Journal of Retailing 81 (1, 2005) 1–13

The different faces of coupon elasticity

V. Kumar a,∗ , Srinivasan Swaminathan b
a ING Center for Financial Services, School of Business, Department of Marketing, University of Connecticut, Storrs, CT-06269-1041, USA
b Drexel University, Philadelphia, PA, USA

Abstract

Coupons account for over two-thirds of all consumer promotional efforts initiated by the manufacturers of consumer goods. In this study,
the impact of coupons on brand sales is investigated and how that impact decays over the life of the coupon is demonstrated. Specifically, we
present an econometric model that can capture coupon effects in terms of equivalent price reduction, account for coupon effects over time,
allow inference of coupon effects when retailers decide to double or triple the coupon value, and provide both self-coupon and cross-coupon
elasticities at different levels of aggregation. A widely used sales response model is adapted, and an analytical model is proposed to estimate
both the self-coupon and cross-coupon (face value) elasticities of sales at the store level. From the store-level elasticity estimates for a given
week, the authors analytically derive the coupon elasticities for the chain level by aggregating across stores, and over the life of the coupon
by aggregating over time. The proposed sales response model is estimated with the data obtained from three markets for various product
categories, and the coupon elasticities are computed. The proposed framework allows one to demonstrate the hypothetical equivalence of a
shelf-price reduction for a given coupon face value in each week. Also, the effect of doubling the face value of a coupon results in more than
a proportionate increase in elasticity. The authors find that both self and cross-coupon elasticities are much smaller in magnitude than the
average self and cross-price elasticity measures reported in the literature.
© 2005 New York University. Published by Elsevier Inc. All rights reserved.

Keywords: Sales promotions; Promotional elasticity; Coupons

Introduction the impact of couponing decisions on performance measures

Among the various forms of consumer promotions,
couponing continues to be popular among manufacturers.
The total number of manufacturer coupons printed and dis-
tributed by consumer packaged goods companies grew by
3.8 percent to 248 billion in the United States during 2002.
Free Standing Inserts (FSIs) continue to increase their share
of coupons distributed and they account for 86 percent of
all coupons distributed by manufacturers. Consumers saved
more than $3 billion in 2002, or $0.80 per coupon redeemed
on average (NCH marketing services 2003). The managerial
importance of couponing has inspired much of the research
on the topic, which can be divided into two broad streams: one
that examines the profile of consumers who redeem coupons
(Jolson, Wiener, & Rosecky 1987; Montgomery 1971; Teel,
Williams, & Bearden 1980), and the other that investigates
∗ Corresponding author. Tel.: +1 860 486 1086; fax: +1 860 486 8396.
E-mail address: vk@sba.uconn.edu (V. Kumar).
such as redemption rates, incremental sales, market share,
and profitability (Dhar, Morrison, & Raju 1996; Dhar & Raju
1998; Raju, Dhar, & Morrison 1994). As seen in Table 1,
which summarizes some of the studies in the second stream
of research, researchers have used both primary data (col-
lected through experiments and surveys) and secondary data
to examine the impact of coupons on brand performance.
Although a lot is known about the price elasticity of de-
mand (Tellis 1988), very little is known about the magni-
tude of coupon face value elasticity of demand. Therefore,
we focus on coupon face value elasticity in this study. We
define coupon face value elasticity as the ratio of percent-
age change in sales of a brand to the percentage change
in the coupon face value of that brand. Coupons have an
expiration date and their impact on brand sales changes de-
pending upon their face value. Furthermore, the impact of
coupon on brand sales decays over the life of the coupon.
So, when investigating coupon elasticity one has to take into
account the time dimension also. To better manage inven-

0022-4359/$ – see front matter © 2005 New York University. Published by Elsevier Inc. All rights reserved.
doi:10.1016/j.jretai.2005.01.003
2 V. Kumar, S. Swaminathan / Journal of Retailing 81 (1, 2005) 1–13

Table 1
Summary of research studies revieweda
Authors Dependent variable Research design/data used
Bagozzi, Baumgartner, and Yi (1991) Coupon usage Survey of female staff members
Bawa and Shoemaker (1987a) Coupon proneness Scanner data
Bawa and Shoemaker (1987b) Purchase probability Field experiment
Bawa and Shoemaker (1989) Incremental purchases Field experiment
Bawa, Srinivasan, and Srivastava (1997) Likelihood of redemption Survey of shoppers
Chapman (1986) Sales per household Field experiment
Dhar and Raju (1998) Sales and profits In-store data
Dhar et al. (1996) Profits Quasi-experimental data
Dodson, Tybout, and Sternthal (1978) Likelihood of switching Panel data
Inman and McAlister (1994) Weekly coupon redemptions Analysis of scanner data
Irons, Little, and Klein (1983) Incremental sales Experimental
Klein (1981) Incremental sales Field experiment
Krishna and Zhang (1999) Coupon duration NCH coupon data
Lee and Brown (1985) Sales per household Scanner panel data
Leone and Srinivasan (1996) Brand sales and profits NCH coupon data
Narasimhan (1984) Annual purchase quantity Scanner data
Neslin (1990) Market share, percentage of category Scanner data
purchases that are made with coupons
Neslin and Shoemaker (1983) Profitability of couponing operation Managerial judgments
Neslin, Henderson, and Quelch (1985) Purchase acceleration Scanner data
Raju et al. (1994) Sales/market share Experimental data
Reibstein and Traver (1982) Coupon redemption rates Cross-sectional study of
redemptions for a single brand
Shimp and Kavas (1984) Intention to redeem Survey of consumers
Shoemaker and Tibrewala (1985) Intention to redeem Survey of shoppers
Ward and Davis (1978a) Quantity purchased by individuals Scanner data
Ward and Davis (1978b) Coupon redemptions Secondary data on redemption rates
a The list of articles is by no means exhaustive.

