Coupon characteristics and brand choice

ABSTRACT The effects of coupons on brand choice and repurchase behavior were examined in a laboratory panel experiment. Each of the 122 consumers purchased a candy bar on 10 different occasions; on the seventh purchase occasion, each consumer received an announcement of a new candy bar and one of four versions of a coupon. Results showed that whether or not a consumer will use a coupon de- pends on the size of the coupon offer, how easily the consumer can redeem the offer, how brand loyal the consumer is, and whether or not the consumer is deal prone. We also found, after statistically adjusting for our censored sample, that loyalty and coupon Characteristics influence whether or not a consumer will continue to purchase a formerly discounted brand. Information aggregation theory (Tybout & Scott, 1983) explains better than attribution theory how the coupon affects repurchase decisions.

Coupon Characteristics and Brand C h o i c e

Goutam Chakraborty Oklahoma State University Catherine Cole University of Iowa

Recently the applied psychology literature has improved our understanding of how extrinsic rewards affect the intrinsic interest of a task (e.g., Deci & Ryan, 1985; Phillips & Freedman, 1985). If we consider coupons as extrinsic rewards offered to consumers who purchase a focal brand, we may better understand how coupons affect repurchase behavior, a subject on which marketing research has so far achieved little agreement.

Consequently, the laboratory study reported here has two principle objectives. First, we wanted to resolve some ambiguous findings on how coupon usage affects repurchase behavior. Second, we wanted to test hypotheses about how coupons initially guide consumer choice in a controlled

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Vol. 8(3): 145-159 (Fall 1991) CCC 0742-6046 / 9 1 /030 145- 15$04.00

COUPON CHAKACTEHISTICS

experimental setting, a topic on which research findings are fairly consistent.

In the first section of this article we review the relevant literature and construct hypotheses. We describe the experimental methodology in the second section and present the results in the third. Finally we seek to integrate our results with previous literature and discuss directions for future research.

LITERATURE REVIEW AND DEVELOPMENT OF HYPOTHESES

Economists and marketing researchers have suggested that we can predict whether a coupon offer will guide initial brand choice by recognizing that consumers strive to maximize their utility or net benefits (Narasimhan, 1984; Bawa & Shoemaker, 1987a, 1987b). This proposition has led to research on factors affecting the perceived value and costs of using a coupon.

First, consider variables affecting the perceived value of the coupon offer. As the size of the discount offered by the coupon increases, coupon redemptions usually increase. This is true whether redemptions are assessed as actual coupon redemptions (Bawa & Shoemaker, 1987b; Reibstein & Traver, 1982) or as intended redemptions (Bearden, Teel, & Williams, 1981).

Shimp and Kavas (1984) apply Fishbein’s theory of reasoned action to coupon usage. They find that, as perceived favorable consequences increase (e.g., feelings of being a smart shopper and the approval of significant others), consumers’ intentions to use coupons also increase. Because these perceived benefits are not just financial, consumers who use coupons may be deal prone generally-that is, they may perceive unique benefits in all price discounts, not just coupons (Blattberg, Buesing, Peacock, & Sen, 1978; Montgomery, 1971; Webster 196.5).

Second, consider the perceived costs variable. First the ease or dif- ficulty with which consumers can redeem a coupon may influence the perceived cost of using that coupon. Indeed, many studies have found that the method of distribution has a large impact on redemption rates (Reib- stein & Traver, 1982; Nielsen, 196.5; Ward & Davis, 1978; Dodson, Tybout, & Sternthal, 1978). For example, consumers are much less likely to redeem newspaper coupons than coupons sent through the mail because the former must be noticed and cut out before they can be redeemed. However, how a coupon is distributed is often confounded with the characteristics of those who receive it. A manufacturer may target mail coupons to selected, deal- prone households, whereas newspaper coupons go to whomever reads the newspaper. Thus there is a need to test the intuitively simple proposition

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COUPON CHAKAC'I'EHIS'I'ICS

that the ease with which an individual can redeem a coupon influences redemption rates.

