Coupons

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Coupons

Coupons are certificates that provide consumers with discounts on goods or services when they are redeemed with retailers or manufacturers. Offered mainly by retailers and manufacturers as sales promotion tools to accomplish specific sales and marketing goals, they are very popular with small business owners because they are so inexpensive to disseminate and because of their historical effectiveness. Consumers are attracted to coupons because they offer immediate value and savings, but in recent years the proliferation of coupon distribution programs has produced a decided excess in the marketplace. This flood of coupon offers, commonly known as "coupon clutter," has resulted in falling redemption rates in recent years.

Advantages and Disadvantages

Like other sales promotion tools, coupons have their advantages as well as their problems. On the plus side, they have the advantage of passing along savings directly to consumers, as opposed to trade allowances given to retailers by producers. Consumers perceive coupons as a temporary special offer rather than a price reduction, so the withdrawal of coupons usually does not have an adverse effect on sales. In addition, coupons often create added traffic for retailers, who have the option of doubling or even tripling the value of manufacturers coupons at their own expense to create even more store traffic. Moreover, retailers often receive additional compensation from manufacturers for handling the coupons.

Critics of coupon-oriented sales promotions argue that coupon clutter has dramatically reduced their effectiveness. They question whether coupons actually generate incremental business from new users, pointing out that the increased quantity of distributed coupons has been paralleled by falling redemption rates. In addition, excessive coupon distribution also increases the likelihood of fraud and misredemption. Coupons that are issued for established brands, say critics, tend to be redeemed primarily by loyal users who would have purchased the product without a coupon.

Coupon Objectives

Coupons may be issued to serve a variety of different strategic marketing objectives. One use is to encourage consumers to try new products; coupons have historically been fairly efficient at getting consumers to try new products by reducing the risk of trying something new. Coupons are also issued to convert trial users into regular customers, such as when a product sample includes a cents-off coupon. In addition, coupons can be used to convince consumers to make purchases of new sizes, flavors, or forms of an established product.

Other objectives served by issuing coupons include building retail distribution and support, moving out-of-balance inventories, targeting different markets, cushioning price increases, and enhancing other promotional efforts with coupon add-ons. Coupons are frequently used by manufacturers because of competitive pressure. When used offensively against the competition, coupons are issued to get users of a competitive product to try a new brand. When used defensively, manufacturers provide coupons to current users to keep them from purchasing a competing brand.

Coupon Distribution

There are several ways in which small businesses can distribute coupons, including direct mail, in-store or central location, by electronic mail, print media, in-pack and on-pack, and through retailer advertising. Because of its targeted distribution, coupons sent by direct mail historically offer higher redemption rates than coupons distributed by print media. Freestanding inserts (FSIs) in newspapers, which accounted for the vast majority of all coupon distribution throughout the 1990s, are generally regarded as more effective than other coupon distribution methods.

Perhaps the most popular coupon distribution method for small businesses is the coupon mailer. This is a strategy wherein a group of retail businesses in a community send out a mailing of individual coupons together; consumers within the community thus receive a variety of coupons for area businesses in one envelope. Sometimes the mailing will consist of an actual booklet of coupons for participating businesses, but most are sent out in loose-leaf fashion. Many business communities house businesses that specialize in putting such coupon mailers together. These companies charge a fee for their production and distribution services.

Finally, the Internet has grown as a distribution network for coupons and other similar promotional pieces. According to Jeanette Best, writing in Brandweek, "The Internet is making this a possibility by transforming the way coupons are distributed and opening a new world for marketers to communicate with consumers in a highly interactive way. Smart marketers need to take note and be aware of the advantages and benefits of using online coupons." Even newspapers are taking their coupon section online, adding these sections to their Web sites. Individual companies are using the Internet for coupon distribution as well. A company may post coupons on its Web site or it may send coupons directly to customers who are already signed up to receive an e-newsletter. The coupons are usually redeemable through online purchases or by printing a copy of the coupon and bringing it along when shopping at a retail outlet.

see also Rebates