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A coupon is a form in a printed advertisement, typically bordered by a dotted line indicating where the form is to be cut by the consumer. Once redeemed by the consumer, the coupon is eventually returned to the advertiser.

Marketers use two types of coupons. One type is a printed inquiry or order form to be completed by the customer with name, address and other information; the customer returns it to the advertiser to request more product information or to order the product directly. The other, more common type is a certificate promising a discount, refund, free sample or a combination offer, such as "buy-one-get-one free." Commonly called "cents-off" coupons, these entice retail customers to go to the store to make a purchase.

Temporary price cuts

Marketers use coupons to achieve many promotional objectives—for example, to introduce consumers to new products or to encourage shoppers to try existing products or switch from one to another. Unlike permanent price cuts, coupons offer customers temporary price reductions while allowing a brand to return to full price after the expiration date on the coupon.

Coupons can originate with either manufacturers or retailers. Manufacturer's coupons can be redeemed at face value by customers at any retail store carrying the brand. The retailer then returns the coupon to the manufacturer for reimbursement plus a small handling fee. Retailer-originated coupons are good for discounts on products carried by that retailer and redeemable only at that retailer's store. Supermarket grocery items account for the majority of redeemed coupons.

Cents-off coupons have several basic components: the offer, redemption instructions, the product's description, any restrictions and an expiration date. The most important feature—the offer—is the part of the coupon that communicates the discount. The better the offer, the more likely consumers will use the coupon. Although they are called cents-off coupons, the face value may be as much as one dollar or more, or can also be for a percentage off the total price of the product. Research has shown, however, that dollar-amount savings tend to be more attractive to coupon users than percentage discounts.

Coupons are distributed through a variety of media. The most common distribution method for manufacturer-originated coupons for grocery store brands is free-standing newspaper inserts. Fast-food restaurants and retailers frequently use direct mail to distribute their coupons to customers living near their stores. Other distribution channels include run-of-press newspapers (as opposed to preprinted flyers and inserts), magazines, product packages and in-store distribution.

In the late 1990s, distribution of coupons electronically at store kiosks and over the Internet proved to be an innovative and effective means of reaching customers.

The first coupons

Although coupons did not become widely used until the second half of the 20th century, the first coupons are thought to have been distributed by the C.W. Post Co. for Grape Nuts cereal more than 100 years ago.

Along with the expansion of mass discount retailing, the number of coupons being issued in the U.S. quadrupled during the 1970s. Coupon distribution continued to grow through the 1980s, though at a slower rate, peaking in 1992 at 310 billion, then dropping to 268 billion in the mid-1990s. In 2000, according to industry estimates, some 300 billion manufacturer-originated grocery product coupons were distributed in the U.S. That number does not include the millions of coupons distributed by restaurants and retailers.

Only 27% of U.S. consumers say they use coupons each time they go shopping, although in the late 1990s more than 80% reported using them at some time, compared to only 58% in the early 1970s.

While the number of coupons distributed and the number of U.S. residents using them have increased, redemption rates—that is, the number of coupons that consumers actually redeem as a percentage of the total distributed—have fallen. In 1978, the rate was about 5%; by 1995, only about 2% of coupons distributed were redeemed by customers. The 2% level is now considered a "good" redemption rate for most coupon programs.

The decline in redemption rates has persuaded some that coupons are losing their effectiveness as promotional tools. Many marketers have reduced the number of coupons they distribute each year, and others are looking for new ways to distribute them. Procter & Gamble Co. chose to eliminate couponing in some test markets in 1996, though it later resumed coupon activities due to consumer demand.

The Internet effect

The Internet focused new attention on couponing—but not always in positive ways. Online coupon companies, such as Ecentives and Cool Savings, moved the promotion vehicle online, with several marketers using them not so much as mass-marketing tools but to track the effectiveness of consumer-direct database marketing programs.

Coupon fraud and misredemption, which had long bedeviled manufacturers, found a boost online in the early 21st century. Some coupon criminals began counterfeiting high-value online coupons and print coupons. In some cases, the counterfeits, as well as legitimate coupons, were bundled and auctioned on eBay. Efforts by the Grocery Manufacturers Association and Food Marketing Instititue, which claimed selling both counterfeit and genuine coupons online is illegal, was unsuccessful in getting eBay to halt coupon auctions. Meanwhile, other consumers gathered in online bulletin boards to swap tips about how to misredeem coupons for more than manufacturers intended.

All that didn’t dissuade P&G, despite its "zero-coupon" test years earlier, to scrap the medium. Indeed, by 2004, P&G had turned its P&G BrandSaver newspaper coupon insert into a sort of corporate branding vehicle.

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