Is cents-off couponing pot luck?

Cents-off coupons as a merchandising tool have received little examination by marketers and scholars, yet the growth of couponing has been steadily increasing, until today over $500,000,000 worth of coupons are being distributed to consumers in the United States each year (Progressive Grocers, 1975). Very little is known by marketers of the possible variables affecting the redemption rate of a coupon promotion. No model exists from which a marketer is able to predict the redemption rate of a cents-off coupon promotion; nor is there a clear understanding of the costs and revenues generated by such a promotion. Little attention has been given to the behavioral patterns of consumer's receiving, saving and redeeming a cents-off coupon. This paper attempts to investigate some of these questions and provide the framework from which further study may be attempted. It also introduces a new approach that marketers may use in planning future cents-off coupon promotions. Three models have been designed to understand this often abused and misused subject. First, a conceptual model describes a series of consumer buying decisions from the time a cents-off coupon is received by a consumer, until it is thrown out or redeemed. Coupon awareness, coupon saving and coupon useage are the main components of the model and from which a number of variables have been identified that potentially influence the coupon redemption rate. Second, a quantitative model provides a managerial evaluation of a cents-off coupon promotion by studying its costs and benefits (revenues). The costs have been identified as the cost of coupon distribution, the value of the coupon, retailer and clearing house handling fees, and the cost of misredeemed coupons. The revenues of a cents-off coupon promotion accrue from three classes of buyers; the incremental buyer, defined as one who would not have bought the brand without the cents-off coupon; the incremental repeat buyer, one who purchases the brand again and the non-incremental buyer, one who would have bought the product even without the coupon. From this analysis a break-even model is constructed by which a marketer can measure the effectiveness of a cents-off coupon promotion. The fundamental aim of a cents-off coupon promotion should be that the promotion should be able to cover all costs from purchases by the incremental buyer group, otherwise marketers may be wasting substantial dollars on consumers already loyal to the couponed brand. Third, a managerial model for predicting coupon redemption rates is presented. A number of probable variables, affecting coupon redemption were tested using multiple regression. This model is the first of its kind to study simultaneously the effects of these variables and their interactions with one another. Many questions still requiring further study and clarification evolve from this examination of cents-off coupons. The first multiple regression model supported the hypothesis that the redemption rate of a cents-off coupon promotion is a function of the value of the coupon and the method by which the coupon is distributed. An additional variable, product type, was studied along with coupon value and method of coupon distribution in a second multiple regression model. The findings in both studies were similar. Coupon value, surprisingly, did not have as great an impact on coupon redemption as marketing managers might suspect. Far more important were the method of coupon distribution and product type. Package coupons, followed by direct mail and magazine coupons have the greatest affect on the coupon redemption rate. Food products purchased frequently are an important factor in redemption, however, household products, food products infrequently purchased and drug/toiletries were not statistically significant in this analysis. The independent variables in these multiple regression models accounted for approximately 30 percent of the variation in redemption rates. Clearly a number of other variables remain to be studied.Business, Sauder School ofGraduat