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Coupon Trading and its Impacts on Consumer Purchase and Firm Profits

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  • Su, Meng
  • Zheng, Xiaona
  • Sun, Luping

Abstract

When a retailer distributes manufacturer coupons to consumers without perfectly identifying their product valuations, consumers may have incentives to trade coupons. We develop a model to capture the coupon trading phenomenon and compare three scenarios: (I) no coupon, (II) coupon without trading, and (III) coupon with trading. We find that coupon trading can increase the profits of either the retailer or the manufacturers, but not at the same time. The retailer benefits from coupon trading when the coupon market is competitive and consumer hassle cost is low, while the manufacturers benefit from coupon trading when the coupon market is uncompetitive and consumer hassle cost is high. In addition, coupon trading does not always increase total demand. Firms benefit from coupon trading by charging higher prices, which leads to a decreased total demand. As a result, consumers end up with a higher average cost under coupon trading. We also compare coupon trading with improved coupon targeting, and find that coupon trading may allow firms to gain higher profits than improved coupon targeting. Further, we extend the main model to a competitive setting where the products are substitutable, and find that the main results still hold. Finally, we employ numerical analysis to identify the optimal coupon face values in different scenarios, and the results suggest that coupon trading combined with incentive mechanisms may lead to Pareto improvement for the channel as a whole.

Suggested Citation

  • Su, Meng & Zheng, Xiaona & Sun, Luping, 2014. "Coupon Trading and its Impacts on Consumer Purchase and Firm Profits," Journal of Retailing, Elsevier, vol. 90(1), pages 40-61.
    • Handle: RePEc:eee:jouret:v:90:y:2014:i:1:p:40-61
    DOI: 10.1016/j.jretai.2013.06.004
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    Cited by:

    1. Martín-Herrán, Guiomar & Sigué, Simon-Pierre, 2015. "Trade deals and/or on-package coupons," European Journal of Operational Research, Elsevier, vol. 241(2), pages 541-554.
    2. Neeraj Pandey & Vaibhav Maheshwari, 2017. "Four decades of coupon research in pricing: Evolution, development, and practice," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 16(4), pages 397-416, August.
    3. Luo, Meiling & Li, Gang & Chen, Xudong, 2021. "Competitive location-based mobile coupon targeting strategy," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).
    4. Li, Zonghuo & Wang, Di & Yang, Wensheng & Jin, Hyun Seung, 2022. "Price, online coupon, and store service effort decisions under different omnichannel retailing models," Journal of Retailing and Consumer Services, Elsevier, vol. 64(C).
    5. Li, Zonghuo & Yang, Wensheng & Jin, Hyun Seung & Wang, Di, 2021. "Omnichannel retailing operations with coupon promotions," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).
    6. Hu, Li & Zhang, Mengwei & Wen, Xin, 2023. "Optimal distribution strategy of coupons on e-commerce platforms: Sufficient or scarce?," International Journal of Production Economics, Elsevier, vol. 266(C).
    7. Dario Dunkovi? & Antonia Petravi? Cili, 2017. "Retailer pricing strategy: diffuse coupons effects contingent on store format," Proceedings of Business and Management Conferences 5207242, International Institute of Social and Economic Sciences.
    8. Li, Zonghuo & Guan, Xu & Mei, Wanxia, 2023. "Coupon promotion and its cross-channel effect in omnichannel retailing industry: A time-sensitive strategy," International Journal of Production Economics, Elsevier, vol. 258(C).
    9. Andrew Manikas & Michael Godfrey & Ryan Skiver, 2017. "Using Big Data To Predict Consumer Responses To Promotional Discounts As Part Of Sales & Operations Planning," International Journal of Management and Marketing Research, The Institute for Business and Finance Research, vol. 10(1), pages 69-78.
    10. Hongjun Lv, 2021. "Who benefits when coupons are issued by a duopoly from an e‐market?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(7), pages 1656-1664, October.
    11. Jiang, Yuanchun & Liu, Yezheng & Shang, Jennifer & Yildirim, Pinar & Zhang, Qingfu, 2018. "Optimizing online recurring promotions for dual-channel retailers: Segmented markets with multiple objectives," European Journal of Operational Research, Elsevier, vol. 267(2), pages 612-627.
    12. Jiang, Yuqing & Liu, Fan & Lim, Andrew, 2021. "Digital coupon promotion and platform selection in the presence of delivery effort," Journal of Retailing and Consumer Services, Elsevier, vol. 62(C).
    13. Souiden, Nizar & Chaouali, Walid & Baccouche, Mona, 2019. "Consumers’ attitude and adoption of location-based coupons: The case of the retail fast food sector," Journal of Retailing and Consumer Services, Elsevier, vol. 47(C), pages 116-132.

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