The Impact of Coupons on the Visit-to-Purchase Funnel: Theory and Empirical Evidence
47 Pages Posted: 13 Jul 2018 Last revised: 28 May 2019
Date Written: May 25, 2019
Firms often use coupons to stimulate demand. Although couponing is popular in practice, limited research has examined the effect of coupons on visit, search, and purchase behaviors among heterogeneous customers in an e-commerce setting. In this paper, we propose a parsimonious theory of two potential effects of coupons on customer behavior: an advertising effect that increases website-visit likelihood by lowering visit cost, and a redemption effect that increases purchase conversion while also increasing visit likelihood due to price discount. We test our theory using data from a field experiment with an online retailer in which customers were divided into two heterogeneous customer segments (low value and high value) with two types of coupon discounts (base value and better value). We find couponing is effective in increasing revenue, primarily by attracting customers who purchase without coupon redemption, and the lift in revenue per customer is larger for the high-value segment. Using clickstream data of customer visit and search behavior, we tease apart baseline segment-level heterogeneity from heterogeneous treatment effects, and find a strong advertising effect primarily drives a relatively homogeneous lift in visit likelihood for both segments under the base coupon. Further, we find coupon effects are moderated by discount depth, with the redemption effect being larger under the better coupon than under the base coupon. We discuss the implications for firms designing coupons with a heterogeneous customer base.
Keywords: Promotion, Couponing, Customer heterogeneity, Consumer search, Visit-to-purchase funnel, Field experiment
JEL Classification: C93, D12, M31, M37
Suggested Citation: Suggested Citation