tory of the product at the store level retailers would like
to know how the coupon face value elasticity varies over
time. Managers at the chain level would like to know how
the store level elasticities can be aggregated to obtain chain
level estimates so that they can efficiently manage their orders
with the manufacturers. Manufacturers of consumer goods
would like to obtain an aggregate market level measure of
coupon elasticity so that they can better plan their produc-
tion. Also, it is interesting to observe how the coupon for
a given brand affects the sales of a competing brand. We,
therefore, define and evaluate the magnitude of cross-coupon
elasticity.
With regard to retailers, some stores offer promotions such
as doubling or tripling the face value of coupons for a certain
time period. A few national chains like Kroger frequently
triple the coupon face value up to 39 cents and double it up
to 50 cents. How does such a strategy impact brand sales and
coupon elasticity? Brand managers are eager to know the
optimum face value of a coupon that would maximize their
profits. While this depends on many factors such as coupon
elasticity and coupon redemption rates, managers welcome
any insight into this issue.
In this paper, we adapt a known model form to estimate
the sales response to coupon face values at the store level.
The model allows the sales response to vary over time and
it also incorporates cross-brand sales effects. The estimated
parameters of the sales response model are then used to com-
pute coupon face value elasticity at the store level for own
and competing brands. We also investigate additional dimen-
sions of coupon face value elasticity, namely, how one’s own
and competing brands’ coupon elasticity change on a weekly
basis, and over the validity of the coupon. The estimation
of coupon elasticities at the chain level and/or the market
level from the store-level elasticities is also illustrated. Subse-
quently, the proposed model is extended to capture the effects
of multiple couponing strategy.
The paper is organized as follows: First, we offer a gen-
eralized coupon-sales response model that meets the objec-
tives of managers who are faced with couponing decisions.
Then, we derive the elasticity estimates for various dimen-
sions. Subsequently, we use store/chain levels to estimate the
proposed sales response model and generate both self and
cross-coupon face value elasticities. We then illustrate the
effects of double couponing on sales and coupon elasticities.
Finally, we discuss the managerial implications and limita-
tions of the present study.
Background
Despite the importance of the expiration date and face
value decisions, only few studies have estimated the effects
of this on brand sales over time. It should be noted that
Krishna and Zhang (1999) used coupon duration as a de-
 V. Kumar, S. Swaminathan / Journal of Retailing 81 (1, 2005) 1–13
pendent variable while the focus of this study is on assess-
ing the impact of coupon duration and coupon face value
on sales and coupon face value elasticity. However, we in-
corporate the interactions between coupon face value and
coupon duration in our framework. Although Neslin (1990)
modeled the effect of a coupon’s face value on market share,
he did not capture the specific effects of a coupon on brand
sales over the life of the coupon. As indicated in Table 1,
many studies have focused only on performance measures
such as incremental sales and coupon redemptions. Inman
and McAlister (1994) modeled the effect of coupon expira-
tion on coupon redemptions and have demonstrated a small
increase in coupon redemption toward the end of the coupon’s
expiration date. However, the translation of this small blip in
coupon redemptions into brand sales is not direct. The in-
creased coupon redemptions observed toward the expiration
date do not translate into a substantially higher increase in
brand sales in this study. From the analysis of sales data dur-
ing the last week of the coupon’s expiration date in this study,
we find that the contribution to sales from coupons is usu-
ally less than 1 percent. Given that the typical R2 values for
any brand sales model is not 100 percent, the 1 percent effect
is not that obvious in the sales response model. Following
Dhar and Raju (1998) and Leone and Srinivasan (1996) we
model brand sales as a monotonically decreasing function of
time.
Behavioral reasoning
The analysis of the significance of coupon face value and
expiration date is important for a number of reasons, some
of which have behavioral implications. Although a larger
coupon face value can cause incremental sales (Bawa &
Shoemaker 1989), Raghubir (1998) suggests that a higher
face value on a coupon can have the opposite effect if con-
sumers are not informed about the original price. In other
words, offering coupons of larger face values to consumers
to encourage trial (under a low price awareness scenario)
might lead to higher price expectations and in turn, possibly
depress trial intent. Alternatively, price expectations may be
lowered by frequent promotions, which can lead to a negative
effect on sales (Mayhew & Winer 1992). However, Kumar
and Pereira (1995) have shown that the scheduling of pro-
motions is of critical importance and that a mere higher fre-
quency of promotions alone does not automatically cause
lower price expectations, and therefore, may result in lower
sales. Because coupons are a form of price promotions, offer-
ing larger coupon face values at frequent time intervals can
have a detrimental effect on sales, and therefore, on a firm’s
profit (Kalwani & Yim 1992). Also, a larger time frame for
coupon expiration can induce consumers to purchase more
than once with the coupon (may be from borrowed sources
or by buying an additional newspaper). To summarize, both
coupon face value and coupon expiration duration are of crit-
ical concerns to manufacturers as their effects are still largely
unknown to them.
3
A generalized coupon-sales response model
Store-level sales of a brand are a function of a number
of local and global variables. We use the term local vari-
ables to refer to such variables as display and featuring ac-
tivities, which are under the control of a store manager. The
chain/store managers can change these local variables in-
dividually in various stores. We use the term global vari-
able to refer to the marketing variable, which is commonly
set by the manufacturer. This variable normally affects sales
across a number of stores/chains in a market. For example,
a Free Standing Insert coupon issued by the manufacturers
is a global variable because the same face value coupons
are issued for different stores in the market. It is possible to
fine-tune local variables to the needs of each of the differ-
ent stores in a market. However, when a manufacturer issues
an FSI coupon in a market, the impact of the coupon on
sales is likely to be different in different stores. Estimating a
chain/market-level response model to calculate the elasticity
of the global variable will lead to biased results as different
stores in the chain/market could have different levels of re-
sponsiveness to the same global variable. In this research, we
propose a method to estimate the chain/market-level elastic-
ity measure of a global variable by aggregating store-level
responses to that global variable.
We model sales of a brand as a function of the price of
the brand, the face value of the coupon issued, the time since
a coupon drop, and store causal variables (e.g., display and
featuring activities). The time since a coupon drop variable is
included to allow for decay in response. One of the major pur-
poses of a coupon drop is to price discriminate (Narasimhan
1984), and coupons as a price-discriminating device are use-
less if consumers are insensitive to price. Hence, in measur-
ing the impact of coupons on brand sales, we use a model
where coupons will have an impact on brand sales only
when consumers are sensitive to price. During the week
when FSI coupons are dropped, customers become aware
and may cut the coupons. Both the advertising value of the
FSI coupons and the chances of the coupons being redeemed
are at their peak. However, as time progresses, customers
are likely to be exposed to competitors’ coupons and are
likely to cut these coupons also. Also over time, customers
are likely to misplace their original coupons and hence the
impact of the coupon drop on brand sales is likely to decay.
Hence, the model form that captures the impact of coupon
on sales should not only account for the fact that coupons
of higher face value are likely to have a longer impact on
brand sales, but that this impact is likely to diminish over
time since the coupon drop. We adapt a general version of
the log reciprocal sales response forms proposed by previ-
ous researchers (Leone & Srinivasan 1996) and extend it in
three ways: to include additional forms of promotions, com-
petition and multiple couponing strategies. To accommodate
single, double, or triple couponing strategies and multiple
competing brands, we have developed a generalized coupon
model.
4 V. Kumar, S. Swaminathan / Journal of Retailing 81 (1, 2005) 1–13

The self-coupon and cross-coupon elasticity can be de-
rived analytically for this generalized coupon-sales response
model and is shown in the next section.
   a particular coupon value) and another store does not, then,
β  β3j
Qist = exp β0 + −  the proposed model allows a comparison of the two coupon-
1
(Pist −γi Vi β2τi ) Pjst −δj Vj β4τjj
j
 
