Discount Coupon - Meaning, Importance, Types & Example
Published by MBA Skool Team, Last Updated: October 02, 2019
What is Discount Coupon?
Discount coupon is a reduction in price or an extra benefit given to a customer. Discount coupon gives a “discount” or rebate to the consumer on purchase of certain goods. Discount coupons are an effective tool of marketing, as it helps attract customers who get lured by lower prices. Discount coupons are often used when there is a promotion or a sale going on for a brand. Discount coupon costs are the “overall costs” associated with the discount coupons provided to the customers. “Overall costs” include costs of designing, production, publishing, and marketing of coupons provided to customers. It also includes the discount amount a particular coupon is offering.
Discount coupons are a very effective way to increase the sales of physical stores or online stores. They not only attract new customers to try their product but also urge to buy in more quantity than a customer usually buys. Discount coupons are also easy to track in terms of what percentage of total coupons are being redeemed, who redeemed them, what products those coupons are being used for etc. This data is then analyzed to observe the effectiveness of the coupons, the sales pattern, consumer purchasing behavior, etc. Marketers use it to observe the responsiveness of customers towards particular offers and discounts which, in turn, help them in their product pricing strategies for the existing or the upcoming products.
Types of Discount Coupons
The most common types of discount coupons are as follows-
1. Discount-Percent Discount Coupons- These provide a discount on the retail price of the product or service. For example, a coupon for 10% off on next flight booking on an online flight booking website.
2. Discount on minimum purchase- For example, Rs.200 off on shopping of Rs.1000 or more at a grocery retail store.
3. Complementary service discount coupons- Example, buy an air-conditioner and get fitting and installation for free.
4. Buy-one-get-one coupons- These coupons provide an item free on a purchase of one item.
Example, buy a bar of soap and get another soap free.
5. New Customer Coupons- These coupons offer a discount to new customers to a brand
6. Loyalty coupons- These coupons are exclusively for loyal customers to a company or a brand.
Discount coupon for all the above categories ranges from free to thousands. The company needs to choose which coupon-category will suit its product portfolio the best depending on the money it is willing to spend and the product offerings.
Advantages of Discount Coupons
1. Market Area Expansion: Discount coupons, if used properly assist in expanding or increasing the market area as customers look forward to redeeming their coupons even if they have to travel a significant distance for it.
2. New Customers: Discount coupons provided to people who have never tried this company’s product may give it a try and if the product offered is impressive, it may turn this new customer to a loyal customer to this company.
3. Stronger bond with existing customers: Coupons provided to existing customers provide the company the opportunity to create a stronger bond with these customers. It also helps to give customers an incentive to stay longer with the company and the company has more to offer to its existing customers.
Disadvantages of Discount Coupons
1. There is a considerable percentage of customers who turn to a company's products only because they have coupons for them. As soon as, the coupon period is over, they may turn to their previous purchase practices. In such cases, the company needs to make sure that it must not give such heavy discount coupons that it makes a loss for that product category.
2. Coupon timing: Coupons provided at continuous intervals may develop a customer mindset to purchase a product only when discounts and coupons are available for that product. Thus, a proper time duration is very important for the product to be available.
Discount Coupon Formula & Workings
Discount Coupon cost = Designing cost + production cost + publishing cost + marketing cost + the discount amount the coupon is offering
Example of Discount Coupon
For example, the retail price of an Air conditioner of a Company A is $500 and it costs $400 for the company to manufacture it. Now, 100 coupons are introduced in the market for this AC offering 10% discount each, which makes the effective cost of AC being $450. Suppose designing, production, and marketing of the coupons took $50. and 50% of the coupons were redeemed.
Now, coupon costs = (50+ 50*50) = $ 2,550
Hence, this concludes the definition of Discount Coupon along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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