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The Determinants Of Coupon Discounts For Breakfast Cereals

Listed author(s):
  • Price, Gregory K.
  • Connor, John M.

This study identifies the determinants of coupon values at the brand level using a framework developed from price discrimination theory and the principles of demand. Couponing is considered within the context of a complex marketing program in which it is coordinated with other non-price promotional strategies. A simultaneous, two-equation, fixed-effects, panel-data model is specified and fitted with data on household purchases of ready-to-eat (RTE) breakfast cereals between 1992 and 1997. The empirical model accounts for the bi-directional causality between brand prices and discount levels and captures the retail effects of the major cereal maker's price cuts and discount reductions that occurred in 1996. Higher brand prices cause coupon values to rise, supporting the hypothesis that cereal makers price discriminate among consumers. Other non-price promotions, including advertising, store flyers, and in-store displays, appear to be coordinated with couponing. Specifically, coupon values fall with more intense advertising and in-store displays but rise when the couponed products are featured in store flyers. Discount levels are positively related to brand market share and the size of discounts that are redeemed for rival cereals. Moreover, coupon values fall with increasing brand loyalty among RTE cereal purchasers. Cereal prices are positively affected by coupon values, advertising expenditures, food-ingredient and packaging costs, and the prices of competing brands. Inventory levels are negatively correlated with brand price. Employee wages were not found to significantly influence cereal prices.

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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2002 Annual meeting, July 28-31, Long Beach, CA with number 19838.

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Date of creation: 2002
Handle: RePEc:ags:aaea02:19838
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  1. Gregory K. Price & John M. Connor, 2003. "Modeling coupon values for ready-to-eat breakfast cereals," Agribusiness, John Wiley & Sons, Ltd., vol. 19(2), pages 223-243.
  2. Aviv Nevo & Catherine Wolfram, 1999. "Prices and Coupons for Breakfast Cereals," NBER Working Papers 6932, National Bureau of Economic Research, Inc.
  3. Greg Shaffer & Z. John Zhang, 1995. "Competitive Coupon Targeting," Marketing Science, INFORMS, vol. 14(4), pages 395-416.
  4. Stanley, Linda R & Tschirhart, John, 1991. "Hedonic Prices for a Nondurable Good: The Case of Breakfast Cereals," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 537-541, August.
  5. Price, Gregory, 2000. "Cereal Sales Soggy Despite Price Cuts and Reduced Couponing," Food Review: The Magazine of Food Economics, United States Department of Agriculture, Economic Research Service, vol. 23(2).
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