 Parameters β1 and β3j capture the impact of the shelf-
+ β5 Dist −  β6j Djst 
j brand i. Parameter β2 captures the impact of the face value
 
 the sales of brand i. In the first week since the coupon drop,
+ β7 Fist −  β8j Fjst  + εist
j
where Qist is the unit sales of brand i in store s in week t;
Pist , price of brand i in store s in week t; Vit , face value of
coupon for brand i valid in time period t; τ i , number of weeks
since coupon for brand i was dropped; Dit , dummy variable
to indicate display activity for brand i in store s in week t; Fit ,
dummy variable to indicate featuring activity for brand i in
store s in week t; εist , error term; γ i , δj = 1 for the face value
of the coupons for brands i and j, respectively, in week t; γ i ,
δj = 2 for double couponing of brands i and j, respectively, in
week t, and γ i , δj = 3 for triple couponing of brands i and j,
respectively, in week t.
The above model formulation offers the flexibility of ac-
commodating double or triple couponing strategies in addi-
tion to the regular face value of the coupon and the possibility
of this strategy varying over the coupon expiration date, and
multiple competing brands (for the sake of readability we
have omitted store and brand subscripts for the parameters).
Therefore, we term this model the generalized coupon-sales
response model.1 The validity of the exponentially decay-
ing assumption has been tested by previous researchers (e.g.,
Leone & Srinivasan 1996) and we extend their model in this
study. We also compare this functional form to other model
forms to better understand the nature of the relationship.
The use of an exponential form for the sales response
model and a reciprocal functional form for price is recom-
mended by Mulhern and Leone (1991) for many reasons.
First, the lower absolute price levels (i.e., larger price reduc-
tions) correspond to the larger elasticity measures—a result
that is achieved by using the reciprocals of the prices as inde-
pendent variables. Also, behavioral research has shown that
larger price changes produce relatively larger responses com-
pared with smaller price changes (Della Bitta, Monroe, &
McGinnis 1981). Finally, the introduction of the coupon face
value term in the denominator (along with price) facilitates
the computation of the equivalence of a hypothetical tempo-
rary shelf-price reduction for a given coupon face value in
each week. Another important feature of the proposed model
form is that, if a given store has a strategy of doubling the
1 The proposed model form can be expanded to include variables that
capture heterogeneity in the methods of distributing coupons and the number
of coupons distributed.
coupon face value, then, the coupon face value (Vi and/or Vj )
can be doubled and entered into the model. In other words, if
a retailer doubles the coupon face value for one brand (given
ing strategies. Thus, the model allows for an examination of
double couponing strategy.
price of brand i and that of its competitor on the sales of
of the brand i coupon and time since the coupon drop on
(1)
the impact of dropping a coupon of face value Vi on brand
sales is equivalent to that of a hypothetical temporary price
reduction of β2 × Vi . In the following week, the impact of
the coupon drop is equivalent to that of a temporary price
reduction of β22 × Vi . For example, if β2 were 0.5 and if a
coupon of face value $1 were dropped in week 10, for a single
couponing strategy the coupon’s impact on brand sales would
be equivalent to that of a hypothetical price reduction of 50
cents in week 10. The impact of the coupon drop in week 11
would be equal to that of a temporary price reduction of 25
cent for that week, and so on. Similar to β2 , parameter β4j
captures the impact of a competitor’s coupon drops on the
sales of brand i.
As noted from Eq. (1), the impact of the coupon face value
on a brand’s sales in a particular week is a function of not only
the price of the brand (and that of its competitors) in that week,
but also the time since the coupon drop.2 From this equation,
we can obtain the analytical forms for the price elasticity of
demand and coupon face value elasticity of demand. Once the
parameters of Eq. (1) are obtained, we can get the numerical
estimates of coupon face value elasticity of demand.
For comparison purposes, we also formulate three other
forms of coupon-sales response models:
(A) Linear: qist = β0i + β1i (Pist − γ st Vi β2i τ ) + other terms,
(B) Semi-log: log qist = β0i + β1 (Pist − γ st Vi β2i τ ) + other
terms, and
(C) Double-log: log qist = β0i + β1 (log(Pist − γ st Vi β2i τ )) +
other terms.
We compared the above three forms with the model proposed
in this study.
Coupon face value elasticity
Coupon face value elasticity is defined as the ratio of a
percentage change in sales to a percentage change in the face
2 While it may be interesting to model the interactions between price and
coupon in all the model forms, the limited availability of data on the oc-
currences of different coupon face value at various price levels precludes
this possibility. However, the partial differential of the sales response func-
tion with respect to face value is a function of price. Hence, the interaction
between the price and face value of the coupon are easily captured by the
proposed inherently nonlinear functional form used in this study.
 V. Kumar, S. Swaminathan / Journal of Retailing 81 (1, 2005) 1–13 5

value of the coupon. We investigate two types of coupon face Through differentiation and algebraic manipulation, we
value elasticity: (1) the percentage change in sales of brand i get
in week t as a ratio of the percentage change in coupon face  
T

value for brand i, which we label as “self-coupon elasticity”, Qist
and (2) the percentage change in sales of brand i in week t niis. = ηiist
T (3)
t=1 t=1 Qist
as a ratio of the percentage change in coupon face value for
brand j, which we label as “cross-coupon elasticity.” For ease This is basically a weighted average of the weekly self-
of exposition, we consider the case of two brands i and j in coupon elasticity.
this section.

Life of the coupon (in the chain/market, over the life of

Self-coupon elasticity
the coupon)
Self-coupon elasticity in a given chain over the life of the
Short term (in store s, for week t)
coupon is defined as:
When a coupon of a particular face value, valid only
for a certain number of weeks, is issued, the impact of the percentage change in sales of brand
coupon on brand sales is likely to be different in different i in the chain over the life of the coupon
weeks. Self-coupon elasticity for week t in store s is defined ηii.. =
as: percentage change in the face
value of the coupon for brand i
percentage change in sales of brand

i in store s in week t Let Qis. = Tt=1 Qist , and Vi be the face value of the coupon
ηiist =
percentage change in the face value of for brand i in the T weeks under consideration:
the coupon for brand i
S
 
∂ Ss=1 Qis. Vi  Qis.
In other words, ηii.. =
S = ηiis.
S (4)
∂Vi s=1 Qis. s=1 Qis.
s=1
∂Qist /Qist ∂Qist Vi
ηiist = = ×
∂Vi /Vi ∂Vi Qist This is basically a weighted average of the self-coupon elas-
ticity across the different stores in the chain/market. In de-
For the functional form given in Eq. (1), the self-coupon riving this, we implicitly assume that sales across stores are
elasticity3 is: independent of one another.
β1 β2τi γt Vi
ηiist = (2)
(Pist − γt Vi β2τi )2 Cross-coupon elasticity

