Coupons and Pricing - Are They Connected?

7/9/2013

JILL CATALDO

Here’s an email that presents a perplexing question: Do coupons raise prices for everyone else?

Dear Jill,

I hardly use a coupon. I feel cheap when I do. When I read about others saving large amounts of money regularly by using both coupons and your strategies, like stalking and timing, I am actually not too happy. Stores and manufactures have to make a certain amount of profit to stay in business. When you and your followers score huge deals, you are driving these businesses toward bankruptcy and the only way they can make up for it is to charge the rest of us more. In other words, isn’t what you are doing making products more expensive for the rest of us? If so, you might be doing a service to those who follow you and hurt those who don’t use your techniques. All in all it, seems like it is a zero-sum game. The stores have to make a profit some way. If not on you and other couponers, then by charging the rest of us more to make up for your extreme couponing. Ouch.

Brian S.

First, understand that the money a company spends on a coupon campaign is a marketing expense. The money that it costs to run a coupon campaign, whether that’s in the newspaper inserts, in stores or online, is allotted to marketing, just as a television commercial or radio advertisement. If you wish to argue that there should be no coupons, you might as well make a case against marketing in general. And, you’re not likely to win that battle, as both manufacturers and retailers need to advertise. With a vast array of competitors out there, companies advertise to keep their brands, names and products in front of consumers, attempting to convince them to choose one store over another, or to buy one brand of laundry detergent instead of another.

Additionally, the portion of a product’s price that is ultimately allocated to coupon promotions isn’t nearly as much as you might think. John H. Antil, a business professor at the University of Delaware, researched this very issue. He believed that discontinuing coupons in favor of lowering prices was not an effective marketing move. To prove this, he researched marketing costs for a single box of a major brand of cereal. The total marketing dollars that the brand spent issuing coupons for the cereal represented just two-thirds of one cent. Read that again – the total advertising dollars related to coupons for the cereal box constituted less than one penny of that product’s final selling price.

So, we know that removing coupons from the mix wouldn’t significantly drop the price of the product. Did you know that taking coupons out of the equation also can result in a massive loss of sales? Back in the 1990s, Procter & Gamble did a test in New York. What would happen if they got rid of coupons and simply lowered prices? They kept in-store advertisements to remind people to purchase their favorite P&G brands, and the test began. But sales plummeted. The no-coupons test had another unintended consequence – competitors’ products enjoyed a spike in sales! A 1996 Supermarket News article noted that P&G’s competitors saw their sales increase as much as 48 percent during this time period. P&G pulled the plug on their test five months earlier than planned – and they also brought back their coupons.

To address concerns that the store is not turning a profit when consumers use coupons – also not true. Read the fine print on any manufacturer coupon. The store is reimbursed for the full face value, plus .08 over the face value, per coupon. There’s no difference to the store whether I walk in with a hand full of dollars or a hand full of coupons. Coupons are a win-win-win – for consumers, for marketers and for retailers.

Smart Living Tip:

Don’t be embarrassed or ashamed to use a coupon. You’re not hurting the store, and you’re not making prices significantly more expensive for everyone else in doing so. What you are doing? Keeping more of your own money in your pocket – the smart way to shop.