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Warning: Coupons make you spend more

RetailMeNot CEO explains how coupons and deals are bumping up online shopping cart order sizes.

I've said before, and not too long ago, that only people with poor impulse control buy things at retail prices. But I've recently come to understand that deal-seekers, people who habitually try to save money by using social-shopping sites like Groupon or coupon directories like RetailMeNot, may actually be even more valuable to the retail industry than people who buy stuff at list price. Because they spend more.

Cotter Cunningham, CEO of WhaleShark Media, which runs RetailMeNot, explained to me recently why his straightforward coupon site is working well, and how the Internet is changing how pricing and consumer marketing is done.

Cotter Cunningham says coupons make for bigger online orders. Rafe Needleman/CNET

Affiliate marketing--paid links to commercial destinations--is the third-most efficient way for consumer goods and services companies to get online business, after e-mailing existing customers and doing good SEO. Coupons make for very effective and trackable affiliate links, because users have to click on them to get the deal, not just visit the site selling the product they want.

And coupon sites succeed because the business of aggregating coupons is very strong: each link is a CPA, or cost-per-action link, which pays out at a much higher rate than CPC, or cost-per-click advertising links.

The goal is to become the big site with the most coupons, as getting into that position makes for a virtuous SEO cycle: the more coupons you have, the more people link to and visit the site, and the higher you rise in the search engines. RetailMeNot pursues this strategy by including even nonaffiliate coupon deals in its listings. Unlike some of the original coupon sites, where each coupon has an affiliate or CPA link attached to it, RetailMeNot encourages its users to submit coupon codes they find around the Internet. These coupons don't generate direct revenue for the site (although pages they're on do serve ads), but they do serve the incredibly important function of improving RetailMeNot's depth and thus its SEO juice and its traffic, making its paid links bigger revenue drivers.

According to Cunningham, retailers don't mind the couponification of their customers. While it's certainly true that the profit margin a coupon-using consumer generates is less than somebody paying full retail price, advertisers effectively use coupons to "march you up the AOV (average order volume) food chain," he says. You know those offers to get a discount or free shipping only on orders over a certain amount? They work. People spend up, and spend more, to get to the coupon threshold.

RetailMeNot has both paid coupons and those discovered by its users. Screenshot by Rafe Needleman/CNET

The current challenge for the standard coupon site business is the competitive threat posted by the social coupon sites like Groupon and LivingSocial. RetailMeNot has some of its own social initiatives on Facebook and Twitter, and the company is working on ways to add more compelling game mechanics to the site to get people to use it more. Also, Cunningham says, RetailMeNot will soon launch a partnership with a social deals site as a test project.

Cunningham sees the effect of the group deals sites already. He says consumers are getting more disciplined, and this is good for his business. Consumers are learning the value of waiting for a coupon or group deal to appear; this realization will lead to enhancements in the alerting system in RetailMeNot.

The other coming improvement on RetailMeNot is a mobile app to help users find deals on items they're right in front of at physical retail stores (see also: eBay building mobile apps to grow user base). The site has focused on electronic commerce to date, so this is a bit of a branching out.

I still maintain that retail prices are for suckers; with the growth of social deal sites, now more than ever. However, it appears that thanks to retailers' smart use of coupons and deals, it's still just as easy to get suckered into paying more than you need to.