Why are you paying to distribute digital coupons?

I've been reading a lot of stories lately about the popularity of online coupon sites like Living Social and Groupon.  As a consumer, I can see why these sites have value.  Who wouldn't want to get substantial discounts at local and national retailers, restaurants, theaters and other businesses?

But do online coupon sites have value for the advertiser?  According to some articles, small businesses that have used the sites are questioning the benefits of offering big discounts in the hopes of converting prospects into customers, when the costs are so high, and their level of control is so low.  Living Social and Groupon charge a huge fee for posting discounts on their sites.  To generate a measurable return, businesses need to start with large margins and/or hope that a significant percentage of consumers who redeem the offers will return at some point ready to pay full price.  The retailer also needs to hope that the coupon offer doesn't alienate the business' loyal customers who are already paying full price and are not being rewarded for doing so.

As a business, one of the competitive advantages of using location based social media platforms like Foursquare or Places is that a retailer can offer digital coupons, at no cost, to anyone who happens to be near one of its locations.  Additionally, the retailer controls the amount of time the discount is offered, how many coupons it wishes to distribute and whether or not it wants to require the user to "check in" multiple times before he or she can access the coupon, thereby significantly increasing the possibility of repeat business. 

While coupon sites like Groupon may presently have more members worldwide (35 million), they don't offer the geographic convenience of geo-based sites like Foursquare.  Granted, Foursquare offers aren't delivered directly to the consumers email inbox, but by simply logging onto a geo-site through a smart phone, a consumer can immediately identify any retailer in his/her vicinity that is offering a special. Therefore, any perceived inconvenience with redeeming the coupon is mitigated by the retailer's proximity to the user.  And there is no 24 hour wait for the coupon download.  It pops up on a smart phone ready to use.  Additionally, if the consumer wants to share his or her experience with friends, they can easily do so on geo-sites; a benefit that sites like Groupon and Living Social don't provide.

So if you're interested in distributing digital coupons to drive new business, don't be misled.  Big coupon sites like Groupon, WOW and Living Social aren't your only options.  Nor are they necessarily your best options. It's only a matter of time before burgeoning platforms like Foursquare or Places become the preferred digital coupon distribution channel for small businesses...and probably even large ones.