Couponing

The oldest, most widely used, and most effective sales promotion tool is the cents-off coupon. Coupons have been around since 1895, when the C. W. Post Co. started using the penny-off coupon to sell its new Grape-Nuts cereal. In recent years, coupons have become increasingly popular with consumers, which may explain their explosive growth among manufacturers and retailers that use them as sales promotion incentives. As Figure 16-2 showed, coupons are the most popular sales promotion technique as they are used by nearly all the packaged-goods firms.

Coupon distribution rose dramatically over the past 30 years. The number of coupons distributed by consumer packaged-goods marketers increased from 16 billion in 1968 to a peak of 310 billion in 1994. Since 1994 coupon distribution has been declining, and it dropped to 239 billion in 2001. According to NCH Promotional Services, a company that tracks coupon distribution and redemption patterns, nearly 80 percent of consumers in the United States use coupons and nearly 25 percent say they always use them when they shop. The average face value of coupons distributed increased from 21 cents in 1981 to 83 cents in 2001. The average face value of the 4 billion coupons that were redeemed in 2001 was 74 cents.28

Adding additional fuel to the coupon explosion of the past several decades has been the vast number of coupons distributed through retailers that are not even included in these figures. In most markets, a number of grocery stores make manufacturers' coupons even more attractive to consumers by doubling the face value.

Advantages and Limitations of Coupons Coupons have a number of advantages that make them popular sales promotion tools for both new and established products. First, coupons make it possible to offer a price reduction only to those consumers who are price-sensitive. Such consumers generally purchase because of coupons, while those who are not as concerned about price buy the brand at full value. Coupons also make it possible to reduce the retail price of a product without relying on retailers for cooperation, which can often be a problem. Coupons are generally regarded as second only to sampling as a promotional technique for generating trial. Since a coupon lowers the price of a product, it reduces the consumer's perceived risk associated with trial of a new brand. Coupons can encourage repurchase after initial trial. Many new products include a cents-off coupon inside the package to encourage repeat purchase.

Coupons can also be useful promotional devices for established products. They can encourage nonusers to try a brand, encourage repeat purchase among current users, and get users to try a new, improved version of a brand. Coupons may also help coax users of a product to trade up to more expensive brands. The product category where coupons are used most is disposable diapers, followed by cereal, detergent, and deodorant. Some of the product categories where coupons are used the least are carbonated beverages, candy, and gum.

But there are a number of problems with coupons. First, it can be difficult to estimate how many consumers will use a coupon and when. Response to a coupon is rarely immediate; it typically takes anywhere from two to six months to redeem one. A study of coupon redemption patterns by Inman and McAlister found that many coupons are redeemed just before the expiration date rather than in the period following the initial coupon drop.29 Many marketers are attempting to expedite redemption by shortening the time period before expiration. The average length of time from issue date to expiration date for coupons in 2001 was 3.2 months, for grocery products. However, coupons remain less effective than sampling for inducing initial product trial in a short period.

A problem associated with using coupons to attract new users to an established brand is that it is difficult to prevent the coupons from being used by consumers who

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