Sept. 30, 2024
Are your promotions being taken advantage of by promo code hackers? Promo code abuse is a huge problem for businesses who want to attract customers with discounts, but also need to look out for their bottom line. As digital promotions become more and more common, the risk associated with them grows--risk that can lead to not just financial loss, but also brand damage and lost consumer trust. In this post, I'll cover all the ways customers take advantage of promotions, what it means for you, and what you can do about it. By understanding the different ways people can take advantage of your promotions, I hope to empower you to protect your promotions and your relationship with your customers, so you can build a more sustainable business.
Promo code abuse is a big problem when you're trying to incentivize people to use your product or service with special offers. It's when people take advantage of special discounts, credits, or codes in ways that aren't intended, and it can end up costing companies a lot of money. And now that everyone's shopping online and looking for a good deal, it's more relevant than ever.
Promo code abuse takes a heavy toll on business -- often a financial one. When shoppers exploit promos, businesses shell out, directly and indirectly, and it adds up fast. There's not just the lost revenue -- businesses may suffer a damaged brand, lower customer loyalty, and increased operational costs to combat it.
Promo code abuse is a catch-all term for a variety of behaviors. Shoppers who make multiple fake accounts just to redeem an offer are frustrating, and a great way for you to slowly but surely hemorrhage cash. Some shoppers publish their promo codes to public sites, completely undermining why you were running a promo in the first place. Once you have all the tools in your toolset, you can design more effective prevention tactics.
Once you understand the most common ways shoppers take advantage of promo codes, you can build powerful strategies to prevent it.
One option would be to misuse the system and create tons of fake accounts. It's simple for anyone to do and since the fraud is digital, people often get carried away. They create different personae and use the same coupon codes again and again to double or triple their savings, while the brands providing the offers are the ones who get burned.
Promo codes shared on social media, forums, or any other online community can also pose another issue. A code originally intended for a specific audience becomes public, and businesses experience a spike in redemptions that don't equate to genuine customer acquisition or engagement. This can cause more issues down the road, potentially damaging customer trust in promos overall.
The implications of promo code abuse reach far beyond your budget. It has the potential to really hurt your customer relationships. Legitimate customers—customers who are truly on your side and using promo codes the way they're intended to be used—might feel that rule-abiding customers are being taken advantage of and that taste of unfairness can sour their experience. They might even feel cheated by your brand, leading to reduced loyalty and retention.
When rule-abiding customers feel they're being made fools of, your brand looks bad. You're out there trying to lure in customers with promos, and promos are the very thing that's working against you.
According to some reports, promo code abuse costs merchants around 1.2% of their total revenues. That could be a huge amount, depending on the size of your business. Uber, for example, has been losing cash because of promo code fraud. There have been instances where a single user has misused promo credits to the tune of $50,000--can you imagine what a hit like that does to Uber's bottom line?
These numbers should terrify businesses everywhere. It's one thing not knowing what's happening behind the scenes--it's another when you do know your promos are causing those losses and you need to keep an eye on them. Take them down before they start to hit your bottom line.
To solve the issue of promo code abuse, businesses need to use a multitude of strategies that combine different means to attract customers as well as different ways of blocking fraud.
One way is to keep an eye on promo code usage. Through transaction data analysis, businesses can identify any anomalies that may signal abuse and shut it down before fraudsters can escalate their activity.
Verification is a good way to be sure that someone is who they say they are, especially when signing up for promos. You can also take a step further and use multi-factor authentication to make it even harder for people to create fake accounts.
One other thing to consider is customer behavior and blocking promo code abuse. You can use a tool like analytics or machine learning to identify which customers will likely redeem a promo code with no issues, and which ones might put you at greater risk of abuse. That way you can structure your promotion strategy to be more effective where you can make those customers happy, and not give up.
Blocking promo code abuse is a multi-faceted problem. You need to understand the methods, know the cost, and have a real way to block it. Once you have all the pieces of the puzzle, you can protect yourself while still promoting to the customers you want!
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Coupon codes are an effective tool to excite consumers to buy from a company, but if a company is taken advantage of with promo codes, it can also have very serious negative consequences financially and for their marketing ROI. When a company is taken advantage of with coupon codes, generally, the company is not as profitable. For example, if someone uses the coupon codes more than they purchase for a particular company, the company doesn't actually get the additional sales that they were hoping for, and the marketing to get those additional sales isn't working. In other words, what was supposed to be a good thing to attract new customers and make customers loyal instead becomes a money suck and big problem for the company to even be able to stay in business.
Promo code abuse can be a huge problem because it can completely deplete your stock. A system provider has no idea how well their promotion is going to perform, and so they may not be prepared for the number of orders that come in when the code is used. And because it's promo code abuse, the retailer is 'stuck' and can't fulfill customer orders when they run out of stock too quickly. Not only does this mean missed sales, but it also leaves the customer in the lurch -- a situation that can result in negative reviews and lost business. For instance, if a retailer is out of stock on a popular item because a coupon was over-redeemed, customers might think the brand is undependable and shop somewhere else in the future.
