The Effects of a Direct Mail Coupon on Brand Choice Behavior.

KAPIL BAWA and ROBERT W. SHOEAAAKER^"

The authors examine the effects of a manufacturer coupon on brand choice behavior. The level of coupon redemption and changes in brand choice behavior after redemption are examined as a function of the household's prior probability of purchasing the promoted brand, likelihood of buying a favorite competitive brand, and coupon face value. A model of the coupon redemption decision is developed to predict response to the coupon promotion by different consumer segments. Predictions from the model are tested by using scanner panel data from a field experiment on coupon face values. Coupon redemption rates are found to be much higher among households that have purchased the brand on a regular basis in the past. The results also suggest that most consumers revert to their precoupon choice behavior immediately after their redemption purchase. These and other findings have important implications for the profitability of coupon promotions.

The Effects of a Direct Mail Coupon on Brand Choice Behavior

The number of coupons distributed has grown dramatically from 81.2 billion in 1979 to 163.2 billion in 1984 (Peckham 1985). Though coupons are becoming an increasingly important element of the promotional budget, some major questions about the effects of coupons on consumer brand choice behavior remain unanswered. First, how does the likelihood of coupon redemption vary by the degree of preference for the promoted brand and by coupon face value? Second, do consumers alter their purchase patterns for the promoted brand after redeeming the coupon? Examination of these issues would be useful in answering several managerial questions. In particular, the answers could help determine whether the coupon promotion should be targeted to current users of the brand or to nonusers and what face values should be used. Considerable research has been done on consumer response to promotions or deals, but many of the fmdings

relate to deals in general and not to coupons specifically. Further, the nature of the data used makes it difficult to establish the "true" effect of coupons on brand choice behavior because many factors such as coupon availability and face value are not controlled for. We address the questions mentioned by using data firom a field experiment on coupon effectiveness. The analysis begins with the development of a general model of the coupon redemption decision for a specific brand. The model provides a basis for predicting how consumers with different degrees of preference for the promoted brand would react to the coupon and whether they would alter their brand choice behavior after redeeming the coupon. The hypotheses are tested with data from a scanner panel of 5192 households, each of which had received a direct mail coupon for a consumer product. PRIOR RESEARCH: PROMOTION EFFECTS ON BRAND CHOICE BEHAVIOR Few prior studies have addressed the specific question of how households with different degrees of preference for the promoted brand react to coupons. However, several prior studies on deals can be used to predict the likely response to coupons. In the following literature review, we discuss the findings relating to two separate aspects of promotions: (1) how promotional purchases affect subsequent brand choices and (2) how response to the

*Kapil Bawa is Assistant Professor of Marketing and Robert W. Shoemaker is Associate Professor of Marketing, New York University. The authors gratefully acknowledge the assistance of Gerry Eskin and Kathie Eckert of Infonnation Resources Inc. They also appreciate the assistance of an anonymous firm and the JMR reviewers. 370

Journal of Marketing Research Vol. XXIV (November 1987), 370-6

EFFECTS OF DIRECT AAAIL COUPON

promotion varies by prior probability of purchasing the promoted brand. Prior Studies on Brand Choices Subsequent to a Promotional Purchase Aaker (1973, p. 597) tested the hypothesis that "aggregate long-run purchase patterns of families familiar with a given brand (non-new triers) are not affected by interim promotion purchases of the same brand." His findings, though not specific to coupons, suggest that repeat buying for those who had consistently bought the promoted brand is unlikely to be affected by the coupon redemption. A similar analysis on the effects of a deal purchase on subsequent repeat purchasing was conducted by Kuehn and Rohloff (1967, p. 75). Their analysis suggests some conversion to a promoted brand after a deal purchase, at least for some segments of the market. That is, the estimated probabiiiity of buying the brand after a household has bought the brand on deal is greater on average than the estimated probability before the deal purchase. Klein (1981) conducted a number of coupon experiments and contrasted sales of the control group with sales of the experimental (couponed) group. He showed that the cumulative difference in sales between the two groups generally became stable within several weeks after the coupon drop. This finding suggests that coupon redemptions have at least no long-term effects on repeat purchasing. Two of these studies are not specific to coupon promotions. That is, they are based on price promotions or a general definition of "deals." However, the three studies taken together suggest the possibility that a coupon promotion could produce a short-term increase in repeat buying for some segments of buyers. If such an increase does occur, Aaker's (1973) results suggest it is not likely to be observed for buyers who are familiar with the promoted brand. Klein's findings (1981) indicate that if there is an effect, it will not be long term. Response to Promotions by Prior Probability of Purchasing the Promoted Brand Kuehn and Rohloff (1967, p. 71) examined the association between a household's prepurchase probability (the probability of purchasing a specific brand before it is offered on deal) and its likelihood of making deal purchases. Their results (see Mean I, Table 3, p. 71) imply that buyers with a high prepurchase probability for a given brand are much more likely to purchase that brand on deal than those with a low prepurchase probability. Neslin, Henderson, and Quelch (1985) studied the effect of coupons and other promotions on purchase acceleration. They found a positive association between use of coupons and larger purchase quantities. This association was stronger for loyal buyers of the coffee brands than for nonloyal coffee buyers. Though this finding is on purchase quantity rather than brand choice, it does

