Why do companies still keep putting out coupons when so few people use them?

April 30, 2008 10:34 PM

Given that only about 1.26 percent of the 300 billion coupons issued in the United States are actually redeemed, why do companies keep offering them? Why fill the Sunday papers full of coupons every week if most of them will just be thrown away?
posted by bluekrauss to Grab Bag (23 answers total)

Because it's profitable? I'm not sure I understand the question.

And I'm not sure I even understand the basis of the question: 1.26% of 300 billion is a huge number.
posted by Flunkie at 10:41 PM on April 30, 2008

The same reason some companies pay people to hand out thousands of flyers in the street. Even though the vast majority are discarded within seconds, the few that remain will then result in some fraction of those people actually going to that business. If that tiny amount of people contributes more money than the cost of the flyering, then hey! It's profitable!
posted by twirlypen at 10:43 PM on April 30, 2008

Free Advertising.
posted by |n$eCur3 at 10:48 PM on April 30, 2008

To state what Flunkie said in different terms, because the benefits clearly outweigh the costs.
posted by Pants! at 10:51 PM on April 30, 2008

Also: most banner ads will never be clicked on. Why bother?
posted by pompomtom at 10:51 PM on April 30, 2008

Accepting that premise, that means that 3.8 billion coupons are redeemed each year. That's a ton. The redemption rate could be even lower and this would still be a worthwhile exercise.
posted by grouse at 10:58 PM on April 30, 2008

1.26% isn't a bad response rate. In direct mail, you'd consider a 2 or 3% response rate to be pretty good for targeted customers. But, as the article notes, these coupons aren't even targeted. So 1.26% isn't terrible. It's actually pretty good. (Note that, here in Canada, where coupons are more targeted, the redemption rate is 3x higher.) And that is just the redemption rate. It doesn't account for all the people who make a note to buy the product but forget their coupon, all the people who become aware of the product but don't use the coupon, all the people who hear about the coupon from their friends and buy it without it, and so on. It also usually takes more than one "touch" to get a response from a customer. People have to hear about you a few times before they do anything.

IAMC but IANYMC (I Am a Marketing Consultant, But I Am Not Your Marketing Consultant)
posted by acoutu at 10:58 PM on April 30, 2008

It's free advertising. I don't know how many times I've perused the coupons and even went so far as to clip them out, but lost them before the shopping trip. Even though I didn't have the coupon, I would recognize the brand. I think the "mental shopping trip" works for them.
posted by The Light Fantastic at 11:00 PM on April 30, 2008

Response by poster: Hmmm. I see I should have taken a moment and done the math. I was so shocked by the "only 1.26%" that I didn't stop and realize that 3.8 billion coupons are actually being redeemed, and that IS a huge number.
posted by bluekrauss at 11:09 PM on April 30, 2008

Simple business investment practice:

X = Money Spent on initiative
Y = Money Gained due to initiative

If Y > X, repeat. Always.
posted by twiggy at 11:32 PM on April 30, 2008

Think of a coupon in terms of a rebate. The goal isn't to get you to use the coupon, the goal is to get you to buy the product. If you use the coupon that's ok, but if you're just associating product X with 'deal' in your head and can't remember exactly why and buy the product anyway that's even better (from the companies point of view).

Remember, the fact that most people don't send in their rebates isn't a reason to stop having rebates (from the companies point of view) it's the reaon they offer them in the first place.
posted by tiamat at 11:39 PM on April 30, 2008

It's also important to note that these coupons are appearing on advertising that likely was going to be purchased anyway. Consuming dead space on an ad with something that might close a sale is a win/win.
posted by Rendus at 3:10 AM on May 1, 2008

Plus, coupons are all about price discrimination, the ability for firms to charge different prices to different people, along with marketing. If it's worth your time to sift through the newspaper and collect a bunch of coupons to save a few cents, you're probably quite price sensitive. But that's only a profitable exercise for a minority of very price sensitive people with low opportunity costs. Considering that, 1.26% doesn't seem too far off the mark.
posted by ecmendenhall at 3:56 AM on May 1, 2008