To mitigate the negative impact of promo code abuse, companies are forced to spend more operational overhead. They have to account for all the ways that people can use their promo codes, which adds another layer of complexity to running the business. They have to pay somebody to watch it, to buy technology to watch it, to come up with clever policies so that people who abuse it won't get away with it. All of this adds to costs and takes attention away from more important aspects of the business. This is an additional layer of complexity to running the business, but it doesn't stop there -- when they have to readjust inventory expectations and readjust their promotions, they're just adding more variability to their supply chain and making it less predictable. This hurts overall efficiency and hurts the customer more than anything else.
The rise of digital marketing is great for everyone -- businesses and consumers alike. But there is a downside. Promo abuse. Promo codes are often abused in the form of multiple fake accounts being created. One of the most effective methods for preventing this is by implementing SMS verification, which prompts users to verify their phone number when signing up for an account.
My SMS Check is great for blocking fake accounts because only real, unique numbers can be used to create an account. When users create an account, they give us their phone number, and we verify that phone number by sending it an SMS code. The real-time verification makes it very difficult to farm accounts, because each phone number would need to be paid for and verified to create an account.
For example, an e-commerce company offers a discount to first-time users. People might try to sign up multiple times with fake or disposable phone numbers to get the discount. But with SMS verification, that can't happen, because each phone number needs to be verified. The difficulty and effort required to obtain multiple real phone numbers makes it prohibitively difficult to cheat the system, and so first-time offers are protected from abuse.
Phone verification is a deterrent and useful! If you give users less wiggle room, they have a harder time making false accounts. A real human has to own the phone we verified, and most people don't have a million phones or phone numbers! If people know that they can be held accountable and that their account will be shut down, we're sure they're less likely to try and get away with anything.
Alright, so phone verification is also useful. You can use the data from SMS verification. For example: if someone uses one phone number on multiple accounts, and they're all trying to stack discounts at the same time, you can set an alert for that. By catching these patterns, you're not only protecting your promos, but you're keeping your user base honest too.
Fake accounts are a big issue--especially for promotions. People take advantage of promotions with fake accounts, and that's a problem. SMS verification does a lot to stop that. It's a lot harder to create many accounts if you need to use a phone number every time.
And you can actually verify the phone number in real time now. If the phone number is connected to fraud, you can stop the account creation process in real time. No fake accounts are created, and you get a safe, trusted user environment.
Once we receive an SMS verification, we can see exactly what the user has done, and if they're trying to get one over on us. If we see a pattern or something we don't like, we can stop them from using that verification, or perform further verification checks.
This real-time capability allows businesses to act quickly in the event of fraudulent activity and keep their promos for their legit customers. But what's even cooler is you can see everything and get great insight as to how your users are interacting with your promo, and use that to optimize your promo and understand your customers better.
Linking SMS verification with other fraud detection systems provides a powerful multi-layer defense against promo abuse. Combining a range of verification methods (such as device fingerprinting, IP address tracking, behavioral analytics) means that companies can create a fraud prevention system that's comprehensive.
By overlaying the additional verification data with data from other systems (e.g. user behavior), companies are able to build a 360-degree view of user behavior relating to their product. Armed with this complete data set, companies can identify complex patterns that signal abuse and ultimately, can take action. By integrating with other systems, companies can be confident that their promo abuse solution isn't just a short-term fix and can expect a long-standing solution in the battle against promo abuse.
Finally, verifying the phone number type, through which you'll only be able to send SMS messages to real phone numbers, adds a layer of security against potential fraud and gives you the data you need to create a secure, user-friendly experience where promos are a reward for actual customers—and maximize their impact and your bottom line.
In today's digital world, where digital communication is king, using SMS verification is a great way to prevent fraud. With a few best practices, businesses can not only strengthen their security, but also improve the user experience. Here's how you can get SMS verification right and prevent fraud too.
The most simple one might be to turn on the fraud protection features that the service you're using for SMS sending (like Twilio) already offers. In the case of Twilio, that's SMS Fraud Guard. Basically what that does is it tries to scan for and filter messages it sees as spammy, so they never arrive at your users' phones. Fraud protection isn't just looking at one or two things. It's looking at a whole bunch of factors related to how the message is being sent, what's in the message, where it's coming from, etc.
That means you have fewer actual fraudulent messages being sent to try and take over your users' accounts. So if a user does receive a security code from a different phone number, you can tell them that something unusual is happening and keep the fraudster from getting their sensitive information. Strong fraud protection is key in your SMS verification flow -- not just to protect your bottom line, but to show your users you're looking out for them and they won't be the victim of malicious intentions.
Another use for SMS verification is setting rate limits on the number of verification texts you can send. Rate limiting is used by companies as a tool to control and prevent rapid automated fraud attempts, which may involve hundreds or thousands of verification requests in a very short time frame.