371

suggest that consumers with a higher prior probability of purchasing the promoted brand are more responsive to the coupon promotion than those with a lower prior probability. Shoemaker and Tibrewala (1985) conducted a survey to determine which food shoppers intended to redeem coupons with different face values. They found stated intentions to redeem to be much higher for those who were loyal to the promoted brand. They also found (p. 45, Table 5) that an increase in face value had only a small effect on the stated redemption rates of loyal brand buyers, but produced a substantial percentage increase in stated redemption among the infrequent or nonbuyers of the brand. These findings on coupon promotions and other consumer promotions suggest that coupons for a specific brand are more likely to be redeemed to the extent that the consumer has a higher "prior" probability of purchasing the brand. MODEUNG THE EFFECT OF A DIRECT MAIL COUPON ON A HOUSEHOLD'S CHOICE OF THE PROMOTED BRAND A household's reaction to a direct mail coupon offer for some specific brand (brand A) can be predicted from a cost-benefit model. The model is used to predict the probability of coupon redemption as a function of prior purchases of the promoted brand, prior purchases of the household's favorite competing brand, the household's handling costs, and coupon face value. Households obtain benefits from coupon usage and also incur costs in using coupons. The benefits take the form of monetary savings resulting from the redemption. For any given household, the benefits can be assumed to vary directly with the face value of the coupon. At the same time, a number of costs may be associated with coupon usage. Shimp and Kavas (1984) conducted a survey among coupon users and found that the need to purchase nonpreferred brands in order to take advantage of coupon offers was perceived as a salient consequence of coupon usage (p. 799). This might be described as a negative consequence, or cost, of coupon usage. In addition, researchers such as Blattberg et al. (1978) and Narasimhan (1984) have suggested that households incur opportunity costs of time when they use deals or coupons. These studies indicate that the costs of coupon usage fit into two broad categories. One is a "handling" cost associated with the resources required to clip the coupon, store it, carry it to the store, and redeem it. This cost can be measured in monetary terms as the time required multiplied by the value of the redeemer's time. A second type of cost can be termed the "substitution" cost. It is the cost of switching to the couponed brand (brand A) if brand A is less preferred than the household's regular or favorite brand(s). The substitution cost is the opportunity cost of having to purchase a nonpreferred brand in order to use the coupon. Brand A could

372

JOURNAL OF AAARKETING RESEARCH, NOVEMBER 1987

be less preferred than other brands for a wide variety of reasons such as poor quality, unappealing taste, high price, unattractive packaging, or limited retail distribution. The substitution cost for each brand can be measured in monetary terms as the price reduction that would be required to make the buyer indifferent between the buyer's preferred brand and the "substitute" brand.' Let us define P'c(A) as the prior probability that household i would buy brand A on the current purchase occasion c. P'c(A) is assumed to be a function of the substitution costs (SC'c(j)) for all brandsy (j = A, ..., N). It is assumed to increase as the substitution cost for brand A decreases and as the substitution costs for other brands increase. The probability R'c(A) that household i would redeem the brand A coupon on choice occasion c is modeled as a function of the coupon face value (FV), the handling cost for household / (HCi), the household's prior probability of buying brand A, P'c(A), and the household's probability of buying its favorite competitive brand (other than brand A), PUQ. That is, (1)

R'M)= g [FV, HCi, P'AA), P'AC)].