And additionally, coupons are a good way for the company to appear more competitively priced than it actually is, as you tend to automatically associate "coupon" with "deal" regardless of whether or not the rebated cost is actually lower than the next competitor's cost. Thus, increased perceived customer value, increased satisfaction, loyalty, recognition, etc.
posted by Phire at 4:49 AM on May 1, 2008

In addition to driving sales, they are good for branding and advertising. Though I definitely wouldn't call it "free advertising" like others above me. They paid a pretty penny for that coupon to get in front of you. So even if you don't use the coupon to save $1 off five cans of soup, you still saw my ad for Progresso and possibly read about how tasty/healthy/whatever my soup is.

They're also really great for introducing new products to market because they introduce the buyer to the product and provide an incentive for acquiring the product (which is more crucial for an unknown/untested product). So even if you don't use the coupon, you learned that the product exists.

To be perfectly frank, most coupons are junk anyway these days. They are used to ramp up purchasing (can't think of the exact term) and start you off with savings on a purchase quantity of 1 to get you hooked. Then it's the same discount on 3, and the next thing you know you only get the discount when you buy 6. Because you now like the product and are presumably loyal to it, even though you only need 3, you see that you'll save $1 if you buy just 3 more, so you end up with 6. I stopped clipping when I found that the necessary quantity for redemption was far beyond what I could reasonably consume.
posted by ml98tu at 6:09 AM on May 1, 2008

One more addition to the discussion: Another effect of the coupon is to speed up the purchase through the value proposition. This works in two ways:

(1) since you have a coupon, you're saving money already so you don't need to wait for the product to go on sale. It's true that you would save more if the product were on sale and you used the coupon, but in many cases people don't operate that way. The fact that the coupon makes the product a 'deal' makes it unnecessary for them to wait for a sale.

(2) if a coupon you have is about the expire, you might purchase the product and inventory it in your house, even if you don't immediately have a need for the product.
posted by tuxster at 6:22 AM on May 1, 2008

Coupons can also be used to get information about customers, or to cultivate new customers. Say your retail store sponsors an event that ends up filling with people that have never been to your store but fit your demographic. If you give each of them a coupon, most people will throw it away, but a few will probably stop into your store at the very least.
posted by drezdn at 6:22 AM on May 1, 2008

Coupons aren't "free advertising," they're just plain old advertising. They use both a visual advertisement and price incentive to try to get customers to purchase a product. A successful result for running coupons in a local paper wouldn't be the successful redemption of a lot of coupons, it would be an increase in sales proportional to the advertising budget spent.
posted by mikeh at 6:29 AM on May 1, 2008

It's a way to have millions of readers voluntarily read 30+ pages of ads every week. And how many cut the coupons and never use them but still have the product in mind?

(before you ask, here's why coupons say "Cash Value 1/100 of a cent")
posted by ALongDecember at 7:05 AM on May 1, 2008

Another reason companies use coupons, rather than just plain ads, is that coupons give you a rough sense of how effective different advertising venues are.

Say you put 1,000 coupons in copies of the Podunk Times and 1,000 in copies of the Weekly Blah. 120 get redeemed from the first set. Only 50 get redeemed from the second set. Now you know — these days, you've got more potential customers among Times readers.

So it's not just advertising — it's free (or nearly free) market research.
posted by nebulawindphone at 8:19 AM on May 1, 2008

So even if you don't use the coupon to save $1 off five cans of soup, you still saw my ad for Progresso and possibly read about how tasty/healthy/whatever my soup is.

Mmm, Progresso... I have a can of that sitting on the shelf above my desk here at work.
posted by limeonaire at 8:59 AM on May 1, 2008

Free advertising? No, those companies have to pay money to the newspaper or direct mail business that prints the coupons. It's not free.
posted by yohko at 9:59 AM on May 1, 2008

Coupons get people to buy things they don't need, under the illusion that they are saving money. If you can restrain your coupon use to things you already use and need, you will save money, but you won't if you use a coupon to buy something you would ordinarily never eat, such as Strawberry Yogurt-Frosted Chex.
posted by bad grammar at 8:44 PM on May 1, 2008