In the United States, over $3B worth of coupons and rebates are redeemed each year – indicating that it is an effective form of sales promotion.
According to various academic studies, around 20% to 30% of consumers will be actively involved in the collection and redemption of coupons. These consumers tend to be more price sensitive and more likely to switch between brands.
Different effectiveness of coupons and rebates
Although coupons and rebates are essentially the same mechanism – both provide some form of incentive, usually as a discount, to generate an immediate purchase and to increase market share and sales for the brand – because they operate on a different timescale (coupons being an immediate redemption, whereas rebates require some action by the consumer after purchase), their effectiveness and cost to the brand will differ.
Cost of Coupons and Rebates
According to various research studies, redemption rates of rebates vary between 5 to 40%, depending on the amount of incentive provided.
This has a significant impact on the effectiveness, relative to cost, of a rebate. Consumers tend to process their purchase with the discount in mind. For example, they buy a $5 box of cereal that has a $2 rebate credit on the pack – they will mentally consider that the cereal is only costing them $3. In reality, most of these consumers will end up paying $2, as the vast majority will not take the time and effort required to redeem the $2 rebate.
Therefore, the brand using a rebate has generated increased sales primarily on the “promise” of a discount. As a result, they have generated extra sales at their full margin.
In comparison to the use of a coupon, the discount is immediately delivered, eliminating the possibility of non-redemption as is often the case with the rebate sales promotion.
Apparently some consumers are less likely to utilize coupons than rebates. This is because coupons are seen as some sort of “handout” to poorer people, and as a result, some consumers prefer not to use them. This perception does not carry to the use of rebates, which is considered to be more acceptable because consumer has paid full price and the rebate is seen as some sort of loyalty reward.
Rebates work very well in terms of retailer relationships because the retailers pricing on margins are unaffected. The rebate is generally provided by the manufacturer directly to the consumer and the retailer is not impacted.
As opposed to a coupon that usually requires some processing on behalf of the retailer and will reduce their sales revenue (perhaps not their unit margins however).
Guaranteed discount pass on
As opposed to a manufacturer selling their product to a retailer at a discount on the basis that the retailer will pass on the full discount to the end consumer (which may or may not happen) – by providing a either a coupon or a rebate, at least the manufacturer can be assured that any discount provided will flow directly to the end consumer.
For higher value purchases, such as electronic products, some brands may seek to develop a customer database. Rebates allow this to happen as the consumer will send their contact details to the manufacturer. A customer database may be an effective way for a brand to identify early adopters and opinion leaders – and may be able to effectively incorporate them in future promotional programs. A rebate allows the company to do this, the typically a coupon does not.