Eq. (2) not only allows for the computation of the self-coupon Short term (in store s, for week t)
elasticity for a given store s in time t, it also facilitates the Cross-coupon elasticity in store s for week t is defined as:
computation of self-coupon elasticity when double or triple
couponing occurs. Please note that γ t in Eq. (2) readily pro-
vides us with the ability to study the impact of types of coupon percentage change in sales of brand
strategy (single, double or triple couponing) in a given week i in store s in week t
ηijst =
compared with other weeks. percentage change in the face value of the
coupon for brand j
Life of the coupon (in store s, over the life of the coupon)
Self-coupon elasticity in store s over the life of the coupon
∂Qist Vj β3 δt β4τj Vj
is defined as: ηijst = = (5)
∂Vj Qist (Pjst − δt Vj β4τj )2
percentage change in sales of brand
i in store s over the life of the coupon
ηiis. = Life of the coupon (in store s, over the life of the coupon)
percentage change in Cross-coupon elasticity in store s over the life of the
the face value of the coupon for brand i coupon is defined as:

T
∂ t=1 Qist Vi
T T

=
T ∂ Vj 
∂Vi t=1 Qist Qist
t=1 Qist ηijs. =
T = ηijst
T (6)
∂Vj t=1 Qist t=1 Qist
t=1

3 Derivation of the elasticities for all the cases discussed in this paper can
This is basically a weighted average of the weekly cross-
be obtained by contacting the first author. coupon elasticity.
6 V. Kumar, S. Swaminathan / Journal of Retailing 81 (1, 2005) 1–13
Life of the coupon (in the chain/market, over the life of
the coupon)
Cross-coupon elasticity in a given chain over the life of
the coupon is defined as:
percentage change in sales of brand
i in a chain over the life of the coupon
ηij.. =
percentage change in the face value of
the coupon for brand j
T be redeemed.6 The face value of the coupons for this product
Let Qis = t=1 Qist , and Vj be the face value of the coupon
for brand j for the T weeks under consideration.
 period. Also, the coupons were dropped on four different oc-
S
∂ Ss=1 Qis. Vj  Qis.
ηij.. =
S = ηijs.
S (7) other brand. Each time the coupons were valid for a period of
∂Vj s=1 Qis. s=1 Qis.
s=1
This is basically a weighted average of the cross-coupon elas-
ticity across the different stores in the chain/market. Simi-
larly, elasticity measures can be derived for the three other
competing functional forms4 proposed in this study. In the
next section, we empirically demonstrate the value of the
proposed modeling effect.
Single couponing strategy
Empirical demonstration
Data
The A.C. Nielsen Company provided us with two sets of
data for a major city (Market 1) in the Northeastern United
States, which we used to estimate the model in Eq. (1). One
set contained store-level data capturing details on weekly
sales (for 65 weeks) in the various stores and the store causal
variables (e.g., display and featuring activities). The second
set was a coupon database capturing details of all coupons
dropped in the stores’ market.5 The details of the coupon
drops include the face value, method of distribution, expira-
tion date, number of coupons distributed, and any restrictions
on the use of the coupon.
To estimate the sales response model, we chose a com-
monly used consumer product category. Two brands (labeled
A and B) dominated the market, and they accounted for over
75 percent of the market share during the time period of the
analysis. As in the study by Reibstein and Traver (1982), our
analysis is focused on one size of the brand that accounts
for a major portion of sales (over 80 percent) in the market.
Thus, the competition from other package sizes is minimal.
For the popular size, the prices of the two brands in the prod-
uct category ranged from $4.00 to $5.00 across stores and
chains. Data were provided for three chains in this market.
4 The self-coupon elasticity formulations for the three other models
formulated—linear, semi-log and double-log—can be obtained from the au-
thors.
5 Because of the confidentiality agreement with the data suppliers, we
cannot reveal the product category, brand names, or chain names.
Each chain had different numbers of stores (ranging from 7
to 15 per chain) for which data were available. The product
market used in this research has certain unique characteris-
tics, such as the absence of double couponing activities in
the chains that were considered, the absence of store coupon-
ing activities, and the absence of display and featuring ac-
tivities. All coupons dropped for the product category were
freestanding inserts in Sunday newspapers and did not have
any restrictions on the particular sizes for which they could
category ranged from 35 cents to $1.00 in the analysis time
casions for one brand and on three different occasions for the
eight weeks. While one would argue that not all the variables
described in Eq. (1) are included here, it is quite difficult to
obtain a dataset, which exhibits variation in coupon face val-
ues over time (the primary focus of this paper). For a two
brand case, in the absence of featuring and display activities,
Eq. (1) reduces to (assuming γ t and δt are equal to 1 for single
couponing strategy):
 
β1 β3
Qist = exp β0 + − + εist
(Pit − Vi β2τi ) (Pjt − Vj β4τj )
(8)
We obtained another data set from one of the largest re-
tail chains in a Southwestern city in the United States for a
different product category. This chain had data for two sub-
urbs (Markets 2 and 3) within a large city. The data were
available for a period of 52 weeks for a different product
category, in which two major brands dominated the market
place. Although this product category has different package
sizes, one size dominated the category. The typical interpur-
chase time for this product category was three weeks, and
the price for the popular size for the two brands ranges from
$3.00 to $4.00 across stores and chains in the marketplace.
The market share for these two brands in the chosen markets
exceeded 70 percent. However, in this category, featuring (6
weeks on average for each brand) and display (5 weeks on
average for each brand) activities occurred to some extent,
and therefore, the model form shown in Eq. (1) is estimated.
The nature of the second product category used in this
study is such that the coupon face values typically range from
55 cents to $1.00. Coupons were dropped on three different
occasions for both brands, and each time the coupons were
valid for a period of eight weeks. Because retailers double
the face value of coupons up to 50 cents, a double couponing
strategy should not affect the results of the study. However,
as stated earlier, a double couponing strategy can easily be
incorporated into the framework.
6 If data are available for on-pack coupons or other methods of distribution,
then one can use a dummy variable in the present framework to capture the
effect of coupon distribution source.
 V. Kumar, S. Swaminathan / Journal of Retailing 81 (1, 2005) 1–13 7

Table 2
Parameter estimates of the sales response model given by Eq. (2)a
Chain Brand β1 β2 β3 β4 β5 × 102 β6 × 102 β7 × 102 β8 × 102 Adjusted R2
Market 1 1 (n = 7) A 1108.10** (4.70) 0.82** (5.5) 520.8** (3.10) 0.69** (3.87) – – – – .82
B 2144.2** (11.2) 0.79** (7.8) 1248.11** (8.6) 0.46** (2.45) – – – – .77
2 (n = 8) A 1441.2** (8.4) 0.71** (5.4) 460.31** (3.2) 0.61** (2.4) – – – – .75
B 1350.1** (5.2) 0.74** (3.8) 462.4** (3.6) 0.59** (2.9) – – – – .81
3 (n = 15) A 1412.6** (9.3) 0.70** (4.8) 768.60** (10.8) 0.58** (2.9) – – – – .76
B 978.3** (3.3) 0.62** (3.1) 221.3* (1.8) 0.51** (2.6) – – – – .74

