by Nate Gibby
Coupons can be an effective way to induce trial. They can introduce a new product, maintain/ increase market share, attract first-time users and increase brand awareness and switching[1]. A recent study showed that key grocery shoppers in larger, middle-income households are more likely to use coupons[2].
However, there are some serious drawbacks to the practice of couponing. First, coupons decrease top-line revenue by decreasing the amount of money collected by a business through some sort of discount.
Second, couponing can cheapen your brand[3] by connoting that goods or services are of such a quality that they need to be discounted to get people to purchase them[4].
Third, couponing can condition patrons to purchase goods or services only when they have a coupon. A study of pricing and sales performance was conducted on matched sets of stores for five new products. One set of stores introduced the five products at a 20 to 30 percent discounted rate for an introductory period. The other set introduced the same products at regular price. Long-term volume was higher across the board for those products that were introduced at regular price[5].
Fourth, coupon redemption rates are traditionally low. According to a 2004 article published in the Washington Post[6], only one to two percent of coupons are redeemed.
Prior to implementing a coupon campaign, you should familiarize yourself with your target customers and their psychographic profile. Coupons tend to be most used by consumers that can be categorized as shrewd shoppers (those shoppers influenced by face value of a the coupon and less likely to try a new product) and compulsive coupon users (those shoppers who stock up on coupons). Coupons are used moderately by persuadable purchasers (those shoppers who enjoy a bargain and are likely to buy after receiving a sample). However, coupons are not used by consumers that can be considered brand buyers (those shoppers who are loyal to one brand and are not influenced by offers from competing brands)[7].
If you can confidently say that consumers in your trade area who match your profile customer could be categorized as compulsive coupon users or shrewd shoppers, a coupon campaign may be an effective strategy. If they could be considered persuadable purchasers, think twice. Do not attempt to use coupons with consumers that could be considered brand buyers.
One way of assessing to which group consumers in your immediate trade belong is to go to places within a five-mile radius of your business where your target customers are likely to frequent (e.g. supermarkets, salons, bookstores, etc.). Notice how many of those who fit one of your customer profiles use coupons. Talk to the manager of the establishment and ask about their coupon usage and redemptions.
Finally, it is important to keep in mind that customers don’t need to be bought to be engaged. A recent study[8] showed no significant difference between response rates among groups receiving multiple requests to participate in a survey and those receiving one request and $40 to participate. If those findings hold true for you, simply staying in front of your target customer can be just as effective as giving them serious incentives or perks to do business with you.
[2] Ibid.
[4] See Hall, D. & Stamp, J. (2003), Meaningful Marketing, Brain Brew Books. Cincinnati, Ohio p. 91.
[5] Ibid., p. 204.
[6] Pressler, M.W. “Use of coupons cuts both ways.” Washington Post. September 12, 2004. P. F01.
[8] Hall, D. & Stamp, J. (2003). Meaningful marketing. Brain Brew Books. Cincinnati, Ohio. p. 90.
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