There is also a substitution cost attached to using coupons. Several studies have found that people who are brand loyal are less likely to try a coupon for a competing brand, presumably because the costs attached to substituting the preferred brand with the discounted brand are higher for them than for brand switchers (Bawa & Shoemaker, 1987b; Shoemaker & Tribrewala, 1985).

This literature leads to several propositions which are stated here in the form of hypotheses.

H1:

H2:

H3:

H4:

People will be more likely to redeem large-value than small- value coupons. People will be more likely to redeem easy-to-use than hard-to- use coupons. People who are deal prone will be more likely to use coupons than people who are not. People who are less brand loyal will be more likely to use coupons than those who are more brand loyal.

Whether or not consumers will repurchase a brand after using a coupon may depend on their prior brand loyalty and the characteristics of the coupon. People who are loyal to competing brands but who happen to use a coupon are less likely to repurchase the couponed brand than people who are not brand loyal, presumably because brand-loyal people have higher substitution costs even after a trial purchase (Motes & Motes, 1984; Dodson, Tybout, & Sternthal, 1978).

H5: People who use coupons and are brand loyal to a different brand will have a lower repeat purchase rate than people who are less brand loyal.

Psychologists have pursued from a variety of perspectives the question of how characteristics of extrinsic rewards influence intrinsic motivation (Deci & Ryan, 1985). In the marketing literature self-perception theory (Dodson et al., 1978), the information aggregation hypothesis (Tybout & Scott, 1983), and even mindlessness (Neslin & Shoemaker, 1989) have been used to predict how using a coupon affects repurchase behavior. Before reviewing the empirical evidence, it is helpful to summarize these three theories.

Self-perception theory states that people come to know their feelings by observing their own behavior (Bem, 1972). Accordingly, if people purchase a product because of a large incentive (e.g., high-value coupons or special deals), they may attribute their purchase to the presence of a deal rather than to a positive feeling toward the product. They are unlikely then to repurchase the brand unless it is again available on a deal. However, if

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COUPON CHARACTERISTICS

people purchase a product on a trial basis with a small, hard-to-use incentive or no incentive at all, they will be more likely to become regular users, since they will attribute the trial to positive feelings about the product. This reasoning suggests that the value of coupons and the effort associated with using them influence repurchase behavior.

Information aggregation, a term used by Tybout and Scott (1983), de- scribes traditional and contemporary research on attitude formation (e.g., McGuire, 1969; Fishbein & Ajzen, 1975). It suggests that consumers who use coupons will view a coupon as a positive piece of information about the brand. When consumers evaluate a brand before making a repurchase decision, they aggregate all the information they have available. Large, easy-to-use coupons, which are positive pieces of information, may increase evaluations and repurchase probabilities; small, hard-to-use coupons, which are less positive bits of information, may have a much smaller impact.

Finally, Neslin and Shoemaker (1989) suggest that people taking advantage of deals-including coupons-may be engaging in “mindless” behavior. In markets for mature products, the consumer is not intent on making the best brand choice, perceives minor differences among brands, and is experienced with the product class. In these circumstances, coupon usage might have no effect on repurchase behavior.

Evidence supporting or disputing these theories is scanty. A number of published articles support the observation that people who buy a brand on a deal (not necessarily a coupon) are less likely than people who buy the same brand at the regular price to repurchase the brand once the deal is removed (Guadagni & Little, 1983; Jones & Zufryden 1981; Lawrence, 1969; Scott, 1976). Shoemaker and Shoaf (1977), for instance, analyzed three sequential purchases of households. They found a lower probability that the third purchase would be for the same brand as the second purchase if the second purchase was on deal. One additional study has shown that large-value, easy-to-use coupons may undercut repurchase rates more than low-value coupons (Dodson et al., 1978). These studies are often cited as indications that attribution theory can predict coupon effects.

However, there is another explanation for these results: People who take advantage of deals (not just coupons) may be different from people who do not purchase on deals, and these differences may affect repeat purchase probabilities. Neslin and Shoemaker (1989) argue that promotions tem- porarily attract a disproportionately large number of households with low purchase probabilities. The repurchase rates of these households are lower than the repurchase rates of those who bought the brand without a promotion, because the prepurchase probability is lower for the first group than the second group. These preexisting differences explain why studies find that deal purchases undercut repurchase probabilities.

