In the Trash or in Hand, Coupons Make Money

Coupons work — even when they’re not used.

An experiment analyzed by University of Virginia Darden School of Business professors found that unredeemed coupons are still valuable to the companies that issue them. “In fact, the coupons that wind up in the trash ultimately may deliver greater returns to a company than the coupons that are redeemed,” Rajkumar Venkatesan and Paul Farris write in the article “Unused Coupons Still Pay Off” in the May issue of Harvard Business Review.

Venkatesan is Darden’s Bank of America Research Associate Professor of Business Administration. Farris is the Landmark Communications Professor of Business Administration

Coupons are a popular advertising marketing tool. In 2010, U.S. consumers redeemed 3.3 billion coupons, cutting about $3.7 billion from purchase prices, though only about 1 percent are ever used, the professors write.

But the professors’ 16-month field experiment, documented in an article in the Journal of Marketing, counters conventional wisdom that the 99 percent of unused coupons don’t benefit businesses. Venkatesan and Farris analyzed the advertising campaigns of eight national retailers involving more than 500,000 targeted coupons for items representing more than 300 brands mailed out over 16 months.

The professors found that consumers who got the coupons but didn’t use them still “typically increased their purchases in the associated stores.” In fact, these consumers accounted for 60 percent of the coupons’ “sales lift” — the additional amount spent on both promoted and unpromoted items.

The business professors found that coupons — whether used or not — still increase awareness purchasing of a brand or retailer. “That finding isn’t surprising, but the magnitude of the benefit is,” they write. “If businesses realized how powerful this increased awareness can be, they would take as much care with coupons as they do with other marketing materials, striving to delight customers, not simply close a deal.”

The professors predict that a company targeting 1,575 households with customized coupons for groceries over one week should succeed on two levels — prompting coupon redeemers to spend more than non-redeemers who nonetheless will be prompted to visit the store and spend. And, as a group, the non-redeemers will spend more at the store than the redeemers simply because there are more of them.

While a very low redemption rate is usually a sign of a flawed advertising campaign, it’s only part of the story, the professors believe. “If companies learn to think in terms of the broad exposure effects of their coupon offerings, they can open up whole new channels for attracting and communicating with customers — and add considerably to their bottom line,” they write.