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A Model for Evaluating the Profitability of Coupon Promotions

Author

Listed:
  • Scott A. Neslin

    (The Amos Tuck School of Business Administration, Dartmouth College, Hanover, New Hampshire 03755)

  • Robert W. Shoemaker

    (Graduate School of Business Administration, New York University, New York, New York 10006)

Abstract

In the experience of the authors, most firms do not have good procedures for estimating the net profitability of coupon promotions. Instead, managers generally examine a number of subsidiary measures such as: redemption rates, market share and the direct costs of the coupon promotion. A user-oriented computer model is presented for simulating the effect of coupon promotions on sales and calculating net profitability. The model includes the actions of the manufacturer, retailers, and consumers. It takes into account three key phenomena of consumer response: the acceleration of product category purchases, the brand loyalty of coupon redeemers, and repeat purchase effects. The model also incorporates the effects of retailer promotions that often accompany a coupon program. Data from an actual application are used to illustrate use of the model.

Suggested Citation

  • Scott A. Neslin & Robert W. Shoemaker, 1983. "A Model for Evaluating the Profitability of Coupon Promotions," Marketing Science, INFORMS, vol. 2(4), pages 361-388.
    • Handle: RePEc:inm:ormksc:v:2:y:1983:i:4:p:361-388
    DOI: 10.1287/mksc.2.4.361
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    Citations

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    Cited by:

    1. Mercedes Esteban-Bravo & José Múgica & Jose Vidal-Sanz, 2005. "Optimal Duration of Magazine Promotions," Marketing Letters, Springer, vol. 16(2), pages 99-114, April.
    2. Sridhar, Shrihari & Naik, Prasad A. & Kelkar, Ajay, 2017. "Metrics unreliability and marketing overspending," International Journal of Research in Marketing, Elsevier, vol. 34(4), pages 761-779.
    3. Tin-Chun Lin, 2024. "Coupons versus Rebates: An Economic–Mathematical Comparative Analysis with Policy Implications," Mathematics, MDPI, vol. 12(12), pages 1-22, June.
    4. Di Li & Hu Wang, 2022. "Effects of retailers' free shipping promotions on manufacturers' product sales and product review ratings in multichannel retailing," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 1912-1925, September.
    5. Igal Hendel & Aviv Nevo, 2003. "The Post-Promotion Dip Puzzle: What do the Data Have to Say?," Quantitative Marketing and Economics (QME), Springer, vol. 1(4), pages 409-424, December.
    6. Yuefeng Li & Jingming Pan & Jing Zhou, 2022. "Optimal pricing with free gift cards in a two-product supply chain," Flexible Services and Manufacturing Journal, Springer, vol. 34(1), pages 125-155, March.
    7. Geoffrey Fisher & Matthew McGranaghan & Jura Liaukonyte & Kenneth C. Wilbur, 2023. "Price promotions, beneficiary framing, and mental accounting," Quantitative Marketing and Economics (QME), Springer, vol. 21(2), pages 147-181, June.
    8. 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.
    9. Montazeri, Samaneh & Tamaddoni, Ali & Stakhovych, Stanislav & Ewing, Michael, 2021. "Empirical decomposition of customer responses to discount coupons in online FMCG retailing," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).
    10. 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.
    11. Tim Norvell & Alisha Horky, 2017. "A framework and model to evaluate promotions: A restaurant cross-promotion in-market study," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 16(4), pages 345-356, August.
    12. El Kihal, Siham & Shehu, Edlira, 2022. "It's not only what they buy, it's also what they keep: Linking marketing instruments to product returns," Journal of Retailing, Elsevier, vol. 98(3), pages 558-571.
    13. Matthew McGranaghan & Jura Liaukonyte & Geoffrey Fisher & Kenneth C. Wilbur, 2019. "Lead Offer Spillovers," Marketing Science, INFORMS, vol. 38(4), pages 643-668, July.
    14. Aradhna Krishna & Z. John Zhang, 1999. "Short- or Long-Duration Coupons: The Effect of the Expiration Date on the Profitability of Coupon Promotions," Management Science, INFORMS, vol. 45(8), pages 1041-1056, August.
    15. Sanjay K. Dhar & Jagmohan S. Raju, 1998. "The Effects of Cross-Ruff Coupons on Sales and Profits," Management Science, INFORMS, vol. 44(11-Part-1), pages 1501-1516, November.
    16. Qiang Lu & Sridhar Moorthy, 2007. "Coupons Versus Rebates," Marketing Science, INFORMS, vol. 26(1), pages 67-82, 01-02.
    17. Kumar, V. & Madan, Vibhas & Srinivasan, Srini S., 2004. "Price discounts or coupon promotions: does it matter?," Journal of Business Research, Elsevier, vol. 57(9), pages 933-941, September.
    18. Arun Gopalakrishnan & Young-Hoon Park, 2021. "The Impact of Coupons on the Visit-to-Purchase Funnel," Marketing Science, INFORMS, vol. 40(1), pages 48-61, January.

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