which had no code field on the website.
“Our findings confirmed that the highest probability of purchase, 76 percent, was for consumers who have a code, followed by the control group,” Shor said. “At 19 percent, the ‘have nots’ were the least likely group to complete the purchase.”
The study also saw a direct correlation between a consumer’s belief that searching for online coupons is worth the time, and the technical expertise of the shopper. “Unlike traditional coupons, the time involved in searching for promotion codes varies greatly with the skill of the computer user,” Oliver said.
“Many websites are now devoted to locating online coupons, and codes are clearly visible in summaries provided by search engines, a location familiar to regular Internet users,” he said. However, Shor expressed doubt a company could consistently deliver promotion codes to targeted markets successfully, given the availability of the codes on multiple websites, locales that are outside retailers’ control.
Shor concluded many retailers have not considered online consumer behavior along with marketing factors in distributing promotion codes. Instead of providing a code to be entered at checkout, he proposed a new method that involves sending an e-mail promoting the use of a special discount. The e-mail would then provide a link to a special Web page at the retailer’s site, acknowledging receipt of the coupon.
That way, shoppers who initiate their visits through these special pages, Shor said, are reminded throughout their visit that they will receive a discount. “Special Web pages won’t eliminate the equity and satisfaction issues entirely,” he added, “but it‘s one way to maintain the traditional retail experience in an online environment—and attempt to keep the consumer happy.”
Shor added, “We need to return to basic fundamental business practices,” he said, “and let ‘age old’ marketing drive practices flourishing in the ‘new’ medium.”
Media contact: Susanne Loftis, 615-322-NEWS, susanne.loftis@vanderbilt.edu