If you've ever watched the TV show Extreme Couponing or read about a customer who got $200 worth of groceries for next to nothing, you've probably wondered what's in it for the manufacturers and stores who offer these coupons. Are they actually making money in the process, or are customers getting away with legalized robbery?
The truth is that coupons create a win-win situation for both companies and consumers. Manufacturers and stores are benefiting from coupons. If they weren't, they wouldn't issue them or accept them. To find out how they benefit, let's examine some of the reasons why companies offer coupons.
TUTORIAL: Budgeting Basics- Introduction
To Get Consumers' Attention
According to the Food Marketing Institute, the average supermarket carried 38,718 items in 2010. Out of thousands of products, companies need a way to steer consumers toward their product instead of a competitor's, and a coupon can help an item stand out. If you have a coupon for a specific brand of paper towels, for example, it will probably be the first brand you'll check the price on among the ten different brands in the paper towel aisle. (For related reading, see 6 Tricks To Make Coupons Work For You.)
To Advertise a New Product
Consumers need to be enticed to take a chance on a new product, especially price-sensitive, coupon-using shoppers. A company could advertise its new product by offering free samples, but instead of spending money both on the product itself and on getting the product into consumers' homes, it could offer a tempting, high-value coupon and actually make a sale. If the consumer likes the new product enough, they may buy it at full price in the future when introductory coupons are no longer available.
To Buy Loyalty
Numerous factors go into getting and retaining customers: merely offering a bargain price or a superior product isn't always enough. When a store or manufacturer provides a coupon, the discount generates goodwill and brand/store loyalty. Think about how you feel when you get a coupon from your favorite store in the mail, doesn't it make you feel like the company values your business and wants to keep you as a customer?
To Get Repeat Business
Some promotions require consumers to use a reward on their next visit to the store. Such coupons draw customers into the store once to buy something and get a coupon, and again to buy something else and use the coupon.
For example, a recent Albertsons' grocery store promotion gave customers a coupon for $10 off their next visit when they purchased $100 in qualifying gift cards. Even if the customer did the bare minimum and walked out with $10 in free groceries on the follow-up visit, that customer might be more likely to come back in the future after having gained some familiarity with the store when they did their coupon shopping. Other customers will spend beyond the coupon limit, so the store might profit from the promotion right away. Also, the promotion notified customers that Albertsons is a place where they can buy gift cards, which means that the store might gain business the next time that customer wants to purchase a gift card. (For related reading, see Best Loyalty Programs For 2011.)
To Target Their Marketing Efforts
To get the best discounts at most major grocery store chains, customers must sign up for a store loyalty card and have the cashier scan it each time they make a purchase. In exchange for giving customers lower prices, companies get detailed information about the card user's buying behavior. What days and times does he or she visit the store? How much does he or she spend per trip? How often does he or she shop? What does he or she buy? Does he or she only buy things that are on sale? Does he or she always use coupons?
Companies can use this valuable information in their decisions about what products to carry, what prices to set, what to put on sale, how much of a discount to offer and more. This information also helps companies with targeted marketing efforts.
"Retailers are able to market to us much less expensively when they offer promotional programs that entice us to share our personal information with them," says Stephanie Nelson, founder of CouponMom.com.
When companies know what you buy thanks to store loyalty cards, they can save money on marketing costs while sending you offers you're more likely to use. Instead of sending a coupon for diapers to every household in a nearby zip code, the store can send diaper coupons only to customers who have purchased diapers in the past.
TUTORIAL: Budgeting Basics- Goal Setting
Message to Sellers: Don't Miss Out
Nelson, who has been a strategic couponer for more than a decade, says that coupons "must be working, because businesses are putting out more promotions than ever." She points out that companies can put any kind of limitations or exclusions on coupons that they want to, but says that "people are looking out for coupons. If any company wants to ignore couponing, they are missing out." (For related reading, see Pros & Cons of Using Coupons For Your Business.)