On the basis of the literature review and the discussion of the costs and benefits of coupon usage, we propose the following hypotheses about equation 1. Hp The higher a household's prior probability of purchasing brand A, the greater the likelihood that the household will redeem a coupon for brand A. That is, dR'AA)/dP'AA) > 0. H2: Among households whose favorite brand is not brand A, the larger the proportion of purchases devoted to their favorite competitive brand (brand C), the lower the likelihood of coupon redemption. That is,

cost if the household has limited familiarity with the brand. Hence households that are nonusers or infrequent users of brand A are likely to have the greatest potential for change, because they have less current information about the promoted brand. Similarly, households that are regular users of the promoted brand and have little or no substitution cost are least likely to change after the redemption purchase. This suggests the following hypothesis. H4: The largest increase in the probability of purchasing the couponed brand subsequent to the coupon redemption will occur among households that are infrequent users or nonusers of brand A. METHOD The hypotheses are tested with data collected in a field experiment. The original objective of the experiment was to determine the effect of different coupon face values on the sales of an established brand. However, the data also can be used to test hypotheses about the effects of coupons on brand choice. A scanner panel of 5192 households was used for the face value experiment; 4887 of these households were purchasers of the product class. Prior to the mailing of the coupons, three groups of panel households were selected and matched on total consumption and usage of the product class and total consumption and usage of the test brand. After a base period of 24 weeks, a low, medium, or high valued coupon was mailed to the three groups, respectively. The test brand is part of a frequently purchased product class. The average purchase cycle is less than three weeks.

From the preceding discussion it follows that if the substitution cost for brand A changes as a result of redeeming the brand A coupon and using brand A, the purchase probability for brand A after the redemption will differ from the preredemption probability, P'A^). The potential for change in the substitution cost for brand A is likely to be a function of the extent to which the household is familiar with the brand. The redemption purchase can be viewed as providing information about brand A, which may change the household's substitution

The data from this experiment appear to be somewhat unique and particularly suitable for our study, because they satisfy the following conditions. First, as the brand A coupon is known to have been mailed to each household in the sample on the same day, the effects on purchase behavior can be clearly identified. Second, the coupon was delivered to all households, not just those subscribing to a particular newspaper or receiving a particular set of magazines. Therefore any observed differences in redemption between market segments can be attributed to differential response and not to differences in exposure to the coupon promotion. Third, as purchase records are available for a 24-week period prior to the mailing and for 12 subsequent weeks, purchasing patterns before and after the coupon distribution can be compared. Finally, the data on coupon redemptions were collected at the household level. As a result, prior probabilities can be estimated for redeemers and nonredeemers.

'Blattberg, Eppen, and Lieberman (1981) propose that when households make deal purchases, they also incur inventory costs in storing the goods purchased. In the specific case of coupon promotions, the general lack of short-tenn expiration dates implies that most consumers do not need to increase their inventory to above-average levels to use the coupon. Consequently, inventory costs are not included in our model.

^The experiment was conducted by Information Resources Inc. for a firm that requests anonymity. At the firm's request, the brand name and product class are not identified. The share of purchases in Table 2 is shown as an index in which the average share in the base period is set equal to 10.0. The index is directly proportional to the purchase share.

H3: Redemption rates will be higher for coupons with higher face values. That is, dR'AA)/d FV > 0.

