Consumer Buying Behavior and the Role of Coupons

Introduction

Firms collectively spend over $7 billion annually on coupon promotions and becoming concerned with the effectiveness on consumer buying behavior. The objective of the promotion mix is stimulating consumers to buy a product or service. Our goal for this paper is to examine whether coupon promotions influence consumers to adjust their purchase behavior. The premise is dependent upon consumer's reactions toward coupons and their willingness to change their purchase decision as a result of the coupon. Our group sought out to determine if discounts, specifically coupons, were effective in motivating consumers to purchase products they would not have purchased without the existence of this type of promotion.

History of Coupons

The very first coupons were distributed in 1894. They were in the form of a hand-written ticket for a free glass of Coca-Cola, which was the new fountain drink at the time. The following year in 1895 the first grocery coupon emerged. C.W. Post was giving one cent off of his new cereal, Grape Nuts. By the 1930's, coupons had become a regular part of shopping in the United States mainly because of The Depression. Everyone was looking to save money in any way they possibly could. And, by 1965, one-half of Americans were now coupon users.

Overview of Coupons and Consumer Buying Behavior

In 2003, 258 billion coupons were circulated, 10 billion more coupons than the year before, quantifying a 4% increase. Eighty-percent (80%) of all coupons are distributed through newspapers, according to the Promotion Marketing Association, while Internet coupons account for just Ð...% of the total. Of the coupons printed and distributed, surprisingly less than 2% are actually redeemed according to Mona Doyle from Shopper Report. In 2001, of those that redeemed coupons, consumers saved over $3 billion with coupons at the register.

There are many worthwhile reasons why companies issue coupons:

* Coupons create brand awareness.

* Coupons provide exposure for products to encourage the initial purchase and trial of new products.

* Coupons can get shoppers to switch from one brand to another or try a totally new product.

* Coupons have a direct impact on new users when they are actively in the market for specific products and/or services. For instance, if a consumer is shopping for a new brand of shampoo, then chances are that he or she will pay more attention to shampoo ads and coupons.

* Coupons are a way of offering a discount to motivate consumer purchases

Unfortunately, there are downsides for companies that spend money on advertising with coupons:

* Coupons are usually redeemed by loyal consumers who would have purchased that brand anyway.

* Coupons can also delay a full-priced purchase by a loyal consumer because he is waiting for that company to issue a coupon. Therefore, the company is losing a full-priced sale and they are not gaining anything by issuing the coupon.

* There is no reliable way for a company to isolate the effect of coupons relating to brand switching. Often, consumers will give up loyalty to a certain brand just because they have a coupon for another.

* Coupon usage is very unpredictable. According to Proctor & Gamble, one of the world's largest consumer packaged goods companies, coupon redemption rates are highest during economic downturns.

* Coupons don't increase overall purchases because there is simply a limit on how much people will buy.

Regardless of the advantages and disadvantages of coupons, the main objective of a coupon is to maximize the redemption rate. However, the true impact of coupons can't be measured just by redemption rates, because they also work on consumers who don't ever use them -- those who clip and forget, and even those who never clip at all. All kinds of shoppers see coupons, even if it's just when they fall out of the insert pile, and that gives a brand exposure. This subtle psychological impact is something that marketers count on for the next time they are in the store and they forget the coupon, the consumer will still buy the brand because it made an impression in their mind about the brand.

Coupons are an important way to increase or hold market share. Companies regularly utilize them as a strategic move to reach new customers or increase purchase quantity and frequency from loyal customers. Research has shown that consumers will steer away from their regular shopping habits to take advantage of a good coupon offer. Coupons are beneficial for the stores that are hosting the products in the advertisement and retailers often create promotional displays in the store, thus triggering additional impulse purchases within the store. The purpose behind this strategy is to entice consumers that shop in another store to come into your store. While this may be the bottom line for consumers, companies are looking for greater exposure of their products, which will lead them to higher sales.

Coupon Threats

The threat for companies when coupons are issued include the risk of losing volume when cutting the promotion method of loyal consumers. The table below illustrates that 73% of consumers will most likely repeat purchases with a similar method of promotion used during trial or at full price. Consequently, it may not be true that consumers will continue to purchase a product after eliminating the promotional tactic to which they are most loyal. This notion supports the theory that consumers are loyal to set promotional methods and make purchase decisions based on a series of learned behaviors.

Promotion Used at Trial Hholds Trying % who repeated with each segment Total % Repeat

Full Price Trade Deal Coupon Only Deal w/ Coupon

FullPrice 56 73.4% 15.5% 10.2% 0.9% 33.4%

Trade Deal Only 18 45.3% 44.0% 9.1% 1.6% 36.8%

CouponOnly 24 24.9% 7.4% 62.7% 5.1% 36.4%

Coupon / Trade 2 13.6% 9.5% 42.0% 34.9% 41.6%

Who is using coupons?

According to Retailernews.com, a website dedicated