Market 2 4 (n = 4) X 1103.7** (4.1) 0.86** (7.1) 381.2** (2.7) 0.69** (3.2) 280.2** (3.1) 110.1* (1.9) 152.3** (2.8) 92.4* (1.8) .83
Y 1420.8** 5.1 0.65** (6.1) 358.2** (2.9)** 0.48** (2.4) 261.4** (3.5) 102.8** (2.2) 171.4** (3.0) 81.8* (1.9) .79

Market 3 4 (n = 6) X 782.4** (4.2) 0.81** (5.6) 496.8** (4.2)** 0.66** (3.6) 320.1** (4.1) 150.2** (2.1) 185.6** (2.7) 84.7* (1.7) .81
Y 1389.1** (7.4) 0.62** (4.1) 916.3** (5.1) 0.48** (3.1) 290.3** (3.7) 105.6* (1.9) 142.8** (2.4) NS .79
n indicates the number of stores within each chain. NS: not significant.
a t-values are in parentheses.
∗∗ Significant at .05 level.
∗ Significant at .10 level.

Model estimation variable (sales) as opposed to the model specific dependent

The effect of price and promotions on brand sales could
differ across the different stores in a market, depending on
the demographic characteristics of shoppers and the image of
the chains. Consequently, aggregating sales and price across
different stores in a market and modeling the sales response
at the market level could produce biased estimates of the
parameters. The estimated coefficients may not pertain to
any particular store or even to the average effect across all
stores (Neslin 1990). Thus, it is appropriate to estimate the
sales response model at the store level. However, we did the
pooling test (Bass & Wittink 1975) to determine if the stores
belonging to a particular chain could be pooled. The results
of the pooling test for the slope coefficients indicated that the
stores could be pooled within a chain for the chosen product
categories at α = .01. We, therefore, model the sales response
to the price and promotional variables at the chain level but
allow for store-specific intercepts. If the stores could not be
pooled, then, one could estimate the model for each store,
compute the elasticity for each store and then aggregate it to
the chain level.
We estimated the parameters7 of Eq. (1) by the nonlinear
least squares (NLS) method. These parameter estimates are
reported in Table 2. We estimated Eq. (1) without restrict-
ing the range of β2 (to see if it would converge to values
less of than 1) and β4 . The data provides an excellent fit8 to
the model, as indicated by the high values of adjusted R2 ,
which range from .74 to .83 across chains and markets. We
also estimated the three other model forms—linear, semi-log,
double-log—and found that our chosen model form performs
better, in terms of fit and predictive criteria, than these alter-
nate formulations, anywhere from 10 to 25 percent (i.e., R2
of .56–.64). We also compute R2 on the original dependent
7 Autocorrelation in the residuals, when present was corrected with the
iterative two-stage estimation procedure described in Non-linear Regression
(1989) by G.A.F. Seber and C.J. Wild, pp. 274–280.
8 We fitted a power transformation to the terms with price variable in
variable. In other words, if the dependent variable is ln(sales),
then, we take the exponent of it to convert it to the original
variable and then compare the actual values with the fitted
values and obtain a measure of R2 . The R2 values in the orig-
inal variable space range from .51 to .60. The AIC value for
our proposed model is 514 as compared to the values of 559,
572, and 581 for the linear, semi-log, and double-log models,
respectively. Thus, it is evident that our proposed model form
provides the best fit. For the sake of brevity, we only discuss
the estimation results for Brand B in Chain 1. Parameter esti-
mates for other brands in other chains can be interpreted in a
similar manner. Parameter β1 captures the impact of price of
Brand B on its sales, and parameter β3 captures the impact
of price of Brand A on sales of Brand B. Both β1 and β3
are significant and of the proper sign, indicating that sales of
Brand B are affected by both the price of Brand B and that
of its competing brand. Parameter β2 captures the impact of
coupon face value (of Brand B) on sales of Brand B. Param-
eter β2 has a value of 0.79 and is significant at the .05 level.9
This parameter helps us estimate the temporary reduction in
shelf-price needed to achieve a similar impact on brand sales
as that of dropping a coupon of a particular face value.
Assume that in week 10, Brand B drops a coupon with
a $1 face value. The impact of this coupon drop on Brand
B sales is equivalent to the impact of temporarily reducing
Brand B’s shelf-price by 79 cents in week 10, $0.62 (0.792 )
in week 11, and so on. Parameter β4 captures the impact of a
competitor’s coupon drop on the sales of Brand B. If Brand
A drops a coupon worth $1.00 in week 15, the impact of the
coupon drop on sales of Brand B in week 15 is equivalent
to the impact of a hypothetical temporary price reduction
of $0.46 by Brand A in week 15. In week 16, the impact
on Brand B’s sales is equivalent to that of a hypothetical
temporary price reduction of $0.21 (0.462 ) by Brand A.
The estimation results for Markets 2 and 3 indicate that the
parameter estimates have face validity and that the findings

