FOR CONSUMERS: Garretson says that consumers who are highly dependent on coupons are interested in the economic benefits associated with the promotion technique; they are more price sensitive and value conscious. They are willing to spend extra time to avail the discount. They seek benefits beyond money saving and they also enjoy their shopping experience.
The customers who are prone to coupons consider themselves as smart shoppers and are less sceptical about the market. These consumers are attracted to shopping activities and bargains which make them prone to coupons. Also they enjoy the emotional benefit while experiencing the in-store shopping. And the consumer enjoys the psychological pleasure derived from the discount coupons. (Garretson, 2003)
Customers purchase coupons if they realize a positive net savings. (Gregory K., 1999) The products purchased with coupons at a discounted price are lower than the market price. However the cost of redeeming the coupon lowers the savings earned by the buyer, the price the customer actually pays is the discounted price plus the transaction cost (the cost of in collecting and redeeming coupons)incurred by the consumer.
FOR SUPERMARKETS: Cents-off coupon strategy is seen as an effective mechanism for increasing sales or brand loyalty, however on the other side it can become costly and trigger competitive response. It develops awareness in the market which brings in more consumers into the business. Also a positive relationship is seen between coupons and consumer buying behaviour during sales. Cents-off coupon technique encourages consumers to think and evaluate purchase opportunities. This strategy induces the consumers to buy more than they need and influences their willingness to purchase.
The coupon face value positively influences the redemption rate (Reibstein, 1982) and it is also positively related to incremental sales (Bawa, 1987). Studies reveal (V. Kumar, 2005)that different stores have different impacts on cents-off coupon strategy. This allows producers to evaluate the effect of this technique at different levels and helps managers realize maximum revenue.
Also it enables producers to measure the effective time frame of coupons which assists them to choose the duration for subsequent coupon issues. Also it benefits them to manage their additional cost and to increase sales. And coupon duration guides producers to anticipate the expected rise in sales and accordingly decide how much to stock e thus preventing any stock-out situation and manage inventory wisely.
To summarize the cents-off coupon strategy benefits the supermarkets to remain competitive and strengthen brand loyalty, target loyal customers, influence and/or attract new customers and ensure old customers return and besides helping them liquidate excess inventory and introduce new products thus accelerating the demand and clearing expensive and important inventory spaces. FOR RIVALS:
Firms are now targeting segments of markets with the cents-off coupon strategy. As a result new forms of competition are arising where firms play a vital role in market segmentation. The revolution of coupons strategy has increased the implications of firm rivalry and competition in the market. Cents-off coupon strategy tightens the competition without allowing firms to make profits at their usual price. (Shaffer, 1995)
A buyer can have a preferred brand and his choice towards that specific product varies from being minimal to extremely brand loyal, this shows that a buyer is within a preferred boundary for at least one of the firms. Therefore it shows the effects of brand loyalty and inter-firm competition on coupons. The producers also tries to brand switch the rival’s customers by targeting them with attractive coupon discounts. This competition forces the rivals to react defensively by issuing coupons. (Gregory K., 1999) And rivals may try to copy the coupon strategy of the firm and announce a higher discount trying to attract customers. However this conflict between the firm and rival will affect their revenues.
CONCLUSION A supermarket retailer serving the consumers in the industry today will not be able to survive without competitive prices for his products: otherwise their rivals will take over a significant share of the market if sharp prices are not offered. After investigating price discrimination and studying the characteristics of “cents-off” coupons and cutting price strategies, it is evident that price discrimination exhibits market power in its strategies, allowing firms to maximizing consumer surplus.
In order to benefit from the price cutting campaign, it must be planned carefully to increase sales volume and protect the profitability from any damage. Minimizing rival’s reaction is necessary to be protected from the risk of a price war. Price cuts focus on the money left to be paid on a product than what it saved. On the other hand Cents-off coupons are effective for a business in numerous ways; they attract customers and also lead to increase in sales volume.
A manager can actively and reasonably improve his promotional effectiveness by determining an optimum value for coupons. The use of coupons is marked as a reaction to inevitable market force; it is seen more as a competitive pressure than just a sales promotional technique. Therefore it can be argued that a direct price cut can be seen as a short-term method to pouch customers, however the cents-off coupons goes beyond pouching and strives to create loyalty among customers thus protecting the existing customers base from being poached which in effect secures and expands their share of the market.