Coupons in context: discounting prices or decreasing profits?

A coupon is a commonly used sales promotion device offering the user a discount on the purchase of a product. Consumer coupon offerings are also becoming increasingly diverse: from "% off and "$ off" to "Buy one, Get one free" (BOGO) offers and co-promotions (Buy X, Deal on Y). This paper reports the results of three experiments that examine whether the economic value of a coupon is a source of information to infer the price of the product/service, and the quality of the product/service, which inference can undercut the economic value, with resulting consequences for deal evaluations and purchase intentions. The framework predicts, and empirical results show, that increasing the value of the coupon does not always improve deal evaluations or purchase intentions. This could imply lower profits for the company. The presence of past price information about the brand, information about prices of other brands offered by the company, and information about competitors' prices moderate the impact of coupon value on brand-related inferences. When such alternate sources of information are present and are diagnostic of the price of the promoted product, consumers are less likely to infer price and quality from the value of the coupon and higher coupon values are more likely to increase deal evaluations and purchase intentions. Implications for managers designing and communicating promotions are offered. (C) 2004 by New York University. Published by Elsevier. All rights reserved.