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How do coupon companies make money? Paypal's Honey Business Case Study

A coupon company works as a connecting link between a retailer and a consumer. However, a major dilemma arises as to how coupon companies make actual money.


In this article, we talk about how coupon companies generate revenue. And cover Paypal's deal to acquire Honey for $4 Billion.

Paypal's deal to acquire Honey for $4 Billion.

What is a coupon company?


The primary objective of a coupon company is to promote any discounts or offers made available by the participating business to its consumers. These companies act as a gateway between retailers and consumers.

History


The first-ever coupon was issued to customers in the year 1887. Since then coupons have seen massive widespread acceptance across various sectors of the markets. One of the spectacular remembrances of coupons was during the Great Depression when "cereal coupons' began to be widely utilized across the market during a period of economic instability.

The first-ever coupon was issued to customers

And Then,


In 1957, Nielsen Coupon clearing house became the first company that served as a link between retailers and customers and focused entirely on coupon redemption. What followed after this was a horde of companies that began dominating the markets providing services to act as a middleman between the consumers and the retailers.

As digital adoption grew across the markets we immediately saw the rise of online coupons. The industry quickly shifted to an online model of coupon redemption.


Market Size


According to statistical data digital coupons have already surpassed paper coupons. In 2020, a total of 181 billion paper coupons were released across the market while the number of online coupons released was a meager 7.5 billion.


According to statistical data digital coupons have already surpassed paper coupons

However when the final data was released analysts were quick to realize that the number of coupon redemptions was higher in the digital module.


But how do they make money?


  1. Paid Deals

Coupon companies provide coupons to consumers at a lower price than the original price of the coupon. A coupon company works on a partnership basis with the specific retailer while providing the deal at a lower cost and ensuring that the business gets a steady stream of traffic. The success of this module depends only on the quality of the traffic bought in by the coupon company.


2. Program-based models


A coupon company initiates a contract with a retailer wherein it handles its overall product marketing. These models provide an intensive campaign focusing on various verticals which in turn help the company promote its product. Such deals are worked only when the coupon company is sure that it can provide such massive leverage to the retailer.


In return for the spectacular business, the retailer provides the coupon company with a range of product discount vouchers and additional fees for initiating the campaign.

\Several times coupon companies get a commission from each sale made on the platform wherein the traffic was routed from the coupon company.


3. Bulk Sales


Coupon companies buy coupons in bulk from various retailers and issue them to customers. Such a bulk quantity of coupons can be bought at a fraction of the cost and can be sold at a higher price.


4. Revenue from Advertisement


Coupon companies offer massive advertising space to various advertisers. The websites of various coupon companies get a lot of traction as a result such products have a high chance of gaining massive visibility. As a result, advertisers target such spaces which in turn, generate massive revenue for the coupon companies.


5. Affiliate Programs


Coupon companies run various affiliate-based partnership programs while becoming a part of various such schemes. The sole focus of these programs is bringing in visitors to the website and subsequently generating sales. Coupon companies generate revenue on each sale in the form of commissions.


Check out CNBC's take coupon companies:

Paypal bought Honey for $4 Billion!


Honey functions as a chrome extension browser servicing coupons to consumers has been recently acquired by PayPal for a whopping $4 Billion. A look at Honey and we will get major insights into how it has developed a whole consumer ecosystem around itself.


The primary function of Honey is that it lures the consumer into buying a product by providing him with various deals and reducing the rate of customers dropping their shopping carts.


The basic business model of Honey is that it receives a commission the moment a buyer makes a purchase. This commission is serviced by the retailer. The commission rates may vary from 0.5% to 10%.


When it comes to high-end luxury products retailers shell out around 20% commission fees.

Honey has partnered with nearly 30,000 retailers operating across various sectors. Apart from this Honey has partnered on an affiliate-based system with nearly 20+ major platforms.

Honey also has an inbuilt price comparison system paired with a price history system.

business model of Honey

Apart from this Honey also runs various loyalty programs wherein it provides hordes of gift cards and various benefits to its consumers. All these factors have resulted in Honey gaining a massive share in the overall coupon markets.


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