The Antecedents and Consequences of Promo Code Redemptions

Abstract

Promo code coupons delivered via email are a popular promotion tool. We study the effectiveness of these promotions by examining the factors that influence consumers to redeem promo codes, and the impact of redemptions on profits. We analyze a field experiment conducted by a national retailer involving more than 400,000 customers. We study the open/click/redemption process using a five-equation model, for opens, clicks, and three purchase types: (1) eligible redemptions, (2) eligible non-redemptions, and (3) ineligible and hence non-redemption purchases. We find consumers’ motivations and abilities have a sequential impact: they determine opens, which expose them to the promo code and hence the opportunity to redeem, and then determine which type of purchase consumers make. Eligible non-redemptions represent “slippage”, whereby consumers purchase but do not redeem although they could have. We find that customers with relatively low motivation and ability are associated with slippage, providing a sensible explanation of slippage. We find promo code coupons induce purchase acceleration, undoubtedly due to their limited duration, but are still profitable after accounting for acceleration. We conclude managers should consider using emailed promo code promotions; their dependence on customer motivation and ability means firms can target customers to effect price discrimination.

Keywords: Promo Code; Email Marketing; Promotions; Digital Coupons; Email Opens and Clicks; Coupon Redemption; Multi-equation Probit

JEL Classification: M30, M31, M37