Coupons

Coupons can be an effective way to increase sales and profits, but there are certain costs to consider:

• costs of physical distribution, mailing, placing advertisements and paying the retailer a handling charge for redeeming the coupons.

• reduced contribution margins associated with the fact that coupons are price reductions.

• coupons will be used by new customers as well as existing customers who would have bought the product at the regular price. Any printer can print coupons. Managers must estimate various rates to determine the effectiveness of a coupon promotion. The estimations could be based on past performance or on experiments that run coupons in one

city

 or in one part of a city. These rates include:

Redemption rates: the percentage of buyers responding to the incentive.

Displacement sales: sales made during a promotion that would otherwise have been made to regular buyers at the regular rate.

Acquisition rates: non-regular buyers who purchase the product during the promotion.

Stock-up rates: sales made during a promotion that are borrowed from future periods because the customer stocks up on the product at the discounted price.

Conversion rates: the conversion of nonregular buyers into regular buyers. To estimate the effect on profitability, one must:

• estimate the increased contribution from incremental sales to new buyers

• estimate the reduced contribution from displaced and stock-up sales

• subtract the direct costs of the sales promotion

Coupon Distribution

Coupons can be distributed in a variety of ways. The most common vehicles for issuing coupons are:3

Products:

• In- or on-package self

• In- or on-package cross

• Instantly redeemable

Media:

• Newspaper

• Free standing insert

• Flyers

• Magazine

• Direct mail (solo, co-op or

selective)

In-store:

• Shelf pads (or shelf dispensers)

• Handout (with product demonstration)

• Entrance (crew handout or selfserve dispenser)

• Cash register (bag stuffers, cash register tapes)

• Electronic coupons printed in-store There are three organizations that can help the handling of coupons. The following is an outline of the services performed by redemption agents, clearing houses and billing agents.

Manufacturer’s Redemption Agent

• Performs coupon redemption service for manufacturer’s marketing department.

• Receives coupons sorted, counted, and tabulated from retailer, retailer clearing house, or billing agent.

• Verifies retailer, checks coupons and reimburses retailer or retailer clearing house.

• Sends coupon redemption report to manufacturer with invoice. Provides complete audit of moneys received from manufacturers and paid to retailers.

Retailer Clearing House

• Performs coupon accounting service for retailer’s accounting department.

• Receives, unsorted and uncounted, all coupons accepted by retailer.

• Sorts, counts, and tabulates.

• Bills out to applicable manufacturers or agents.

• Reimburses retailer, deducting service fee per coupon, plus any shipment adjustments.

Retailer Billing Agent

• Performs coupon accounting service for retailers.

• Receives, unsorted and uncounted, all coupons accepted by retailer.

• Sorts, counts and tabulates.

• Bills out to applicable manufacturers or agents in the name of the retailer.

• Invoice retailer service fee per coupon.