Neslin and Shoemaker could easily have extended their argument to

148 FALL 1991


the case of different types of coupons. Large, easy-to-use coupons may attract large pools of households with low purchase probabilities, and small, hard-to-use coupons may attract people with relatively high purchase probabilities. This difference in households would explain the results of Dodson et al. (1978) as easily as attribution theory does.

Neslin and Shoemaker also provide evidence for their assertions by analyzing scanner panel data for regular and instant coffee purchases over 108 weeks. They compare repurchase probabilities for deal purchasers (including coupon users) and nondeal purchasers of each brand, and they also compare pre- and postpurchase probabilities within each group of purchasers. Although the repurchase probabilities for households buying on deal are lower than for households not buying on deal, the prepurchase probabilities are also lower. Thus deal usage does not change purchase probabilities. They conclude that, in mature markets where there are relatively minor differences among brands, deals do not have an undermining effect on repurchases.

However, the results from a recent literature review and a laboratory study indicate that attribution effects do occur in certain situations (Folkes, 1988; Tybout & Scott, 1983). In their study Tybout and Scott (1983) randomly assigned subjects to either receive or not receive a coupon incentive for tasting a new soft drink. They overcame the self-selection bias identified by Neslin and Shoemaker (1989) by describing the focal brand in such a way as to get over 95% of the subjects to taste the new drink.

Their study provides evidence that, when people have favorable internal knowledge about a new brand (taste information), they will use information aggregation procedures and more positively evaluate the taste of a new brand when the coupon incentive is present than when it is not present. On the other hand, when people have ambiguous information about the brand, they will use self-perception processes and more nega- tively evaluate the brand when the coupon incentive is present than when it is not. Unfortunately, this laboratory study gained control over trial at the expense of external validity.

This literature suggests that the effects of coupons on repurchase depend on how easily the consumer can evaluate brand performance and on whether the brand is new. It also emphasizes the importance of circumventing the self-selection bias problem when studying repurchase.

In our study, we asked consumers to purchase candy bars. On the seventh occasion we introduced a new candy bar (Bar None) with one of four types of coupons. Thus the brand was new and performance was easy to evaluate because consumers had taste information available before having to decide whether to repurchase the brand. Consequently, we predicted that information aggregation would make the correct predictions. Extend-

PSYCHOLOGY 81 MARKETINGIVOL. 8. NO. 3 149


ing Tybout and Scott’s (1983) hypotheses, we predict

H6: People who receive and use high-value coupons for a new brand of candy bar will be more likely than those who receive and use low-value coupons to repurchase the formerly discounted brand. People who receive and use easy to use coupons for a new brand of candy bar will be more likely to repurchase the formerly discounted brand.

H7:

METHODOLOGY

Overview

In this study we recruited 122 undergraduates and MBA students enrolled at a large midwestern university to participate in a study about candy bars. We chose to use candy bars because they are low-value items that are frequently purchased by our target population (college students) and they clearly differ in taste and quality (Consumer Reports, 1986). Approximately one week before the study began, participants completed a questionnaire asking for demographic information, candy bar prefer- ences, and other attitudinal information. Participants agreed to purchase, for 40 cents each, one candy bar on each of 10 different purchase occasions, from one to four days apart.

On the seventh choice occasion we introduced a new candy bar, Bar None, made by Nestle and now distributed nationally. At the time of the study (early fall 1987), there were no coupons or advertisements for the candy bar, although it was available at selected retail outlets. Each student received one of four different coupons with an announcement of the new candy bar. The student then chose whether or not to use the coupon and ordered. We included Bar None on the list of available candy bars over the next three purchase occasions, but we did not offer any more coupons.

Coupon Offer

We randomly assigned subjects to receive one of the four coupon offers, generated from a 2 x 2 design that manipulated the value of the coupons and the effort involved in redeeming it. To calibrate the appro- priate levels of the coupon, we conducted several pretests (Cole & Chak- raborty, 1987). Essentially the problem we faced was selecting discounts and effort manipulations that were large enough to motivate redemption in all conditions.

