Attention Shoppers: Coupons Can Be Misleading

Coupons lack fairness and transparency, says PhD student

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Khalil Rohani

Khalil Rohani, a PhD student in marketing and consumer behaviour, is already teaching his five-year-old daughter how to be a smart shopper. On a recent trip to the drug store, he discovered that his favourite brand of toothpaste was on sale. When he brought the toothpaste to the checkout, the cashier informed him that the sale price only applied if he purchased two or more.

“I told the cashier that this is not fair,” says Rohani, and the cashier agreed. Disappointed, he left the store without buying the toothpaste. When his daughter asked why he was unhappy, he explained the misleading toothpaste sale to her, and she agreed that it wasn’t fair.

“I’m doing my research to expose these things to the consumer,” says Rohani, adding that we often accept unfair pricing strategies because we get used to them.

For example, he says, sales promotions that advertise discounts on selected merchandise can mislead consumers into thinking the sale applies to everything in the store. “We think they try to hide the important information in the fine print, so maybe that’s one reason why people don’t bother with these sales promotions.” Another source of confusion is vague statements such as “some restrictions may apply.”

Rohani is looking at the effect of consumer perception of fairness and transparency in coupon redemption. Coupons are important marketing tools because they attract new customers, they encourage repeat purchases and they can determine the success of a product.

“Despite the value of coupons to marketers, they have a very low redemption rate,” he says. Less than one per cent of coupons that were issued in 2009 were redeemed. “Marketers have been complaining for a long time that coupons are not profitable and consumers are not using them. We hope to find that their coupons are not fair and transparent; that’s why people don’t like to use them.”

Rohani is also looking at the type of discounts that coupons offer, whether it’s a percentage discount or a dollar figure. He says it’s easier for consumers to calculate a dollar figure discount than a percentage, especially if they don’t know the regular price of the item. “It’s almost impossible for me to know what is the true saving. If marketers are going to frame their coupons in terms of cents off with the regular price, it makes more sense to consumers compared to a percentage off even if the regular price is not there.”

Rohani says coupon fairness and transparency is a new field of research. Previous studies have looked at the demographics of coupon users and what motivates them to redeem their coupons. Coupon redemption rates increase during times of economic uncertainty, he adds, and they are most often used by middle-class shoppers and women.

As part of his research, he will conduct two studies: one on the intention to use coupons and the other on actual coupon usage. He will give participants different types of coupons to use at campus food outlets. If they feel the coupons are fair and transparent, he believes, they will use them. He will then ask the participants what motivated them to redeem their coupons.

When deciding whether to redeem a coupon, consumers often perform a cost-benefit analysis to determine whether it’s worth their time and effort, says Rohani. The bigger the discount, the higher the redemption rate.

“They look at what they put into something and when they get out of it. They compare the give and take. Why would I invest so much of my time and energy into something if I think it’s not worth it in the first place?” Coupons involve effort, he says, adding that consumers have to find the coupon, clip it out or print it, and use it before it expires. “It’s not going to happen magically that the coupon will come to you.”

He hopes his research will help marketers design more fair and transparent coupons. “If you look at any company, sales promotion has a huge budget, so it’s important from a marketing perspective.”