Eq. (1) to test if the coefficient estimate is statistically different from −1.
The analysis as described in Plots, Transformations and Regression by A.C.
Atkinson, indicates that we could not reject the null hypothesis of −1, and
therefore, the reciprocal relationship proposed in this study holds good.
9 A test of whether β = 1 and β = 1 indicates that the null hypothesis is
2 4
rejected at α = .05 for both β2 and β4 . This implies that the effect of coupon
is not constant over time.
8 V. Kumar, S. Swaminathan / Journal of Retailing 81 (1, 2005) 1–13
are similar to that of Market 1. The self and cross-coupon
face value elasticities were computed for all the stores and the
chains with the parameters from Table 2. To aid in computing
the elasticities, the prices of Brands A and B were used as
$4.00 and $4.50, respectively. Similarly, a coupon that had
a face value of 75 cents was used for each week since the
coupon drop (for up to 8 weeks). The value for the self-coupon
face value elasticity ranged from 0.3 to 0.83 for week 1, and
the value for the cross-coupon face value elasticity ranged
from 0.1 to 0.35 for week 1 across all stores, chains, and
markets.10 For week 8, the value for self-coupon face value
elasticity ranged from 0.05 to 0.20 and, the value for cross-
coupon face value elasticity ranged from practically zero to
0.08 across all stores, chains, and markets. Thus, the results
are not market-specific, product-specific, or chain-specific in
nature.
Simulation
For the purpose of understanding the differential impact
of the face values of coupons and coupon expiration, the self-
coupon face value elasticity and the cross-coupon face value
elasticity were generated for a brand (Brand A) in a market
with two stores. We simulated the results for three different
levels of coupon face values (40 cents, 75 cents, 100 cents)
for Brand A as well as for three different levels of coupon face
values (40 cents, 75 cents, 100 cents) for Brand B. Thus, we
simulated the results for nine (3 × 3) scenarios when Brands
A and B dropped coupons of different face values in each of
the two stores in a market. Also, the validity of the coupon
was restricted to 8 weeks. The coupon face values and the
expiration date chosen for this study reflect the market con-
ditions for the product category analyzed. The model param-
eter values chosen for the simulation correspond to the range
of values observed in our data set. For illustrative purposes,
we chose the following parameters for two stores (deliber-
ately to show the differences across stores) in our simulation:
Store 1 Store 2
Brand A Brand B Brand A
β0 3 2 4 1.2
β1 745 2421 1311
β2 0.75 0.35 0.8
β3 397 264 603
β4 0.65 0.20 0.5
Price (cents) 404 463 460
A summary of the results is presented in Tables 3 and 4.
When both Brands A and B have a coupon for 40 cents, the
self-coupon face value elasticity for Brand A decreases from
0.16 in week 1 to 0.02 in week 8 for store 1, whereas the
10 For the linear model, the value of self-coupon face value elasticity ranged
from 0.21 to 0.66 for week 1, and the value for the cross-coupon face value
elasticity ranged from 0.04 to 0.26 for week 1 across stores, chains, and
markets. Similar values are obtained for the semi-log and the double-log
models.
corresponding decreases are from 0.23 to 0.04 for store 2.
Similarly, the cross-coupon face value elasticity decreases
from 0.05 in week 1 to 0.01 in week 6 for store 1, while
the corresponding decreases are from 0.06 in week 1 to
0.01 in week 4 for store 2. At the chain level (computed
with Eq. (4)), self-coupon elasticity decreases from 0.18 in
week 1 to 0.03 in week 8, while the cross-coupon elas-
ticity changes from −0.05 in week 1 to −0.01 in week 6
and has a negligible effect thereafter. The chain level self-
coupon and cross-coupon elasticities (computed with Eqs.
(4) and (7)) are 0.09 and 0.02, respectively, over the life of the
coupon.
The impact of different coupon face values and time since
coupon drop on self-coupon elasticity at the chain level is
shown in Table 4. Assume that Brand B has a coupon value
of 100 cents. As illustrated in Table 4, when Brand A’s coupon
value is changed to 75 cents, the chain level self-coupon elas-
ticity decreases from 0.40 in week 1 to 0.05 in week 8 for
brand A. The self-coupon elasticity is more than twice for
Brand A’s coupon value of 75 cents than it is for a coupon
value of 40 cents. Similarly, when Brand A’s coupon value is
changed to 100 cents, the chain level self-coupon elasticity
decreases from 0.59 in week 1 to 0.07 in week 8 for brand
A. The self-coupon elasticities are 0.09, 0.18, and 0.27 over
the life of the coupon for Brand A’s coupon values of 40, 75,
and 100 cents, respectively. The above findings indicate that
Brand A’s self-coupon elasticities increase more than pro-
portionately to the increase in coupon face values. Similarly,
over the life of the coupon, the cross-coupon elasticities are
−0.02, −0.03, and −0.05 for Brand B’s coupon face value of
40, 75, and 100 cents, respectively, when Brand A has coupon
value of 75 cents.
As one can see from these tables, the elasticity for the
self-coupon face value and the cross-coupon face value decay
over the life of the coupon. The largest value for self-coupon
elasticity is about 0.59 and for the cross-coupon elasticity it is
about −0.16. As a point of comparison, the mean of the self-
price elasticity of demand reported by Tellis (1988) is −1.76
and the mean of cross-price elasticity found by Karande and
Brand B Kumar (1995) is 1.10. While price reduction is likely to have
a broader appeal to all the shoppers, an increase in face value
2657 of the coupon is likely to appeal only to coupon prone people.
0.4 Further the increased attractiveness due to an increase in face
1689 value may not translate into an equivalent increase in sales as
0.2 only a fraction of the customers who see the coupon might
485
actually end up redeeming it.
As one can see from the above tables, the coupon face
value elasticity is a function of both the face value of the
coupon and time since the coupon drop. We illustrate the
impact of coupon face value and time since coupon drop
through a 3D graph (see Fig. 1) that depicts the changes in
self-coupon face value as a function of both the face value
of the coupon and time since the coupon drop. In Fig. 1, we
assume the face value of competing brand’s coupon to be
40 cents. We next discuss the effect of a double couponing
strategy.
 V. Kumar, S. Swaminathan / Journal of Retailing 81 (1, 2005) 1–13 9

Table 3
Self- and cross-coupon face value elasticity of brand A (Brand A: 40 cents, Brand B: 40 cents)
Weeks since coupon drop Store 1 Store 2 Store 1 self Store 2 self Chain self Store 1 cross Store 2 cross Chain cross
sales sales elasticity elasticity elasticity elasticity elasticity elasticity
1 61.53 33.86 0.16 0.23 0.18 −0.05 −0.06 −0.05
2 59.88 33.92 0.12 0.18 0.14 −0.03 −0.03 −0.03
3 58.35 33.05 0.08 0.14 0.10 −0.02 −0.01 −0.02
4 57.18 32.21 0.06 0.11 0.08 −0.01 −0.01 −0.01
5 56.31 31.53 0.05 0.09 0.06 −0.01 0.00 −0.01
6 55.68 31.00 0.03 0.07 0.05 −0.01 0.00 0.00
7 55.22 30.58 0.03 0.05 0.04 0.00 0.00 0.00
8 54.88 30.26 0.02 0.04 0.03 0.00 0.00 0.00
Over the life of coupon 459.02 256.41 0.07 0.12 0.09 −0.02 −0.01 −0.02

Table 4
Self-coupon and cross-coupon elasticities of brand A
Weeks since Chain self elasticity Chain self elasticity Chain self elasticity Chain cross elasticity Chain cross elasticity Chain cross elasticity
coupon drop (Brand A = 40 cents) (Brand A = 75 cents) (Brand A = 100 cents) (Brand B = 40 cents) (Brand B = 75 cents) (Brand B = 100 cents)
1 0.18 0.40 0.59 −0.05 −0.11 −0.16
2 0.14 0.29 0.42 −0.03 −0.06 −0.09
3 0.10 0.21 0.30 −0.02 −0.04 −0.05
4 0.08 0.16 0.22 −0.01 −0.02 −0.03
5 0.06 0.12 0.16 −0.01 −0.01 −0.02
6 0.05 0.09 0.12 0.00 −0.01 −0.01
7 0.04 0.07 0.09 0.00 0.00 −0.01
8 0.03 0.05 0.07 0.00 0.00 0.00
Over the life 0.09 0.18 0.27 −0.02 −0.03 −0.05
of coupon

Fig. 1. Coupon face value elasticity.

