Sales promotions are short-term incentives designed to drive sales. They are part of the promotional mix within the marketing 4P’s. Because they often carry pricing incentives, such as discounts, they also have a crossover with the pricing mix in the 4P’s as well.
Two common promotional vehicles used in a sales promotion program are coupons and rebates.
Goals of coupons and rebates
Both coupons and rebates are forms of sales promotion, which have the general intent of increasing sales in a relatively short time frame. However, as opposed to a discount in the store, coupons and rebates are only available to the consumers that choose to use them.
Therefore, coupons and rebates allow the company to provide a discount primarily to those consumers that are more price sensitive. In other words, coupons and rebates some form of price discrimination – as will be discussed in most marketing textbooks under the topic of price strategy.
Effective margin management
Coupons and rebates are highly attractive to organizations. This is because consumers have the option to use them. As a result, the firm is able to continue to sell products at full price (at full margin) to consumers that are less price sensitive, while appealing to price sensitive consumers and hopefully winning a greater market share.
As opposed to a discount across all sales, coupons and rebates would deliver a higher profit margin per unit.
Concerns with coupons and rebates
Clearly coupons and rebates are attractive to price sensitive consumers there were willing to spend the time and energy to collect and redeem coupons. As a result, the brand will win a greater share of their purchases during the discount period that the coupon and rebate applies to.
However, these highly price sensitive consumers are less likely to remain loyal and will probably pursue other brands in the future that have their own offerings of coupons and rebates. In other words, there is no strong long-term sales increase.
Less price sensitive consumers, or those consumers less likely to find and remember to use coupons and rebates, may experience some level of dissatisfaction, if they become aware of other consumers paying a lower price. This may have the impact of reducing their customer loyalty.
And obviously, consumers who are unaware of coupons and rebates (or are less likely to use them), will not be influenced to change their purchase behavior in the short term – which is the prime intent of any sales promotion.