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Short- or Long-Duration Coupons: The Effect of the Expiration Date on the Profitability of Coupon Promotions

  • Aradhna Krishna

    (Graduate School of Business, University of Michigan, Ann Arbor, Michigan 48109)

  • Z. John Zhang

    (Graduate School of Business, Columbia University, New York, New York 10027)

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    United States firms collectively spend over $6.5 billion annually on coupon promotions and are becoming increasingly concerned with their profitability. FSI (free-standing-insert) data show that coupon duration varies across brands. In this paper, we show how coupon duration can affect coupon profitability. We also provide answers for some empirical observations on coupon duration. We explain, for example, why (i) coupon duration will vary across firms, such that large market share firms will give short-duration coupons and small market share firms will give long-duration coupons; (ii) longer coupon duration for one brand will increase redemption for coupons of that brand and of a competing brand; (iii) coupon duration will affect coupon profitability.

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    File URL: http://dx.doi.org/10.1287/mnsc.45.8.1041
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 45 (1999)
    Issue (Month): 8 (August)
    Pages: 1041-1056

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    Handle: RePEc:inm:ormnsc:v:45:y:1999:i:8:p:1041-1056
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    1. Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-49, October.
    2. Scott A. Neslin & Caroline Henderson & John Quelch, 1985. "Consumer Promotions and the Acceleration of Product Purchases," Marketing Science, INFORMS, vol. 4(2), pages 147-165.
    3. Ronald W. Ward & James E. Davis, 1978. "A Pooled Cross-Section Time Series Model of Coupon Promotions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 60(3), pages 393-401.
    4. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, March.
    5. Füsun Gönül & Kannan Srinivasan, 1996. "Estimating the Impact of Consumer Expectations of Coupons on Purchase Behavior: A Dynamic Structural Model," Marketing Science, INFORMS, vol. 15(3), pages 262-279.
    6. Aradhna Krishna, 1992. "The Normative Impact of Consumer Price Expectations for Multiple Brands on Consumer Purchase Behavior," Marketing Science, INFORMS, vol. 11(3), pages 266-286.
    7. Sanjay K. Dhar & Donald G. Morrison & Jagmohan S. Raju, 1996. "The Effect of Package Coupons on Brand Choice: An Epilogue on Profits," Marketing Science, INFORMS, vol. 15(2), pages 192-203.
    8. Jagmohan S. Raju & V. Srinivasan & Rajiv Lal, 1990. "The Effects of Brand Loyalty on Competitive Price Promotional Strategies," Management Science, INFORMS, vol. 36(3), pages 276-304, March.
    9. Jagmohan S. Raju & Sanjay K. Dhar & Donald G. Morrison, 1994. "The Effect of Package Coupons on Brand Choice," Marketing Science, INFORMS, vol. 13(2), pages 145-164.
    10. Scott A. Neslin & Robert W. Shoemaker, 1983. "A Model for Evaluating the Profitability of Coupon Promotions," Marketing Science, INFORMS, vol. 2(4), pages 361-388.
    11. Scott A. Neslin, 1990. "A Market Response Model for Coupon Promotions," Marketing Science, INFORMS, vol. 9(2), pages 125-145.
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