10 V. Kumar, S. Swaminathan / Journal of Retailing 81 (1, 2005) 1–13
Double couponing strategy
To illustrate the effect of a double couponing strategy, we
use the generalized coupon-sales response model specified in
Eq. (1) with the assumption that γ t and δt are equal to 2. We
also estimated the other competing model forms and found
that our model formulation (Eq. (1)) does better than any of
the other three formulations.
Empirical illustration
A national retailer in the suburb of a large Southwestern
city provided data for yet another product category that is
different from the two product categories analyzed earlier.
This retailer has the policy of doubling the face values of
coupons up to 50 cents. Store-level data capturing details on
weekly sales and store causal variables (e.g., feature and dis-
play) for the three stores in a suburb were available for a
period of one hundred and fourteen weeks. The retailer also
provided data on coupons that included all the details men-
tioned earlier. This product category was dominated by two
major brands, which account for over 80 percent of the mar-
ket share in the analysis time period. An interesting aspect of
couponing in this product category is that while the face value
of coupons remained in the same range, the retailer shifted
to doubling the face value of coupons at some point in time
during the data collection period. Thus, for the same product
category, data were available for a period of 59 weeks on
the actual face value of the coupon and other information.
For the subsequent 55 weeks, the data reflects the scenario
of double couponing since the retailer started to use a double
couponing strategy. Because the maximum face value of the
coupons for the brands of these two products did not exceed
50 cents in those 55 weeks, the situation always involved
double couponing. The coupon face values ranged from 30
cents to 50 cents during the analysis time period across both
brands. Each brand dropped a coupon on four occasions and
each time the coupons were valid for a period of eight weeks.
The popular size for this product category was 64 fl oz and
the price ranged from $2.50 to $3.00 between the two brands.
All the coupons dropped for the product category were free-
standing inserts in Sunday newspapers and were specific to
the brand size used in the analysis. Display activities were
Table 5
Parameter estimates of the sales response model given by Eq. (8)a (double and single couponing)
Store Brand β1
1 M 960 (865)b
T 1120 (733)
2 M 1201 (1090)
T 1040 (990)
3 M 840 (810)
T 800 (770)
a All the coefficients are significant at .05 level unless otherwise indicated.
b The values in parenthesis are for single couponing strategy. All other values are for double couponing strategy.
nonexistent given the nature of the product category and fea-
turing was almost negligible during the analysis period.
Double couponing
The availability of data over a single couponing period
and a double couponing period facilitates the comparison of
the effectiveness of these two strategies. Therefore, we es-
timate two models—one for single couponing and the other
for double couponing. We estimated the parameters of equa-
tion 1, excluding features and displays using the NLS method
for each of the three stores. The data provides an excellent
fit to the proposed model as indicated by the range of ad-
justed R2 , .72 to .81 (R2 —as computed in the original vari-
able space—for competing model forms vary from 0.52 to
0.59). The results are reported in Table 5 for the two brands
in each of the three stores.
Single couponing
For this strategy, we estimate Eq. (1) excluding features
and displays using NLS for each of the three stores. The val-
ues for γ t and δt are assumed to be 1. Again, the data provides
a nice fit as indicated by the range of adjusted R2 —.69 to
.81 (R2 —in the original variable space for competing model
forms vary from 0.54 to 0.62). The estimation results are also
reported in Table 5 for each of the three stores.
To illustrate the power of double couponing, we discuss
the estimation results for Brand M in these chain stores. The
magnitude of the coefficients indicates that a double coupon-
ing strategy has more effect in sales. Parameter estimates
for the other brand (Brand T) can be interpreted similarly.
The self-coupon and cross-coupon elasticities were com-
puted with the values shown in Table 5. For example, in
store 1, for Brand M, the self-coupon elasticities decrease
from 0.54 to 0.02 from week 1 to week 8 for a coupon face
value of 30 cents. Similarly, the cross-coupon elasticities de-
crease from −0.13 to −0.004 as we move from week 1 to
week 8. An interesting observation is that the elasticities are
of a higher magnitude (more than double) when the coupon
face values are doubled compared to the elasticities when the
coupon face values are not doubled. This implies that sales
increase more than proportionately for doubling the coupon
face value. This makes intuitive sense for the following rea-
son. The two brands used in this study belong to a higher
β2 β3 β4 Adjusted R2
0.61 (0.56) 520 (510) 0.53 (0.51) .72 (0.69)
0.63 (0.59) 708 (690) 0.53 (0.51) .74 (0.71)
0.70 (0.65) 609 (601) 0.59 (0.57) .73 (0.74)
0.62 (0.59) 660 (646) 0.52 (0.50) .80 (0.81)
0.60 (0.58) 390 (377) 0.46 (0.44) .81 (0.76)
0.66 (0.65) 580 (569) 0.52 (0.50) .75 (0.77)
 V. Kumar, S. Swaminathan / Journal of Retailing 81 (1, 2005) 1–13
price tier in that product category. There is empirical evidence
that price reductions in higher price/higher quality brands
have more influence on the sales of lower price/lower quality
brands than vice versa (Kumar & Leone 1988; Sethuraman
& Mittelstaedt 1992). Thus, when a higher priced brand dou-
bles the coupon value, it becomes attractive to the buyers of
lower price brands resulting in a sales increase for the higher
price brand. This results in higher coupon elasticity. How-
ever, whether this sales increase translates to profit is yet to be
established.
Managerial implications
Our study makes several contributions to understanding
the impact of coupon promotions on a brand’s total sales.
Traditionally, researchers investigating the impact of coupon
promotions have studied the effects of coupon characteristics
on redemption rates, market share, and incremental sales. To
the best of our knowledge, this study is one of the first that
explicitly address the issue of measuring coupon face-value
elasticity. We used currently available secondary data ob-
tained from A.C. Nielsen and two large retail chains in the
U.S. to estimate our proposed model. Three different product
categories—juices, household cleaners and beverages—were
used to study the effects of couponing. Several implica-
tions can be derived from the framework analyzed in this
study:
(1) The effect of coupon drop with different face values on
sales is captured. Given that different stores can have
different impacts (as illustrated in our data set as well
as in the simulation), this allows manufacturers to eval-
uate the effect of coupons at the store level as well as at
the chain/market level. The proposed framework helps
managers to be aware of such differences across stores,
chains, and markets. As stated earlier, many chains
are dividing their stores into different price zones for
implementing micro-marketing strategies (Hoch, Kim,
Montgomery, & Rossi 1995). In combination with
coupon drops, appropriate adjustments to the shelf-price
can be made if necessary (for example, using the frame-
work presented by Hoch et al. 1995) to realize maximum
revenues/profits for manufacturers as well as for retailers.
(2) Our framework enables measurement of the effects of
coupon drops over time. Thus, the decaying effect of
coupon elasticity is captured. This, then, allows manu-
facturers to choose the duration of the coupon drop. If the
decaying effect of a coupon drop shows that the effect of
coupon really drops after say 4 weeks, then the duration
can be chosen as 4 weeks for subsequent coupon drops
to limit the liability. The duration of the coupon drop can
be chosen in such a manner that a marginal increase in