Effect of Coupons on Postredemption Brand Choice Behavior

373


The effect of promotions by competitive brands was evaluated by computing the number of promotional purchases made (excluding purchases made with the direct mail coupon used in the test) each week for the entire 36-week period. The total level of purchasing associated with competitive promotions was stable over the 36 weeks. In particular, no abrupt changes in the level of competitive dealing coincided with the delivery of the test coupons. FINDINGS Hi states that the coupon redemption rate will be higher for households with a higher prior probability of purchasing the brand. In the initial analyses, the prior probability, Pc(A), for each household is estimated as the brand A share of purchases for that household in weeks 1 through 24. The analysis is based on all 3808 households that made at least five purchases of the product class during the 24-week period before coupon delivery. Households that made less than five purchases of the product class are not included in this analysis because there is an inadequate basis for estimating their prior probability. The households included account for more than 95% of the volume purchased by the total panel. Hi is tested in two ways. First, the average value of the prior probability is computed separately for the redeemers and the noru-edeemers. Among households that redeemed the coupon, the average prior probability is .114 (« = 332), whereas for nonredeemers the average is .045 (n = 3476). The difference is significant at the .001 level. The redeemer group has a higher prior probability, thereby providing support for the hypofliesis. This finding also holds for each of the three face value groups. These findings provide firm support for the hypothesis that households with a higher prior probability of buying the promoted brand are more likely to redeem the coupon. Hi also can be tested by observing the levels of redemption in Table 1. The redemption rate is shown as a function of coupon face value and prior purchase probability. As can be seen in the last column, the average redemption rate is .045 for households with the lowest prior probability, .151 for those in the medium group, and .240 for those with the highest prior probability (.20 to 1.0). This same monotonic relationship holds within each face value group. Again, the results are highly consistent with H,. Hj applies to the 3622 households (of 3808) whose favorite brand is not brand A. The favorite brand for each household is defined as the brand most frequently purchased in the 24-week period before coupon delivery. The hypothesis is that the redemption rate for brand A coupons will be lower for households that devote a larger proportion of their purchases to their favorite brand. H2 is tested by determining the favorite brand during the 24week predelivery period for each of the 3622 households. The share of purchases accounted for by the household's favorite brand prior to the coupon delivery

Table 1 REDEMPTION RATES BY COUPON FACE VALUE AND ESTIAAATED PRIOR PROBABILITY OF PURCHASING BRAND A"

Prior probability 0

Coupon face value Medium High .058 .037 .042 (830) (843) (843) Low

Average .045 (2516)

.01 - .20

.106 (339)

.178 (348)

.167 (342)

.151 (1029)

.20 - 1.0

.207 (92)

.313 (83)

.205 (88)

.240 (263)

.087 .097 .098 .068 Average 'Based on 3808 households that made five or more purchases of the product class prior to the coupon delivery date. Prior probability is estimated for each household as the brand A share of purchases in the 24-week base period. Sample sizes are in parentheses.

then is computed for each household. The average share is computed separately for redeemers and nonredeemers of the brand A coupons. For redeemers the average share is 25.6% (n = 288) and for nonredeemers it is 32.6% (n = 3334). As the two shares are significantly different at the .001 level, H2 is supported. This result also holds for each of the three face value groups. In addition, among these 3622 households, the redemption rate is only .013 for those who devoted 60% or more of their purchases to their favorite brand. In contrast, the redemption rate is much higher (.075) for those who were less likely to buy their favorite brand. Combining the findings from the tests of H, and H2 leads to the following conclusions. The group most likely to redeem the brand A coupon is the group most likely to buy brand A. The second most likely group of redeemers consists of households that are not strongly inclined to purchase any specific brand. The group least likely to redeem the brand A coupon comprises households that are highly likely to buy their favorite competitive brand. H3 states that the redemption rate will increase with the coupon face value. As can be seen in Table 1, the hypothesis is partially supported. The average redemption rates are .068, .097, and .098 for the low, medium, and high face value groups, respectively. The null hypothesis of equal redemption rates for all three face values is rejected at the .001 level. The low prior probability segment (row 1 of Table 1) shows a similar pattern with redemption rates of .037, .042, and .058. Though these results support H3, the findings for the remaining prior probability groups (rows 2 and 3 of Table 1) are less clear. Initially redemption rates might appear to be highest for the medium face value among households with higher prior probability levels. However, the sample sizes are smaller for these two segments and the null hypoth-

JOURNAL OF AAARKETING RESEARCH, NOVEMBER 1987

374

esis of equal redemption rates for medium and high face values cannot be rejected at the . 10 level of significance. In summary, the data suggest redemption does increase as the face value goes from low to medium, but does not differ between medium and high face value groups except among low prior probability households. The finding of greater sensitivity to face value among the low prior probability group is consistent with the' survey findings of Shoemaker and Tibrewala (1985). In the next section we examine brand choice behavior after a coupon redemption. The question addressed is whether a household's share of brand A purchases changes after the coupon redemption. Two procedures are used. One is to examine the aggregate share of brand choices before and after the coupon distribution date or redemption purchase date. The second procedure is based on preredemption and postredemption estimates of purchase probability for individual households. Brand Choice Behavior After the Coupon Promotion To study the dynamics of brand choice behavior over time, we consider the sequence of consecutive purchase occasions for each household before and after the coupon delivery date as shown in Table 2 (in Table 2, the first occasion prior to the coupon delivery is labeled "lst before" and the first occasion after the coupon delivery is labeled "lst after" and so on). We then record whether the promoted brand was purchased on each of these occasions. Finally, we compute the total number of brand