Typically a consumer must clip, store, and transport a coupon within a specified time period to obtain the discount. To model this task in the high-effort conditions, we required subjects to redeem the coupon within

150 FALL 1991


24 hours of receiving the offer and to bring in the candy wrapper from the candy bar last purchased. In the low-effort condition students could redeem the coupons by slipping them back into the order envelope.

The value of the coupon also had two levels, either high (entitling the receiver to a free Bar None and a 40 cent cash rebate) or low (entitling the receiver to 20 cents off the price of a Bar None). Although the high end is higher than most coupon offers, it is not outside the range of coupon offers (e.g., Nestle in December of 1987 mailed a coupon to all households entitling them to a free Bar None and 40 cents off a six pack of Bar Nones).

Measures

In our study we obtained attitudinal information on the survey form and overt behavioral data from the purchase records.

Deal proneness was measured one week prior to the study with five Likert items, including statement such as “I wait until the item I want goes on sale before I buy it”; the measure had a coefficient alpha of 0.74. These items were embedded in the questionnaire in a list of 10 other items about shopping behavior so as not to alert subjects to the true purpose of the study.

Brand preference was measured one week prior to the study with a comparative rating scale on which respondents divided 100 points among candy bars in terms of overall preference. In the analysis, for each re- spondent we used the maximum points given to any of the six candy bars on a 100-point scale.

Behavioral loyalty was defined as the percentage of purchases devoted to the most frequently purchased brand during the first six purchase occasions.

ANALYSIS

Coupon Users versus Nonusers

To test Hypotheses 3 and 4 we conducted t tests on the difference between the coupon users and nonusers for each variable. We found statistically significant differences ( p 5 0.05) for deal proneness, behavioral loyalty, and brand preference: Coupon users are more deal prone, report less brand preference and show less behavioral loyalty. These results reported in Table 1 support Hypotheses 3 and 4.

To investigate how coupon characteristics affect redemption rates (Hypotheses 1 and 2), we examined redemption rates across the four cell conditions. Table 2 reports these rates. We performed a chi-square analysis to investigate the effects of effort and value on redemption rate. The overall

PSYCHOLOGY 81 MARKETINGIVOL. 8. NO 3 151

COUPON CHARACTERIS’I’ICS

TABLE 1 Profile of Coupon Users Versus Nonusers

Hypotheses Descriptor Variable Coupon Users Nonusers

H3 Deal proneness 17.75* 15.64* H4 Brand preference,’ 41.41* 5 I .8S* H4 Behavioral loyalty” 0.44% 0.73*

* Mcans arc significantly different hctwccn scgmcnts, p 5 0.05. .’ Maximum points given to any of the six candy bars on a 100-point scale. ” Equals 1 if 50% or more purchases in first six wccks is devoted to m y single brand, 0 othcrwisc

chi-square with three degrees of freedom equals 7.063 ( p 5 0.07). From the table entries, it appears the lowest redemption occurs among those receiving low-value, high-effort coupons. If we collapse the table across any of the manipulated factors, the redemption rate across the other factor is significant in the direction specified by Hypotheses 1 and 2.

Logistic Regression Analysis of Redemption

Although aggregate level analysis provides an overall feel for the data, we use a logistic regression model to investigate the joint effects of consumer and coupon characteristics on redemption. Simple OLS esti- mations of dichotomous dependent variables produce inefficient estimates. The dependent variable of interest, redemption, takes on a value 1 for subjects who redeem the coupon and 0 otherwise.

We report the results of the logistic regression model in Table 3 . The beta coefficients for behavioral loyalty and deal proneness are statistically significant, indicating that the probability of redeeming a coupon increases for subjects who are less loyal and more deal prone. These results provide additional support for Hypotheses 3 and 4.

