Coupons can be dangerous

As the UK continues to ramp up the use of coupons it’s worth bearing in mind a story from the...

As the UK continues to ramp up the use of coupons it’s worth bearing in mind a story from the USA who have been much more prolific users of coupons for many years.
JC Penny, a mid market chain of department stores in the US, ran nearly 600 promotions last year. Most were based on coupons. To stimulate business and get shoppers to visit their stores more often they decided to implement a change of strategy. They stopped producing coupons almost overnight and moved to an everyday low price (EDLP) strategy using the savings on coupons to fund it. Many prices were reduced by up to 40% so customers could now get the coupon price every day without the paper coupon. The price of their shares went up when they made the announcement and kicked off a big marketing program.
 
Today their CEO who created the program left the company due to the shocking results of their coupon-intervention:

  • Sales down 20% from the previous year
  • Traffic down 9% during the week.
  • Foot traffic down 12% on the weekends.
  • 28% decline in Internet sales.
  • Loss of $163 million for first quarter versus $64 million profit same time last year.

There’s lots of debate about what went wrong but the sudden switch was certainly a key part of it. Customers said that without coupons there was no incentive to come in and save. They were so familiar or perhaps even addicted to coupons that they simply got them from other competitors such as Kohl’s or Macy’s.
To me the key message is not to lean too heavily on any single marketing device. But, most importantly, listen to customers and be sure to really test any major change before implementing it.
 

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