Executive Summary
Shopper card data have enabled retailers to offer coupons for branded and private label products through their own customized, direct-to-consumer programs. These programs differ from similar freestanding inserts (FSI) cooperative programs in that the offers are customized to individual consumer’s preferences, as reflected in purchase histories, are available only to selected customers, and focus on increasing the retailer’s total customer revenues rather than sales of a specific brand. Customized coupon programs represent major investments for retailers, but they are concerned about the cost of these programs as well as uncertain about how to assess the potential effects. The authors’ primary objective is to develop a framework for retailer-customized coupon campaigns that would allow retailers to monitor and possibly improve the returns from these programs.
They tested the framework with data from a quasi-experiment conducted in eight noncompeting regional grocery retail chains located across the United States and owned by the same firm. The data includes purchase histories of 2500 households that were members of these retailers’ shopper card programs for a two-year period. A total of 40 customized coupon campaigns were mailed during the latter 66 weeks. Each campaign provided an average of 18 coupons from both the manufacturers and the retailers (primarily for private labels).
The results show that a rarely researched aspect of coupons (i.e., the exposure effect) is important for assessing the effectiveness of this new form of coupon campaigns. In the aggregate, mere exposure to customized coupon campaigns contributes more to increased sales than coupon redemption. Thus, this study reveals that ignoring exposure effects can severely bias retailers’ assessments of their customized coupon campaigns.
The customized coupon campaigns are more effective revenue generators if they provide more monetary savings (or discounts) and are unexpected by consumers. Customized for niche products that customers prefer are the most effective, followed by reward-focused customized coupons and finally noncustomized coupons. Although mere exposure to customized coupon campaigns can improve sales (regardless of coupon redemption), we caution against eliminating discounts and merely mailing advertisements. The authors’ results show that having discounts featured in the campaigns improves the exposure effect.
Assuming the campaigns are sent to the top 20% of retailers’ customer base, the returns from a single campaign should be equivalent to approximately .9% of the retailers’ annual net income. Therefore, the customized coupon campaigns represent a promising application of CRM data for retailers. We suggest that retailers evaluate these campaigns with metrics that incorporate exposure effects on total customer sales, in addition to redemption rates. The exposure effect also suggests that retailers should pay close attention to the quality of the coupon’s advertising copy.
Biography
Rajkumar Venkatesan is the Bank of America Research Associate Professor of Business Administration at the University of Virginia’s Darden Graduate School of Business Administration. Professor Venkatesan’s research focuses on identifying profitable customer-centric marketing strategies. He has published articles in Journal of Marketing, Journal of Marketing Research, Marketing Science, and the Harvard Business Review. His research has been recognized with multiple awards, and he was selected as one of the top 20 rising young scholars in marketing by the Marketing Science Institute. He has consulted with firms in the technology, insurance, industrial, retailing, and pharmaceutical industries on their marketing analytics initiatives, especially measuring, managing and maximizing customer lifetime value. He received his PhD in Marketing from the University of Houston and his bachelor’s in Computer Engineering from the University of Madras.
Paul W. Farris is the Landmark Communications Professor of Business at the University of Virginia’s Darden Graduate School of Business Administration. He has degrees from the University of Missouri, University of Washington, and Harvard University. Previously, he taught at the Harvard Business School and worked in marketing management for Unilever, Germany. Professor Farris has authored and coauthored more than 70 articles in Journal of Marketing, Harvard Business Review, Marketing Science, Journal of Retailing, and Journal of Advertising Research. He is the coauthor of award-winning work in marketing metrics, advertising research, and retail power. Professor Farris is a current or past board member for several international companies and is a past academic trustee of the Marketing Science Institute. Currently, his research focuses on using systems of marketing metrics to improve marketing productivity.
Journal of Marketing, Volume 76, Number 1, January 2012
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