arrow_back

Marketing

27 Feb 2024

How to prevent coupon fraud: 7 tactics

Reza Javanian

Mohammadreza Javanian

Talon.One loyalty expert

coupon_fraud
access_time_filled

5 minutes to read

Coupon fraud is a $100Bn problem in the retail industry, where it can be categorized into "soft" fraud, involving individual manipulations, and "hard" fraud, which employs more sophisticated methods. 

Soft fraud behaviors include multiple account creation to exploit promotions, transferring rewards between accounts, misuse of personal information, and abusing limited-time offers.

On the advanced side, hard fraud involves automated scripts or bots depleting online promotions, coupon farming operations, account takeovers, and the distribution of counterfeit coupons. These activities collectively impose a significant financial burden on retailers, necessitating robust security measures to detect and prevent such behaviors.

Instances of coupon fraud are not uncommon, as highlighted by Riskified, which reveals that 9 out of 10 merchants have faced considerable costs due to fraud and abuse. The same study indicates that 86% of merchants find their costs associated with promo code or loyalty program abuse to be somewhat or very significant. In this blog post, we delve into the common types of coupon scamming and offer 7 essential tactics to help prevent them.

Newsletter image

Stay in the know with monthly Talon.One loyalty & promotion insights

What are the most common forms of coupon fraud?

When it comes to coupon abuse, retailers should be mindful of several types of fraudulent activities, including:

Easy-to-crack codes

No matter how sophisticated your backend security protocols are, a simple code generation system will be easy to crack and exploit unfairly. 

Referral payouts

New customer referrals often come with significant incentives. As a result, fraudsters will create multiple - and sometimes unlimited - fake new user accounts to take advantage of referral payouts.

Multiple code redemption

Creating fake coupons without setting a limit on the number of redemptions can lead to exploitation. Fraudsters may take advantage by using the same code repeatedly, gaining more value from a promotion than they should.

Fake email addresses

Without proper security measures in place, sharing coupons and discounts through email opens the door to potential fraud. Some customers might create multiple fake accounts to redeem the same coupon repeatedly.

Cart abandonment vouchers

A simple trick fraudsters will take advantage of is visiting the cart, leaving without making a purchase, just to receive the cart abandonment voucher every time.

How to prevent coupon fraud

Targeted coupon campaigns will be a great addition to your digital marketing strategy, but be sure to keep these security measures in mind if you want to avoid coupon abuse and save on your promotion costs.

1. Use a staging environment to test campaigns

Make sure that your coupon provider offers a sandbox mode where you can test your campaigns before release. You can also start by releasing small-scale incentives (e.g., for a particular location or store only) to check your coupons for any potential weakness without risking burning the whole promotional budget on the first campaign.

2. Set up secure coupon validation

During the issue process, you should set up your coupons attributes so they only become valid after specific conditions are met. Setting clearly defined Profile, Device or Payment data as conditions for validation can help you track who is cashing-in your coupon codes, as well as where and when they’re being redeemed.

Example: Give a 5€ coupon to customers who clicked an email coupon (including UTM parameters), valid when they have a total cart value of 50€.

  • The coupon rules in place here include user profile information, UTM parameters and cart value.

  • The coupon is only valid for customers who fulfill all of these conditions.

  • If your promotion solution doesn't validate rules correctly, you could lose a lot of money.

  • Ensure your promotion solution can create a secure coupon code and deliver the right reward to the right person.

3. Implement redemption limits

You can limit the total coupon redemptions that can be made in a campaign, so that you don’t fall prey to coupon abuse. 

Typically all coupons should be single-use, however, at times you might want to offer some of your premium or dissatisfied clients more redemptions. In this case, setting a campaign coupon redemption limit is a good idea to have an automatic failsafe.  

Example: You want to give new customers who sign up for your newsletter a special coupon code valid for free shipping on the next order.

