By Doriel Abrahams, Head of U.S. Analytics
There are excellent reasons for companies to use coupons and other forms of promotion (referral bonuses, birthday discounts, etc.) to entice new customers to try their site or service.
Not only does it encourage loyalty among existing customers, but it can also entice customers to spend more with your company. According to a survey by the American Marketing Association, 68% of consumers believe that digital coupons generate loyalty, and online shoppers who used a coupon spent an average of 24% more than those who did not use coupons.
Coupon & Promo Trends
In 2022, digital coupon redemption is expected to surpass $90 billion — compared to $47 billion just five years earlier. Forter has observed that during the 2022 holiday season so far, coupons are used about 11% more often than in previous years.
Although this seemingly represents a business opportunity, some of this growth represents abuse by customers not using the promotions in their intended ways. With this sort of scale in play, it’s vital to ensure your business isn’t losing more money than your promotions are worth.
And your fraud team should pay attention, too. While dealing with coupon and promotion abuse isn’t generally the job of a fraud prevention team, in many cases, they have the infrastructure and knowledge to prevent it.
For some companies, the loss from promotion abuse can far outweigh the loss from fraud. The data shows that if you don’t take steps to prevent it, promotion abuse is the kind of problem that grows rapidly.
Promo Abuse Has Gone Pro
Companies have traditionally been willing to factor in a bit of coupon or promotion abuse as part of the cost of the marketing campaign — well worth the gain in increased customer base and order value.
After all, customers who use coupons and promotions are often the most enthusiastic fans, looking to get even more of the brand they love. It’s often worth letting good customers get more than they should to keep them engaged and loyal.
However, 81% of coupon abuse attempts are from serial abusers — people who try to take advantage of any offer you’ve got and will exploit it as much as possible. The loss here can be significant and a real risk for the business.
Generally speaking, serial abusers don’t want goods and services for themselves. Instead, they have their eyes on reselling for a profit. And the more they can use coupons and other promotions to drive down the price they’re paying, the greater the profit.
These fraudsters often become highly efficient at combining promotions and stacking and reusing coupons to maximize the discount. Over time, they become increasingly sophisticated, putting more effort into setting up new email addresses, finding alternative payment methods, and essentially creating shallow new identities.
This might sound familiar from a fraud perspective, but it’s essential to differentiate a professional fraudster from a serial coupon abuser.
Professional fraudsters only use coupons when they’re trying to use them as cover to make them look more legitimate. They don’t need discounts because they use stolen funds to pay for the items. Only 5-10% of promotion abuse attempts are from fraudsters trying to look legit. The overwhelming bulk is from serial abusers.
What Do They Target?
Answering the question of what type of coupon or promotion abusers target feels familiar to me as a fraud analyst. As it always is with fraud, the answer is to “follow the money.”
Cheating to reuse coupons, stack discounts, boost up first-time benefits and collect free samples doesn’t require deep investment in the way successful professional fraud does — but it does take some work. You’d be setting up multiple email accounts, perhaps using basic tricks like VPNs to come from different IPs, and so on. You might need to find additional funding sources;your profit would need to justify your level of investment.
- Signup bonus. Serial abusers love anything with a signup bonus. Using a new or slightly altered email address means the abuser can collect that bonus again … and again … and again. Cash for signup is always the most popular because it’s free money.
- See your incentives at scale. While you might imagine a $5 incentive or a free sampler you can sell for $3 isn’t enough to be worth the effort of setting up a new email address, a fraudster can easily set-up hundreds in no time — and adding enough small items can bear a hefty reward.
The nature of the deal, how attractive it is, and how easily it can be monetized is more important to serial fraudsters than the type of goods or the industry. When serial abusers spot an offer they can exploit, they attack.
Protect Your Business from Promotion Abuse
Promotion abuse is no longer a reasonable cost of doing business; it’s a drain on a business’s profitability. The shift from occasional, casual cheating by passionate customers to serial abuse by professional cheaters has industrialized the problem, and it’s no longer something you can ignore.
Companies need to invest in their systems to differentiate between legitimate promotion use, occasional cheaters who are worth turning a blind eye to from time to time, and serial abusers who operate at scale.
Working on Forter’s Abuse Prevention solution is fascinating to me as an analyst, because it involves thinking a little differently from what I’m used to with fraud. It’s not a case of fraud or no fraud, or even abuse or no abuse, but a nuanced question of delivering a recommendation for whether this specific customer should be allowed to use this particular promotion on this occasion, taking into account the retailer’s policies and the customer’s typical spend and their known behavior on this site and across Forter’s network.
It’s enormously satisfying to help merchants gain vital insights into their customers and protect their business from serious loss — whatever direction the risk is coming from.
Forter is the Trust Platform for digital commerce. We make accurate, instant assessments of trustworthiness across every step of the buying journey. Our ability to isolate fraud and protect consumers is why Nordstrom, Sephora, Instacart, Adobe, Priceline, and other leaders across industries have trusted us to process more than $500 billion in transactions. Click here to learn more.