Do low-value coupons, such as 25 cents off an item, irk you? Do you use them anyway? Why might a company offer such a low-value coupon? Imagine you are the person responsible for issuing coupons for your favorite product: would you offer higher dollar-value discounts or not? The answer might surprise you.
I enjoy your column and thoughts on saving money. As I was cutting coupons out of the paper, I came across a number that were for 25 cents off of items that are $3, $4 or $5 items. Can’t imagine why manufacturers even bother with the expense of printing such a small discount for a large item?”
The answer to this question is actually quite simple, but to fully understand it, I’m going turn the situation around a bit. Imagine that you have a new product to bring to the marketplace and you, of course, want people to buy it. You decide to offer a $1 coupon.
Your campaign launches and it’s very successful. Millions of shoppers redeem your coupon, and now that your product is in their hands and in their homes you decide to offer another coupon to keep them purchasing it. You know that a $1 coupon boosts sales. Will a 75 cent coupon be effective? You could potentially save a quarter of the advertising budget for your first campaign, so why not give it a try?
Now imagine that your 75 cent coupon campaign was successful too. Your redemption statistics were nearly as high as they were for your first coupon campaign. Wouldn’t you start thinking, “Well, people appear to really like this product. Will they keep buying it if the coupon value drops even more?”
With your next campaign, you try a 50 cent coupon. And the next time, you launch a 25 cent coupon. People are still buying your product – they love it! You’re saving 75 percent of what you used to spend on advertising. Could you give up the coupon altogether and see if people will still buy the product?
You decide to try. But after another sales cycle passes, you find that your sales have fallen flat. The 25 cent coupon was enough to motivate buyers to purchase your product. Do you decide to offer them a $1 coupon or will you try the 25 cent coupon instead, which saves your company money?
You do. And guess what happens – even with that little 25 coupon? Your sales rebound. Your product is again popular with consumers and your advertising budget still is reasonable.
What have we learned through this story? A low-value coupon boosts sales far more than no coupon at all. But a high-value coupon costs you 75 percent more of your advertising budget without a proportionately larger boost in sales.
Would you willingly give out $1 coupons to shoppers when a 25 cent coupon generates almost the same results? It’s highly unlikely that you would – you want to make a profit.
Companies know the same thing. They won’t issue a high-value coupon when a low-value coupon will get the same results. If you see low-value coupons for products, it’s because that low-value offer is the minimum “price” the brand needs to spend to stimulate shoppers to buy the product. This may not be the answer you want to hear, but it’s simple economics. Companies are in business to turn a profit.
Smart Living Tip: When a brand new product hits the market, marketers often offer high-value coupons to entice shoppers to try something new. This is also a great time to look for low sale prices on said products, as the combination of a high-value coupon and a temporary price reduction often equals a great bargain for shoppers. With a combo like this, I often find that I’m taking home new products at 50-75 percent off the retail price.