Is Couponing Effective?

Abstract

EXPENDITURES on sales promotions are increasing faster than advertising budgets (Bowman, 1988, Rhea and Massey, 1989). One of the explanations offered by practitioners and academics is the alleged accountability of sales promotions.

Sales promotions however are rarely rigorously assessed. A literature review shows that post-tests, relying mainly on panel data which have not been gathered specifically for the purpose of research, are the predominant method used to assess promotions.

In the particular case of coupons, the impact of redemption rates on short term sales and on long term profitability, the issue of brand switching and loyalty and the possible existence of a deal prone segment, confound the assessment of couponing and make a realistic evaluation difficult.

However, particular conditions exist in New Zealand which allow implementation of an experimental approach to the challenge of assessing coupon effectiveness. Although such an approach has been advocated since 1962 in the literature, the intrinsic complexity of organising an experiment to test salient coupon variables has prevented its full exploration, with the exception of Klein's work (1981), in the USA.

In New Zealand there is only one clearing house in operation which monitors over 99% of all redemptions and A.C. Nielsen is able to provide an accurate weekly sales record for most grocery products, including figures on a regional basis. Consequently, in the research reported here, it was possible to organise a full scale national experiment, where different coupons were tested in realistic market conditions. It was also possible to maintain a large degree of control over potentially influential external factors (national advertising, price reductions from competitions, etc.). The experiment was fully sponsored by three grocery manufacturers for a total estimated amount of NZ$90,000. The full co-operation of the clearing house and A. C. Nielsen was gained during the implementation of the experiment.

This paper details the features of the experiment and describes the results obtained after analysis of the sales data. It was discovered that magazine-distributed coupons were not effective in increasing short-term sales, at least using the levels of discount offered for the three grocery products tested.

A discussion follows which puts these results into perspective, and conclusions relevant to the grocery industry are presented. Finally, suggestions for future research are put forward.