For example, you could allow only 3 verification requests per phone number per 10 minutes. This makes it much more difficult for bad actors to brute force your system, because they can't easily use different numbers to work around your system. In addition to its role as a security tool, rate limiting also aids in resource management, allowing you to provide a reliable and fast SMS service to your legitimate users.
My SMS Check defaults to a rate limit of 1 request per minute, so there's nothing you need to do if you use our services.
Geographic restrictions are another tool in your SMS verification toolbox. By only allowing verification codes to be sent to known good geographies, you can cut off a major avenue of attack, limiting the ability of bad actors—particularly international scammers in high-risk countries—from causing trouble on your platform.
In practice, it could mean setting up your SMS gateway to only allow requests from countries or regions where you know you have actual customers. For example, if you only serve customers in North America, you'd block verification requests from outside North America unless there was a pre-authorized exception. Geographic restrictions help businesses protect themselves from potential abuse and also operate more efficiently by only having to deal with the good stuff.
With cyber threats always evolving, it's a good idea to audit your SMS verification system regularly. Regular verifications help you identify any gaps or weak points that have opened up amidst new threats since your last check. This could be poring over logs, conducting a vulnerability scan, or a compliance check to see where your verification flow isn't quite watertight.
For example, businesses may audit how effective their SMS is on a quarterly basis. By pouring over data on failed attempts, suspicious activity, and user complaints, businesses can adjust their approach to make things more secure. And by staying vigilant like that, it instills a culture of vigilance and staying up to date with the latest fraud that bad guys are doing and adjusting your countermeasures accordingly.
You've got your SMS gateway in place and you're using a token. Great. Now let's use this third step (educating your user) to really dial your security and verification up to 11!
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You've got a lot of good options here. Some of our customers write blogs, others make videos, many include a short P.S. in their drip campaigns. The important part is to communicate to your end user that they should be using a secure, unique identifier as their phone number. When you communicate the reduced risk that secure, unique identifiers provide, you not only empower the user to take control of their security on their own, you also strengthen the security of your verification system as a whole.
That way it's a win-win-win. The user's more secure, you're more secure, and the marketplace (buyers, sellers, etc) is more secure. Triple win!
You'll see some pretty impressive results when you do all 3--use the right SMS gateway, use a token, and educate your user.
In 2022, US consumers lost $330 million to SMS fraud, a 151% increase from 2021. Effective prevention methods are essential as 74% of organizations faced smishing attacks in 2022, while the telecommunications sector lost $38.95 billion globally to fraud.
Promo code abuse is a huge issue for companies -- it's an expensive problem! Promo code abuse is when people 'game' your promo to get more value from them. For example, if they create 10 different accounts and post their code to Reddit. This drives up your cost and people aren't as loyal to your brand. It hits companies in the pocketbook -- a 1.2% revenue loss is no joke -- and it's a headache for them to manage and prevent, both of which take a ton of time and energy. In order to prevent abuse, companies should have measures like SMS verification and usage pattern monitoring. In some cases, even ML can be used to determine if someone is gaming the system to get more of your promo. With a multi-prong approach, companies can stop promo abuse and still create a great customer experience all while keeping the $$$ where it belongs.
Promo code abuse happens when customers misuse promo offers in ways that weren't intended. For example, by creating 10 fraudulent accounts to cash in on discounts or posting codes in public channels. This misuse can end up costing businesses a lot of money.
Promo abuse can have huge financial implications. Not only are you losing out on the money from the sales that were discounted, but now you've got extra overhead that you didn't have before - companies have to police and prevent this stuff, and it really adds up over time and starts to eat into your profit.
Typical strategies include creating a bunch of fake accounts to abuse promo codes over and over, or posting promo codes on some public website somewhere, both of which can totally mess up your original intention of the promo code and could result in some unintended redemption spikes.
Real customers feel cheated or upset that other people are gaming the system with promo codes. This unfairness will lead to less customer loyalty, as real customers will feel like the promos are useless and will leave a bad taste in their mouth, hurting the brand.
Promo abuse can cost merchants up to 1.2% of their total revenue. In the most extreme cases, businesses might see a ton of abuse, with users misusing promo credits for tens of thousands of dollars to give you an idea of how much money is on the line.
Use preventive measures like analyzing usage patterns to see if anything seems out of the ordinary, and verifying the user is who they say they are from the very beginning, using measures like multi-factor authentication, and analyzing user behavior using data analytics to identify any potential bad actors.
SMS verification helps ensure that only unique, real phone numbers are used in account creation, so people are less likely to create multiple accounts for malicious reasons. It provides an added layer of confidence and discourages people from abusing this API.
Businesses should enable fraud protection features, set a limit on the number of attempts that can be made to verify, limit verifications to certain locations, verify their own verification systems, and educate consumers on the need to use their own phone numbers to protect against fraud.
On top of lost profits, promo code abuse can create operational headaches (e.g. you now have to spend more resources policing and managing this). It can create an endless cycle of distrust with your customers and make you do things you never thought you would do, like raise your prices or lay off employees.
Frustrated customer examining promotional codes.
SMS Check