sales is not sufficient to offset any additional costs. This
is because manufacturers do not have to assume liability
beyond a certain period.
11
(3) The proposed method provides a hypothetical compar-
ison of how much shelf-price reduction is required to
achieve the same effect (in sales) that would have oc-
curred with a coupon drop. This equivalency is demon-
strated not only for one time period but over the life of the
coupon. If managers decide to go through with the shelf-
price reduction strategy, then different stores in different
zones/areas can set their own prices. However, which
strategy may contribute to more profits depends on the
cost of the promotion program.
(4) The decay of elasticity for the coupon drop can help man-
agers make better decisions. Manufacturers can guide re-
tailers as to how much stock to hold during each week
of the coupon drop period. This can prevent stock-outs
of the relevant items. In other words, a retailer can an-
ticipate the expected increase in sales for a coupon drop
of a particular face value and stock the items to meet
the demand. Also, the shelf space can be better man-
aged to yield higher profits (depending on the profit mar-
gins of various product categories) at the store level. Fur-
ther, customer satisfaction can be preserved by not facing
stock-out conditions. The impact of stock-out conditions
on brand choice process has been illustrated by Kumar,
Karande, and Reinartz (1998). If a stock-out condition
occurs, consumers tend to choose the brand that has the
lowest external reference price. This implies that con-
sumers may switch from the concerned brand to compet-
ing brands resulting in a loss of sales for the concerned
brand. Therefore, it is wise on the managers’ part to eval-
uate the rate of decay of coupon elasticity over time to
better manage the inventory of items across stores, chains
and markets.
(5) Our framework allows manufacturers to choose various
combinations of coupon face values and coupon expira-
tion dates to achieve a desired level of self-coupon elas-
ticity (see Fig. 1). In other words, the total sales increase
realized in the first week by offering a $1.00 coupon is
equivalent to the total sales increase realized in the first 6
weeks of offering a 40-cent coupon, and is also equivalent
to the total sales increase realized in the first 2 weeks of
offering a 75-cent coupon (see Table 4). Thus, whichever
combination of face value and expiration date results in a
lower liability for the manufacturers will be the preferred
strategy.
(6) The effect of the face values of coupons of one brand
on a competing brand’s sales can be studied. The cross-
coupon elasticity illustrates that for a low face value of
coupons, the switch from one brand to another is min-
imal. Of course, this also depends on the product cate-
gory. However, one can use the proposed model to study
such effects. In any case, brand managers need not be
concerned with coupon drops for competing brands if
the cross-couponing elasticity is low. Given the equiva-
lence of temporary price reduction and a certain value of
coupon face value in a given week, brand managers can
also retaliate for coupon drops for competing brands by
12 V. Kumar, S. Swaminathan / Journal of Retailing 81 (1, 2005) 1–13
temporarily reducing the price (by knowing how much
to reduce the shelf-price for a given coupon face value,
a result obtained in this study) of their own brands.
(7) The empirical results from the double couponing analy-
sis illustrates that the percentage increase in sales is much
higher than the percentage increase in the coupon face
value when the coupon face value is doubled thereby ben-
efiting the retailer. If the resulting sales increase has profit
implications, then a double couponing strategy may be
a viable one. Since coupons are usually redeemed for
the purchase of single units, the question of stockpiling
does not arise. Thus, manufacturers do not have to be
concerned about the loss of purchases in future time pe-
riods. Therefore, the psychological underpinning behind
a double couponing is worth exploring further.
Limitations and future research directions
We did not consider the long-term effect of choosing the
couponed brand on subsequent purchases. That omission is
not a major limitation, however, as no consensus currently
exists among scholars as to the direction of such a change
in preference. Moreover, coupon promotions on almost all
brands are so frequent that any long-range preference changes
may offset one another (McAlister 1986).
Several interesting extensions of our research are possi-
ble, and these would give us a better understanding of the
impact of promotions on brand sales and profitability. Be-
cause display and featuring activities were negligible in the
product market investigated, we did not study the interac-
tion of coupons with these store causal variables. Richer data
with variation in display and featuring activities would facil-
itate the study of the interaction of coupon face value with
other store causal variables. Our generalized coupon-sales
response model captures the impact of coupon face value on
brand sales. However, the profitability of the couponing oper-
ation depends not only on the incremental sales of the brand,
but also on the number of coupons redeemed. The proposed
sales response model could be coupled with a coupon re-
demption model (similar to that of Reibstein & Traver 1982)
or the percentage of purchases that are coupon purchases (as
used by Neslin 1990) to investigate the profitability of the
couponing operation.
The proposed model can be used to determine the price
reduction that will result in the same level of brand sales as
a coupon drop. However, consumers who will buy the fo-
cal brand when a coupon is dropped could have a different
profile from consumers who will buy the focal brand when
the shelf-price is reduced. In the case of coupon drop, the
consumers might be people with high coupon proneness; in
the case of price reductions, they may be people who are
price sensitive. Also, a coupon drop and a shelf-price re-
duction could result in different levels of brand profitabil-
ity even though the total sales are the same. A price reduc-
tion does not incur the fixed costs of a couponing operation
(e.g., design, printing, and coupon distribution costs) or the
variable coupon handling charges. The long term effects of
a coupon drop can be studied along the lines of how past
coupon usage behavior can affect future use (Kopalle, Mela,
& Marsh 1999). While the impact of a coupon drop on the
last week of its duration is negligible in our study, future
research can attempt to capture the surge in coupon redemp-
tions during the last week of a coupon drop in modeling sales
and elasticity. Our research can be extended to investigate
the short-term profitability of a brand both when a coupon is
dropped and when the shelf-price is reduced, thus enabling
managers to choose either of these alternatives on the ba-
sis of brand profitability. It may be worthwhile to study the
interaction between price and coupon face value to better
understand the relationship between the two on brand sales
and profitability. The analysis of double couponing strategy
shows promise for double couponing; however, the impact
on profits is yet to be evaluated. Many of the limitations dis-
cussed here can be addressed with richer data, designed and
collected exclusively for the proposed model estimation.
Acknowledgments
The authors thank the editors, the associate editor and
the reviewers for their suggestions on the earlier versions of
the manuscript. The authors also thank Ed Blair, Jeff Inman,
Robert Leone, Trichy Krishnan, George Morris, Frank Mul-
hern, Scott Neslin, and John Totten for their comments; A.C.
Nielsen and a large retailer in the Southwestern United States
for providing the data. This study was supported in part by a
grant from the Promotion Management Association of North
America. Special thanks are owed to Renu for copyediting
the manuscript.
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