Do Coupons Expand or Cannibalize Revenue? Evidence from an e-Market
42 Pages Posted: 15 Feb 2016 Last revised: 25 Jul 2017
Date Written: June 22, 2017
Coupons have been a mainstay of marketing for decades all over the world, but their short run 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.
Keywords: Coupons, price discrimination, revenue cannibalization, market expansion, daily-deal sites
JEL Classification: L1, M31
Suggested Citation: Suggested Citation