Coupons: The Art of Stretching a Dollar

Coupons can make a dollar go further, and coupon-related discounts can add up to more than $3.5 billion in savings per year. In addition to being a great way for savvy shoppers to save money, they can be great for businesses, too. Coupons are an inexpensive way to attract new customers and reward existing ones. In fact, 85 percent of consumers look for coupons prior to visiting a retailer, and more than 72 percent actually use them.

"If they are used strategically for purchases that you ordinarily make, coupons are a great personal financial strategy. You have to be careful not to fall into the trap of buying items simply because you have a great coupon,” said MaryAnn Monforte, professor of accounting practice at Syracuse University’s Whitman School of Management and Accounting@Syracuse.

Coupons offer many benefits to both consumers and businesses. In the infographic below, we highlight how they’re being used in the art of stretching a dollar.

 

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Business Benefits

Businesses typically use coupons to serve a strategic marketing objective—like getting consumers to try new products, converting trial users into regular customers, or convincing consumers to try new forms of an established product. To serve these objectives, coupons offer a variety of advantages, including:

  • Savings can be passed directly to consumers, instead of dealing with trade allowances between retailers and producers.
  • Consumers perceive coupons as a temporary special offer, not a price reduction, encouraging them to stock up quickly.
  • Retailer traffic can be increased, especially if coupon values are doubled or tripled.
  • Retailers might receive additional compensation from manufacturers for handling coupons.

According to E. Scott Lathrop, professor of marketing practice at Syracuse’s online school of business, “Brand managers use coupons as a form of tacit price discrimination. It’s a way of essentially offering two different prices in the market for one product. Very convenient for marketers, because the more price sensitive consumers will self-select themselves to seek out, procure and redeem the coupon (which obviously involves some effort), while less price sensitive consumers are content not to do all that work, and just accept the marked retail price. It may be worth noting that depending on the face value amount of the coupon, the average redemption rate for consumer packaged good items is typically less than 2 percent.”

Though businesses may find many benefits in using coupons, it’s essential to understand how consumers are using them in order to boost the bottom line.

 

Consumer Trends

While it may seem that those with lower incomes would gravitate most to the pull of coupon savings, it’s actually consumers in the highest income brackets who are “clipping” the most. Consumers making more than $100,000 top the chart.

In addition, if you think such frugality is limited to older generations with penny-pinching tendencies, think again. Ninety-six percent of millennials are using coupons to stretch their dollars, which highlights the importance creating digital coupons for tech-savvy customers.

 

Online Options

Digital coupons are gaining popularity, and they offer many benefits for businesses—starting with the fact that they cost nothing to print. A 2011 Forrester Consulting study concluded that online coupons and promotion codes are a valuable resource for driving new business—reinforcing brand image and positively influencing the purchase cycle, encouraging consumers to purchase more of a product quickly.

According to Matt Herzog of the Business Development Group at Rue La La and SmartBargains, “Bucking the conventional wisdom, shoppers today see online coupons as brand-enhancing, and online shoppers who use coupons lack the traditional frugality — tending to shop more frequently and spend more money than shoppers who don’t use coupons.”

This is good news for businesses hoping to benefit from these trends, because research from 2009 shows that digital coupon use has gone up 263 percent.

In his Forbes article, “7 Tips For Effective Digital Coupon Marketing,” contributor Drew Hendricks agrees that digital coupons are increasingly important: “Customers are searching for coupons they can load on a smartphone app, eliminating the need to carry slips of paper around. As a business, you can take advantage of this demand … offering your valuable customers a way to save money."