The coefficients of value and effort are not statistically significant, but the signs are in the directions we predicted. Although we did not expect to find any value and effort interaction in our hypotheses, we tested for

TABLE 2 Redemption Rate Across Subjects in Different Cell Conditions

Condition YG Redeemed Not Redeem Total 5% Did

High value, low effort 87.5 (28) 12.5 (4) 32

Low value, low effort 85.2 (23) 14.8 (4) 27 Low value, high effort 65.5 (19) 34.5 (10) 29

High value, high effort 87.3 (30) 13.3 (4) 34

152 FALL 1991

TABLE 3 Result of Logistic Regression on Redeem

Variable Coefficient Chi-square p-Val

Intercept -0.56 (1.146)" 0.00 0.96 Value 0.787 (0.528) 2.22 0.13 Effort -0.371 (0.531) 0.49 0.48 Behavorial loyalty -1.054 (0.551) 3.65 0.05 Deal proneness 0.152 (0.075) 4.15 0.04

Note. Overall model chi-square = 12.83 with 4 d.f. (p 5 0.04). Correct predictions = 83% Values in parentheses are standard errors.

the interaction in the logistic regression model and found it to be nonsig- nificant.

Repurchase

Repurchase, like redemption, is a dichotomous variable taking on a value of 1 if a person purchases Bar None at least once in the remaining purchase occasions after the coupon offer is withdrawn. As was mentioned in the literature review a problem arises because we cannot observe a repurchase for the subset of the sample who did not redeem the coupon (self-selection bias). Even if a non-coupon user buys Bar None during one of the purchase occasions following the couponing week, the subject is making an initial purchase rather than a repurchase.

Because the focus of this article is on how coupon usage affects brand choice, we chose to operationalize the repurchase variable in this strict sense. * We define repurchase as unobserved for all those who did not buy the dealt brand in the couponing week. If people redeemed the coupon and if they purchased the dealt brand at least once in the remaining three purchase occasions, repurchase has the value 1. We define repurchase as zero if the subjects did not purchase the dealt brand even once after the couponing week.

Because the data on the dependent variable are not available for some of the sample, we could have estimated the model using the subsample on which complete data are available. However, such an analysis could have produced biased, inconsistent, or inefficient estimates; it is analogous to estimating the model on panel data and ignoring the dropouts. As Winer (1983) argues, estimation problems occur when the probability of attrition

* We redid the entire analysis, defining repurchase as 1 for anyone who bought the dealt brand at least once in the remaining three weeks, irrespective of whether he or she redeemed the coupon. The results essentially remain the same, possibly because in our data there is only one person who did not redeem the coupon but purchased the candy bar later.

PSYCHOLOGY & MARKETINGNOL. 8 , NO. 3 153

COUPON CHAHACTEKISTICS

in a panel is related to the dependent variable. In our case the bias may arise because substitution costs influence both redemption and repurchase.

Researchers in economics have developed several ways to circumvent the problem of nonrandom missing data, one of which is a two-stage estimation procedure (for a review, see Amemiya, 1984). Various versions of two-stage estimation have been used in marketing (Winer, 1983; Tellis, 1988; Krishnamurthi & Raj, 1988). In the context of our problem, Nara- simhan (1984) recommends but does not use a two-stage estimation for modeling the effects of coupon usage on repurchase.

In this article, we use two versions of the two-stage estimation procedure (Heckman, 1976, 1979; Maddala, 1983). In one version, the Heck- man approach, the model is estimated on the subsample for which data are available after using a correction for the missing data. In the other version, the Heckman-Maddala approach, the model is estimated on the entire sample using a suitable correction for unobserved data. The technical details of the two estimation procedures are available from the authors by request. Put simply, the estimation procedures recognize that the decision to redeem a coupon and the decision to repurchase after using a coupon may be interdependent. The procedures estimate a model of the expected repurchase for an individual, conditional on his or her decision to redeem the coupon.

In Table 4, we report the result of the two-stage models. The mag- nitudes and directions of the signs of the coefficients are very similar in both models. However, the overall performance is better in the Heckman- Maddala approach, which uses the entire sample. This model may fit the data better because asymptotic approximation of the maximum-likelihood estimators improves with larger samples. We base the following discussion on the Heckman-Maddala coefficients.

The coefficient of coupon value in Table 4 is positive and significant. a finding which suggests that people who choose to use high-value coupons are more likely to repurchase the brand once the deal is retracted than people who choose to use low-value coupons. The coefficient of effort is negative and significant, an indication that people who use low-effort coupons are more likely to repurchase the brand than people who use high- effort coupons once the coupon offer is removed. Our data support Hy- potheses 6 and 7, which are based on information aggregation theory.''