Table 2 INDEX OF BRAND A PURCHASE SHARE BY PURCHASE OCCASION BEFORE AND AFTER COUPON DELIVERY DATE"

Purchase share index (%)

Sample size (no. of product class purchases)

5th before 4th before 3rd before 2nd before lst before

10.8 10.7 10.2 9.6 8.8

3808 4066 4310 4611 4887

Average

10.0

lst after 2nd after 3rd after 4th after 5th after 6th after 7th after

15.8 14.9 13.8 11.3 12.4 11.9 14.4

Average

13.7

Purchase occasions

4338 3872 3374 2953 2581 2264 1953

'Based on all 4887 product class purchasers in the panel. Purchase share is shown as an index in which 10.0 is the average market share of brand A on the five purchase occasions before the coupon delivery, "lst before" refers to the household's purchase occasion just prior to the coupon delivery date.

A purchases, as well as brand A's "purchase share," across households for each occasion. Table 2 shows the purchase share index (see footnote 2) for brand A on up to five purchase occasions prior to the coupon delivery date and up to seven purchase occasions after the delivery date. The table is based on all 4887 product class purchasers in the panel. Some households make many purchases of the product class in a 24week period and some make just a few. As a result, the number of households making five or more purchases prior to the delivery date (3808) is less than the number making one or more purchases (4887) in the same time period (see Table 2). Several interesting facts can be observed in Table 2. First, as expected, brand A accounts for a relatively stable share of product class purchases on the five purchase occasions prior to the coupon delivery. The average is 10.0 with a range from 8.8 to 10.8. Second, the brand A purchase share index jumps to 15.8 on the first purchase occasion after the delivery. The coupon promotion clearly produces a short-term increase in sales. Third, the brand A share of purchases declines gradually to 14.9, 13.8, and 11.3 on the second, third, and fourth purchase occasions after the delivery. Finally, the average share of purchases is 13.7 on purchase occasions one through seven after the delivery date. The pattern of gradual decline in Table 2 suggests an interesting question. Are the share values of 14.9, 13.8, 11.3, and so on after the first postdelivery purchase occasion due to a temporary increase in repeat buying by the early redeemers or are they a result of delayed coupon redemption by certain households? This question is addressed in two additional analyses relating to purchases by coupon redeemers. The first analysis examines the number of coupon redemptions by purchase occasion after the coupon delivery date. The results, shown in Table 3, are based on the 4887 product class purchasers in the panel. As the table indicates, only 30% of all brand A coupon redemptions were made on the first purchase occasion after the delivery date; 60% of the redemptions were made by the third product class purchase occasion and 90% by the ninth purchase occasion. Clearly, the effects of the coupon redemptions on sales are observed over many purchase occasions after the coupon delivery date. Hence at least part of the increased purchase share on postdelivery occasions two through seven in Table 2 is due to delayed redemptions. A second method of disaggregating the Table 2 results is to examine the purchase share of brand A among the brand A coupon redeemers on each purchase occasion before and after the particular household redeemed the coupon. This analysis differs from that shown in Table 2 in that the sequence is relative to the household's redemption purchase, not the coupon delivery date (for example, "lst before" refers here to the household's first purchase occasion prior to the coupon redemption purchase). The results are reported in Table 4. The average

375


Table 3 PAHERN OF BRAND A COUPON REDEMPTIONS BY PURCHASE OCCASION AFTER COUPON DELIVERY DATE Purchase occasion after coupon delivery date

Frequency

lst 2ncl 3rd 4th 5th 6th 7th 8th 9th 10th or more Total

110" 61 53 33 18 16 19 11 11 39 371

Brand A coupon redemptions Percentage

Cumulative frequency

29.6 16.4 14.3

110 171 224 257 275 291 310 321 332 371

8.9 4.9 4.3 5.1 3.0 3.0

10.5 100.0

Cumulative percentage

29.6 46.0 60.3 69.2 74.1 78.4 83.5 86.5 89.5 100.0

'To be read as: "110 households redeemed the brand A coupon on the first purchase occasion after the coupon delivery date."

