The Coupon Effect
Coupons are used as an incentive for consumers to purchase goods and increase revenues for firms. Although coupons come in various forms there is no doubt that the sole purpose is to increase revenues for the firms. One may find exceptions to such argument, but there are plenty of ways to refute. Of course, benefits of coupons are subjective and the effects differ.
Some examples of coupons are ‘buy one get something free’, ‘buy one get something half off’, or ‘buy one get x amount of money back’. Notice that each coupon provides an incentive for a customer to buy. “Buy and we will reward you,” is the idea portrayed by coupons. That ‘reward’ or ‘free’ item usually catches my eye and I’ll subconsciously begin to weigh the opportunity cost. The truth of the matter is that firms spend a lot of money on coupons, but it has it’s purpose. They’re gambling and hoping the consumer will like the product enough to come back and buy it again. It’s a way to increase revenues in the long-run; it is an investment in their consumers. In accounting, coupons are considered trade discounts. Trade discounts represent a reduction in the listed price of a product or service. (Richland) So, normally, trade discounts would reduce service revenue. However, a company sees it as an increase in revenue because without the coupon the client would not have had incentive to purchase that particular good or service. Although the circumstance does rely on the price elasticity of the good, for the most part, a decrease in price will increase demand.
At Grapevine Mills mall, there has plenty of times where I am purchasing something at a kiosk and I am offered one more item for a cheaper price. For example, earlier this year I was purchasing sunglasses which I was told were worth $20 but the representative said she’d sell for $15. I looked at a few and found a couple I liked. I was indecisive, and the kiosk rep offered to sell both for $25. I refused, and she went down to $20. The offer was too good to be true, and I accepted it. No, the rep did not feel bad because I was indecisive. Simply put, she saw an opportunity to increase her revenues and she took it. One can argue that her sole purpose was to increase her revenues with me but in actuality there are plenty of benefits that can be derived from her actions. A week later I brought a friend with me who was shopping for sunglasses for his mother and he bought a pair. A few more weeks later my sister bought a pair for both her and her husband. So, the effects were very positive to her business profits.
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However, coupons don’t always have positive effects and can have negatives results. For example, I work for SSDC a division of Ecolab, and there has been times where we lose money on new customers. We may have a local restaurant commit to buying our chemicals for sanitization purposes only to end up buying from a local Sam’s club. We lose money because the customer fails to purchase our chemicals after a free (and costly) installation of our system. The free installation is an incentive for new customer to join but as you can tell – it can end up as a net loss. Another negative effect of coupon offering happened when I worked at McDonald’s five years ago at the age of 15. Our store gave out coupons that would be stamped each time a customer would buy a value meal. After five value meals, the customer would receive a free one. Unfortunately, one of my coworkers stamped tens of coupons so that they were worth a free meal. The result was negative, as you can imagine. Coupons are great, but if not enough limitations are included they will easily turn on the provider.