The negative loyalty coefficient is marginally significant, a finding which implies that brand-loyal subjects are less likely to repurchase a brand

Simple percentage comparisons also support the model. 6396 of the subjects who redeemed low-effort coupons repurchased the brand. while only 47% of the subjects who redeemed the high-effort coupons repurchased thc brand. Similarly. 60% of the subjects who rc- deemed the high-value coupons repurchased the brand, while only 48% of the subjects who redeemed the low-value coupons repurchased the brand.

154 FALL 1991

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than less brand-loyal subjects. This offers weak support for our contention in Hypothesis 5 .

Taking the results of the logistic model on redemption together with the results of the two-stage model on repurchasing, we draw the following conclusions: The most important predictors of coupon usage are deal proneness and behavioral loyalty; the most important predictors of repurchase are coupon value, effort involved in redemption, and behavioral loyalty.

IMPLICATIONS AND DIRECTIONS FOR FUTURE RESEARCH

Our study supports and extends previous findings in two ways. First we offer evidence that for the most part predictions derived from utility maximization or net benefit models explain coupon usage (Bawa & Shoe- maker, 1987a, 1987b; Narasimhan, 1984) in a controlled laboratory setting. Second, we demonstrated that predictions derived from information aggregation theory explain repeat purchase behavior for a new brand once coupons are withdrawn.

Consider the evidence supporting the net benefit model. As was predicted, coupon users are more deal prone and less brand loyal than nonusers. We also found redemption rates are higher for high-value and low-effort coupons than for low-value and high-effort coupons. When we looked at individual-level models we found that deal proneness and brand loyalty were the most important predictors of whether a person would or would not redeem a coupon.

At first glance the aggregate level results indicating significant effects of value and effort on redemption rates appear to contradict the results from the individual choice model. However, these results jointly suggest that, when we control for brand loyalty and deal proneness, coupon characteristics have little effect on whether or not a person redeems a coupon. This finding of the strong effect of loyalty is in line with previous literature on individual choice models tested with scanner data (Guadagni & Little, 1983).

Next consider the finding that we can explain the effects of coupon characteristics on repurchase behavior by using information aggregation rather than attribution theory or a “mindless” explanation. The result that large-value or easy-to-use coupons increase the probability of repurchase more than hard-to-use or small-value coupons cannot be explained by the statistical argument offered by Neslin and Shoemaker (1989). Following Tybout and Scott (1983), we believe that it is newness of the brand and the availability of well-defined internal information (taste information)

156 FALL 1991

COUPON CHARACTEHISTlCS

which determines the success of the information aggregation process over the attribution process.

However, it is not certain that newness or availability of well-defined information determines the success of information aggregation over other theories in explaining our results. Future research should continue to investigate the effects of coupons on repurchase behavior. These studies should use a variety of methodologies including surveys, panels, and ex- periments so that we can apply what has been called the principle of triangulation (Brinberg & Hirschman, 1986). Multiple perspectives are needed so that strengths in one methodology can compensate for weak- nesses in another.

The outcome of such research will probably be a contingency model which identifies the circumstances when coupon size and value will increase, decrease, or have no effect on repurchase probabilities. This model would be consistent with results from applied psychology which show that task characteristics (e.g., task interest) and reward characteristic (e.g., how people are paid) moderate the effect of extrinsic rewards on intrinsic task interest (Deci, 1972; Phillips & Freedman, 1985).

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We appreciate having had the opportunity to present an earlier draft of this manu- script to the faculty at the University of Notre Dame through the 1987 Emerging

158 FALL 1991

COUPON CfIARACTERISTICS

Scholar Award received by Catherine Cole. We also want to thank Gary Gaeth, Forrest Nelson, Gerry Tellis, Doyle Weiss, Barbara Yerkes, and three anonymous reviewers for their helpful comments and suggestions.

Goutam Chakraborty is an Assistant Professor, Oklahoma State University, Still- water, OK 74078; and Catherine Cole is Associate Professor, University of Iowa, Iowa City, IA 52242.

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Coupon characteristics and brand choice

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