brand A share of purchases for these households is 11.2% on the six prior purchase occasions and 11.9% on the succeeding occasions. Though these findings suggest the possibility of a slight increase in repeat purchasing among the segment of 371 redeemers, this segment is less than 30% of the 1376 households that bought brand A at least once before the coupon promotion. Consequently, incremental repeat purchasing appears to have very little effect on aggregate sales of brand A. The pattem of brand A purchasing by these redeemers after their redemption purchase is generally similar to their pattem of purchases

Table 4 BRAND A SHARE OF PURCHASES BY PURCHASE OCCASIONS PRIOR TO AND SUBSEQUENT TO THE COUPON REDEMPTION" Purchase occasion

Brand A purchases

6th before 5th before 4th before 3rd before 2nd before lst before

33 33 47 41 34 30

Total purchases 241 326 338 340 344 353 •

Average

13.6 10.1 13.9 12.0 9.8 8.5 11.2

Average lst after 2nd after 3rd after 4th after 5th after 6th after

Brand A share (%)

29 30 27 31 25 25

314 279 246 212 189 159

9.2 10.8 11.0 14.6 13.2 15.7 11.9

"Based on all households that redeemed a direct mail coupon for brand A after the coupon delivery date.

prior to the redemption. In particular, the brand A share of purchases did not increase sharply after the redemption (see Table 4) as it did after the coupon delivery date (see Table 2). From the combined results of Tables 2, 3, and 4, it appears that the gradual retum to the precoupon market share shown in Table 2 (15.8, 14.9, 13.8, . . . ) is due to the fact that 70% of the redeeming households did not redeem the coupon on their first purchase opportunity. When household brand choices are examined in the aggregate in relation to the redemption date (Table 4), brand choice behavior does not appear to be affected in any clear pattem by the redemption purchase. However, this finding does not preclude the possibility that for certain consumer segments coupon redemption does affect subsequent brand choices. We now examine this issue and test H4. H4 states that the largest increase in the probability of purchasing the couponed brand subsequent to the coupon redemption will occur among households that are nonusers or infrequent users of brand A. This hypothesis is tested by a procedure similar to that used by Aaker (1973, p. 597). That is, a Bemoulli purchase model is assumed for each household and an estimate of the Bemoulli parameter (p) is obtained both before and after the coupon redemption purchase. To analyze the changes in repeat purchasing by market segment, the 36 weeks were divided into three time periods. Period I covers weeks 1 through 12. Period II ranges from week 13 until the household's last purchase prior to the coupon redemption. Period III ranges from the first purchase after the redemption until week 36. The data from period I are used to classify households as users or nonusers of brand A. Brand A users are defined as households that purchase brand A at least once during the 12 weeks of period I.^ The analysis is based on all redeeming households that made at least three purchases of the product class in period I and at least one in each of the other two periods. A total of 291 households (of the 371 households that redeemed the coupon) satisfy these criteria. These households made an average of 13.6, 17.0, and 8.8 product class purchases in periods I, II, and III, respectively. Periods II and III are used to estimate the preredemption and postredemption purchase probabilities, respectively. Preredemption probability (Pu) for each household is estimated as the brand A share of all purchases made by the household in period II. Similarly, the postredemption probability (Pm) is estimated as the brand A share of purchases made in period III. The change in

^It is important to use the period I data to classify households and the period II data to estimate the preredemption probability. If the period I data were used both for classifying households and estimating the preredemption probability, one would be likely to observe a "regression to the mean" effect (i.e., the regression fallacy; see Freedman, Pisani, and Purves 1978, p. 158).

