TechGenix Newsletters

TechGenix Newsletters

18.12.2011 Newsletter 5


Lead Article (Self-help topic – ARE COUPONS GOOD FOR BUSINESS)

Way back in 1887, Coca-Cola was the first company to use the concept of coupons. Coupons were actually physical items back then – nothing like the electronic versions of today. Coca-Cola would issue coupons to employees and sales reps and encourage them to give them to people so they could try out this new drink. They would print coupons in magazines and encourage people to cut them out and claim their free drink. As a tactic to introduce the masses to this new drink, it was brilliant. Not long after the start of the twentieth century, it was estimated that one in nine Americans had received a free Coca-Cola – with a total quantity of 8,5M drinks being given away. At a shareholders meeting, it was boasted to shareholders that Americans in every state had tasted Coca-Cola. They didn’t say that it has been given away to many of those people!

Coupons in 2012 paint a very different picture. In America alone, more than 2,800 goods are offered via discount coupons with coupon transactions amounting to $3.7B being transacted last year. Groupon is king of the concept. The company was only formed in November 2008 and already they have 35M users and Groupon has the distinction of hitting $1B in total sales faster than any other company. Ever. You may have seen the recent promotion from Groupon whereby Josh Stevens completed an entire year living off nothing buy Groupons.

In certain circumstances, I don’t have an issue with coupons. You may attribute much of the success of Coca-Cola to the innovative usage of coupons early in their history. Where I believe that many people make a mistake though is in totally understanding the concept of coupons.

Coupons are an advertising medium for your business. Instead of allocating a part of your budget to advertising on TV or in magazines, that same budget can be allocated to coupons. Getting someone to try your product is very effective in securing repeat business. If your business sells consumables or offers services that require repeat business they can be very effective. For example, a restaurant or a hairdresser might see some value in offering coupons to new clients to allow them to experience the excellent products or services.

Unfortunately for many businesses who want to use coupons in this way, many clients are now becoming very coupon-savvy and they simply shop around for electronic coupons and use those coupons to reduce prices of a variety of products and services with no intention of using that business again. What happens to a business is that they end up only attracting the bargain shoppers on a once-only basis and they don’t create any loyalty. In fact, it often reduces loyalty. Existing loyal clients of a business can become quite frustrated that a new client is treated better than an existing client. Some clients might want to stop being a client for short period of time to then come back as a ‘new’ client and take advantage of the deals for new clients.

Merchants have begun to slowly realise that coupons are not a panacea for sluggish sales in a difficult economy – however hyped-up they might be. Ultimately what ends up happening – just like the massive after Christmas sales – is that a business cruels its margins in the hope of generating additional sales. The sales come – but often at too great a cost.

It is much better to focus on the fundamentals of offering exceptional service and rewarding loyal clients. In the example of a coffee shop, the simplest and most effective coupon is the card that your local coffee shop gives you that you have stamped or punched each time you buy a takeaway coffee – and the tenth coffee is free. Reward repeat business. Reward loyal clients. Give people reasons to come back.

Even better than discounts or a free product offer are offers of value-add for loyal clients. Instead of reducing the price of one of your products, for certain clients, offer them something useful but something that adds value – without costing you too much. Free training is a great example. It doesn’t eat into your COGS but it improves client satisfaction.

For a Managed Service arrangement, I would recommend something that rewards your clients for renewals. For example, when a client renews their annual SLA, send them a small gift. You don’t need to mention it, but it gives them a nice pat on the back for staying loyal. They will remember that next time. I would also offer them an installation discount if they stay on a certain level of SLA for three years – something to encourage them to upgrade their network for example. In terms of attracting new clients, nothing beats an initial free network inspection – perhaps linked with a one-month free trial of an SLA. Reciprocity theory says that if you manage to get into their network and have a look at it, the client has already partly committed to your concept.

Tell me if you shop with coupons at md@smallbusinessrules.com.

Science Quiz Question

I recently spent some time in Queenstown, New Zealand. We stayed on the scenic shores of Lake Wakatipu. Lake Wakatipu is 82km long and up to 378m deep and shaped in an unusual lightning bolt shape. It is New Zealand’s longest lake.

Strangely it rises and falls by 12cm-20cm in a consistent fashion with the greatest difference occurring every 26.7 minutes. The Maoris call it a breathing lake and their story goes something like this.

