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Do Coupons Expand or Cannibalize Revenue? Evidence from an e-Market

Author

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  • Imke Reimers

    (Northeastern University, Boston, Massachusetts 02115)

  • Claire (Chunying) Xie

    (NERA Consulting, New York, New York 10036)

Abstract

Coupons have been a mainstay of marketing for decades all over the world, but their short- and long-run effects on sales are still not understood fully. We develop a model of consumer demand to empirically study whether firms can indeed use coupons as a means to price discriminate by attracting new consumers without losing (cannibalizing) revenue from existing ones, and whether these new consumers return to the firm after the price promotion. In addition, we ask what types of businesses are most likely to benefit from such promotions. Following alcohol revenue for restaurants using e-coupons, we find that offering a coupon increases demand during the promotion, and to a lesser degree after the promotion, suggesting that coupons can be used to price discriminate, while an advertising effect is less obvious. While coupons increase profits on average, the effect on each firm’s profits depends on the firm’s characteristics.

Suggested Citation

  • Imke Reimers & Claire (Chunying) Xie, 2019. "Do Coupons Expand or Cannibalize Revenue? Evidence from an e-Market," Management Science, INFORMS, vol. 65(1), pages 286-300, January.
    • Handle: RePEc:inm:ormnsc:v:65:y:2019:i:1:p:286-300
    DOI: 10.1287/mnsc.2017.2934
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    Cited by:

    1. Morgan Swink & Kejia Hu & Xiande Zhao, 2022. "Analytics applications, limitations, and opportunities in restaurant supply chains," Production and Operations Management, Production and Operations Management Society, vol. 31(10), pages 3710-3726, October.
    2. Li, Zonghuo & Yang, Wensheng & Jin, Hyun Seung & Wang, Di, 2021. "Omnichannel retailing operations with coupon promotions," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).
    3. Hu, Li & Zhang, Mengwei & Wen, Xin, 2023. "Optimal distribution strategy of coupons on e-commerce platforms: Sufficient or scarce?," International Journal of Production Economics, Elsevier, vol. 266(C).
    4. Yingdong Tian & Wensheng Yang & Kun Wen & Dawei Zhang, 2023. "Who is better for single and double coupon promotion? Comparison from dual‐channel and two‐period," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2079-2093, June.
    5. Li, Zonghuo & Guan, Xu & Mei, Wanxia, 2023. "Coupon promotion and its cross-channel effect in omnichannel retailing industry: A time-sensitive strategy," International Journal of Production Economics, Elsevier, vol. 258(C).
    6. Duan, Yongrui & Liu, Tonghui & Mao, Zhixin, 2022. "How online reviews and coupons affect sales and pricing: An empirical study based on e-commerce platform," Journal of Retailing and Consumer Services, Elsevier, vol. 65(C).
    7. Henrika Langen & Martin Huber, 2022. "How causal machine learning can leverage marketing strategies: Assessing and improving the performance of a coupon campaign," Papers 2204.10820, arXiv.org, revised Jun 2022.
    8. Maxime C. Cohen & Michael D. Fiszer & Baek Jung Kim, 2022. "Frustration-Based Promotions: Field Experiments in Ride-Sharing," Management Science, INFORMS, vol. 68(4), pages 2432-2464, April.
    9. Qiao Liu & Qiaowei Shen & Zhenghua Li & Shu Chen, 2021. "Stimulating Consumption at Low Budget: Evidence from a Large-Scale Policy Experiment Amid the COVID-19 Pandemic," Management Science, INFORMS, vol. 67(12), pages 7291-7307, December.
    10. Gubela, Robin M. & Lessmann, Stefan & Jaroszewicz, Szymon, 2020. "Response transformation and profit decomposition for revenue uplift modeling," European Journal of Operational Research, Elsevier, vol. 283(2), pages 647-661.
    11. Li Li & Xiaotong Li & Wenmin Qi & Yue Zhang & Wensheng Yang, 2022. "Targeted reminders of electronic coupons: using predictive analytics to facilitate coupon marketing," Electronic Commerce Research, Springer, vol. 22(2), pages 321-350, June.
    12. Moritz Zahn & Stefan Feuerriegel & Niklas Kuehl, 2022. "The Cost of Fairness in AI: Evidence from E-Commerce," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 64(3), pages 335-348, June.
    13. Yingxiu Zhao & Sitong Zhou, 2023. "The Impact of Two-Sided Market Platforms on Participants’ Trading Strategies: An Evolutionary Game Analysis," Mathematics, MDPI, vol. 11(8), pages 1-18, April.
    14. Ren, Xinxin & Cao, Jingjing & Xu, Xianhao & Gong, Yeming (Yale), 2021. "A two-stage model for forecasting consumers’ intention to purchase with e-coupons," Journal of Retailing and Consumer Services, Elsevier, vol. 59(C).
    15. Hongjun Lv, 2021. "Who benefits when coupons are issued by a duopoly from an e‐market?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(7), pages 1656-1664, October.
    16. Jinglong Dai & Hanwei Li & Weiming Zhu & Jianfeng Lin & Binqiang Huang, 2024. "Data-Driven Real-time Coupon Allocation in the Online Platform," Papers 2406.05987, arXiv.org, revised Jun 2024.

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