376

JOURNAL OF MARKETING RESEARCH, NOVEMBER 1987

probability then is calculated for each household as Pm — Pii. The findings are reported in Table 5. As hypothesized, the change in purchase probability is much greater for the nonuser segment. As shown in Table 5, the average probability for this segment increased from .054 to .091 between periods II and III, resulting in an average increase of .37 for these 129 households (significant at the .05 level). In contrast, a much smaller change is observed for the 162 users. Their average probabilities are . 155 and .139 for periods II and III. The average change in the probability (.017) is not significant even at the .10 level. In addition, the two groups differ significantly (p < .001) in terms of the changes in their purchase probabilities. These findings indicate a significant increase in purchase probability for the small segment ofthe population that consisted of nonusers of brand A who redeemed the coupon. However, because this segment of 129 households is only a small proportion of the total number of brand A buyers (1376) before the coupon promotion, this increase would not have much effect on aggregate sales of brand A. CONCLUSIONS AND MANAGERIAL IMPUCATIONS Our analysis of coupon effects for a mature brand in a frequently purchased product class provides support for the model and hypotheses developed in our study. Our results indicate that coupons do produce a short-term increase in the brand's purchase share that is due mostly to redemption purchases. There also appears to be a significant increase in purchase probability among the few nonusers who redeem the coupon. However, this effect is difficult to observe at the aggregate level because the number of nonusers who redeem the coupon is small in relation to the total number of brand A buyers.

Table 5 AVERAGE CHANGE IN BRAND A PURCHASE PROBABIUTY A M O N G BRAND A COUPON REDEEMERS BY USER SEGMENT'

Segment Users of brand A in period I Nonusers of brand A in period I Total redeemers

Pm

Average (P,,, - Pn)

162

.155

.139

-.017"

129

.054

.091

.037'

291

.111

.117

.006"

'Based on households that made at least three product class purchases in period I and at least one purchase in each of the two subsequent periods. Pt is the average estimated probability in period k. "Not significantly different from zero at the .10 level. 'Significant at the .05 level.

Though the tests should be repeated for other established brands as well as for new brands, the initial results suggest it may not be possible to justify a coupon promotion with the argument that a substantial number of new buyers will be "converted" to the promoted brand after the promotion. The added contribution due to increased repeat purchasing appears to be very small. This finding suggests that if a coupon promotion for an established brand is to be profitable, most of the profit must be made on the coupon redemption purchase. The findings relating to coupon redemption indicate redemption rates are lowest for households that do not purchase the promoted brand prior to the coupon promotion and that are consistent buyers of their favorite competitive brand. Finally, redemption rates are found to increase with coupon face value but, for our study, medium and high face values appear to have the same effect on redemption. REFERENCES Aaker, David A. (1973), "Toward a Normative Model of Promotional Decision Making," Management Seienee, 19 (April), B435-B450. Blattberg, Robert C , Thomas Buesing, Peter Peacock, and Subrata K. Sen (1978), "Identifying the Deal Prone Segment," Journal of Marketing Research, 15 (August), 36977. , Gary D. Eppen, and Joshua Lieberman (1981), "A Theoretical and Empirical Evaluation of Price Deals for Consumer Nondurables," Journal of Marketing, 45 (Winter), 116-29. Freedman, David, Robert Pisani, and Roger Purves (1978), Statistics. New York: W. W. Norton and Co. Klein, Robert L. (1981), "Using Supermarket Scanner Panels to Measure the Effectiveness of Coupon Promotions," in Proceedings: Third ORSA/TIMS Special Interest Conference on Market Measurement and Analysis, John W. Keon, ed. Providence, RI: The Institute of Management Sciences, 118-24. Kuehn, Alfred A. and Albert C. Rohloff (1967), "Consumer Response to Promotions," in Promotional Decisions Using Mathematical Models, Patrick J. Robinson, ed. Boston: Allyn and Bacon, Inc., 45-148. Narasimhan, Chakravarthi (1984), "A Price Discrimination Theory of Coupons," Marketing Science, 3 (Spring), 12847. Neslin, Scott A., Caroline Henderson, and John Quelch (1985), "Consumer Promotions and the Acceleration of Product Purchases," Marketing Science, 4 (Spring), 147-65. Peckham, James O., Jr. (1985), "Using Scanning Data to Analyze the Effects of Manufacturer's Coupons," Nielsen Researcher, A. C. Nielsen Company, no. 1, 6 - 1 1 . Shimp, Terence A. and Alican Kavas (1984), "The Theory of Reasoned Action Applied to Coupon Usage," Journal of Consumer Research, 11 (December), 795-809. Shoemaker, Robert W. and Vikas Tibrewala (1985), "Relating Coupon Redemption Rates to Past Purchasing of the Brand," Journal of Advertising Research, 25 (October/November),

40-7.