  • Limits to consider: Redemption limits, customer limits, and campaign limits.

  • Limit the number of redemptions possible for an individual coupon code (so customers don't send them to all their friends).

  • Define how many times a customer can redeem a code based on something unique like a customer profile ID or email (typically one per customer).

  • Set a total cap for the campaign to control how many codes are distributed (can be unlimited).

redemption_limits

How to set coupon redemption limits in a campaign

Image source

4. Use a secure code structure

Your coupon settings should calculate the chances of people (and programs) guessing your code to maximize code security.

Example: You want to reward customers for their 10th purchase on your website with a 20€ code to use for their next purchase over 100€.

  • A secure code length is between 4 and 20 characters long to prohibit someone from guessing the code.

  • Customize your code using a set of numbers, letters, or a mix of both. Either way, have the right code validation in place for optimal security.

coupon_code_structure

How to implement a secure coupon code structure

Image source

5. Set up timeframe and expiration

Adding an extra level of defense against coupon fraud involves controlling the coupon activity period. This safeguard not only protects your promotions from misuse but also enhances customer engagement by encouraging them to use coupons before they expire.

Example: You run a promotion giving customers 50% off their next purchase if they use the code SUMMER-2024 within the next 72 hours.

  • Always set the exact start date, expiration date, and expiration time of your coupon code.

  • Never let customers redeem the code over and over for the entire summer (that would be embarrassing and a huge loss of revenue).

  • If you issue invalid or expired codes, this will lead to major customer dissatisfaction and problems for your customer support.

coupon_expiration

How to set expiration date for coupons

Image source

6. Use geofenced coupons

Applying postcode, city, or country data to coupons is an important part of tracking and analyzing where redemptions are made. A very helpful tool to help limit the spread of coupons is a geofencing software. By drawing geofences around areas on the map you would like your coupons to be redeemed, or not redeemed in some cases.   

  • Limit redemption to individuals within a market segment or any other group of people that are inside of your geofences.

  • Send your users special notifications only when they access your platform from whichever locations you have drawn on your map.

geofenced_coupons

How to set up location-based coupons

Image source

7. Consider real-time edits

Despite implementing various security measures, there's still a possibility of fraudulent activity affecting your coupons. To minimize potential losses, it's crucial for your promotion system to enable real-time edits and responses, ensuring swift action to prevent significant losses.

  • Late responses to coupon misuse will result in massive financial loss. 

  • Use audit logs to check which changes have been made by a specific user or to a specific Application or entity. 

Conclusion on coupon fraud

No matter the industry you're in, there is no doubt that coupons are effective promotional marketing. If you are looking for an online coupon code generator you can use our free tool that we’ve built for you.

With a proper solution for creating, managing, and tracking your coupons, you can avoid issues with code validation, coupon fraud, and email scam.

Check out Talon.One’s report, “Preventing coupon and discount fraud” to learn how the proper fraud prevention checks ensure all your coupons are carried out effectively and avoid wasting your promotional budget.

Monthly loyalty newsletter

Join thousands of marketers and developers getting the latest loyalty & promotion insights from Talon.One. Every month, you’ll receive:

check_circle

Loyalty and promotion tips

check_circle

Industry insights from leading brands

check_circle

Case studies and best practises

Newsletter author

Isabelle Watson

Loyalty & promotion expert at Talon.One

Talon.One Logo

The World's Most Powerful Promotion Engine

BERLIN

Wiener Strasse 10
10999 Berlin
Germany

BIRMINGHAM

41 Church Street
B3 2RT Birmingham
United Kingdom

BOSTON

One Boston Place, Suite 2600
02108 Boston, MA
United States

SINGAPORE

1 Scotts Road, #21-10 Shaw Centre
228208 Singapore
Singapore

G2 LogoMach Alliance LogoISO 27001 Logo
CCPA Logo
GDPR Logo

© 2024 Talon.One GmbH. All rights reserved.