A long time ago in the deep south of Aotearoa, the Chief of the Tribe had a beautiful daughter, Manata. There was a warrior in the tribe named Matakauri who had fallen in love with Manata. As every normal father through the history of time can attest, Matakauri was not good enough for his daughter so the Chief instructed Matakauri to stay away from his daughter.

One morning as the people of the tribe were rising, it was noticed that Manata was missing. Through some quick detective work (huge footprints, destroyed bushland, earthquake like feeling during the night, CCTV footage) it was determined that the mighty and feared giant of the south, Matau, had kidnapped Manata (I am not sure if the tribe knew what his intentions were, but presumably he didn’t ask her around for a cup of tea).

When the Chief asked for a rescue team, all he saw was a lot of bowed heads and uncomfortable foot shuffling. As per most tales, his daughter’s hand was offered in marriage and, of course, Matakauri was the first to step forward. To cut a long battle scene short, when Matakauri found Matau, he was fast asleep in a foetal position with Manata tied to him. He freed Manata and then, to stop Matau from ever harming a member of the tribe again, he decided to destroy Matau once and for all. Very quietly, Matakauri surrounded Matau with dried weeds and wood to form a bonfire with Matau at the middle. Just before the giant awoke, Matakauri lit the brushes and ran around the body lighting the bushes and brush. Matau was devoured by the flames that were so hot and so fierce that they burned a hole in the ground where the giant slept and the flames melted the snow on the mountaintops hence forming the lake.

Legend says that you can never destroy a giant’s heart. Sure enough, the giant’s heart, deep in the lake, beats on until today causing the rise and fall of the lake.

Sounds like a pretty good story? What do you think causes the rise and fall of Lake Wakatipu – Matau’s giant heart or some other (slightly more scientific) explanation?

Science Quiz Answer

As with any ancient legend, don’t let logic or the facts get in the way of the story. For a start, an 82km long lake formed by the impression of a giant would logically mean that the giant was 82km tall. Assuming he had similar physiology to a human (but a lot larger) then he would need oxygen to survive. With his head at 82km above sea level, the top of his body would be in the mesosphere and almost in the thermosphere. At 8km or more above sea level, the human body cannot adapt to high altitude due to the lack of oxygen. Even heights above 2.4km start to cause serious illnesses for humans. The other minor point is that the temperature starts to become a little chilly at those heights. Due to decreased air pressure, temperature drops at the rate of 6.49°C for each 1km above sea level until you reach temperatures around -100°C. If it was a nice sunny 20°C on the ground, Matau’s ankles would be 6.7km above the ground where the temperature would be -23°C and his knees would be 23km above the ground and already in the stratosphere where the temperature is as low as -100°C. That would require some serious leg-warmers! Added to this is the fact that, at a standard foot length to height ratio of 15:100, Matau’s foot size would be a 12. That is not a size 12 but 12.3 kilometres in length. At an average stride of 41.5 per cent of height, his stride would be 34km long so with less than 8 steps Matau would walk from one side of New Zealand to the other. I won’t even mention the round trip of 164km+ that Matakauri would need to run to lay brush around his entire body. The last point I will mention is that if a 180 tonne whale has a heartbeat of 12 beats per minute, assuming our giant has a very lean physique and has a healthy BMI of 21, he would have a mass of 1.41 gigatonnes and a corresponding heartbeat of 8 beats a year (on the same weight:heartbeat ratio of a whale). That is one heartbeat every 45 days which doesn’t really correspond to the 26.7 minutes typically observed with the lake.

Now that I have taken all the fun out of the legend, we should look at the scientific explanation.

In very simple terms, the ‘breathing’ is a natural oscillation that occurs in any enclosed water. The period of the oscillation can be calculated with the formula: Length of water multiplied by 2 divided by the square root of (depth of the water multiplied by gravity). Put in the numbers for a bathtub and you find a natural period of about 1.26 seconds. Punch in the numbers for Lake Wakatipu and you find the period is 52 minutes which doesn’t match the observations. But a standing wave has natural harmonics and Lake Wakatipu has harmonics of 26.7, 18.5, 15.0 and 10.0 minutes. Due to the strange shape of the lake, the first harmonic of 26.7 minutes is the strongest and the one best observed. The scientific name for this phenomenon is a seiche. Sorry to spoil the legend but if you ever have the chance to go to New Zealand and observe the lake, take a look. Giant or no giant, it is fascinating observing the rise and fall of the lake.