Marketing Mix Synergies: Coupons and Price Promotions

In this paper, we use an economic model to show that it may be optimal to lower the retail price during a coupon event when consumers have moderate hassle costs of coupon redemption. Results from the model offer predictions on the relationships between coupon redemptions, the shelf price and the coupon face value. We test these predictions on a large dataset of hundreds of coupon events across six packaged goods categories. The data show that when a small coupon face value is offered the shelf price is likely to be reduced. We also find that coupon efficiency increases when there is a lower retail price and higher coupon face value. These empirical results are consistent with model predictions. Our results are of interest to managers who are planning the promotion calendar and deciding whether to coordinate price promotions with coupon events. Our results contribute to economic theory as we show that when a firm moves from uniform pricing (e.g., no coupons) to second-degree price discrimination (e.g., coupons) it is possible for all consumers to face a lower price. This finding has public policy implications as it shows that 2nd degree price discrimination may increase the welfare of every consumer.