SOUTHERN JOURNAL OF AGRICULTURAL ECONOMICS
JULY, 1982
THE EFFECT OF PRICE ON COUPON REDEMPTION: A CASE STUDY
OF FLORIDA ORANGE JUICE INDUSTRY COUPON PROGRAMS
Jonq-Ying Lee
The distribution of coupons offering customers
a reduction in the regular purchase price has be-
come an important element of the marketing
strategy for many consumer package goods and
services. The distribution of manufacturers’
cents-off coupons has increased from an esti-
mated 35.7 billion coupons in 1975, to 90.6 billion
coupons in 1980, representing an increase of
more than 150 percent. In addition, there has
been an upward trend in percent of households
using coupons, from 65 percent in 1975, to 76
percent in 1980. More than 95 percent of the
coupon users bought food items with them in
1980 (A. C. Nielsen Company).
According to a Nielsen Company survey, 67
percent of coupon users indicate that the face
value of a coupon influences their decisions
about whether or not to use the coupon (p. 14).
The threshold value that determines whether or
not a consumer uses a coupon may depend on the
relative weight of the face value of a coupon as
compared to the retail price of the product, i.e.,
the ratio of the face value of a coupon to retail
price. For instance, a one-dollar coupon toward
the purchase of a ten-thousand-dollar automobile
would probably never be redeemed, but a 25-cent
coupon for the purchase of a one-dollar product
would be expected to have a high redemption
rate.
Ward and Davis (1978b, ρ. 398) found that
coupons have a declining marginal rate of return
within the price range used in their study. Telser
points out that advertising programs, such as
those with coupons, draw consumers to the point
of purchase, yet if the retail price is extremely
high, the marginal response to a level of advertis-
ing effort may be less than with a lower price,
since for the same amount of product purchased
the consumer’s expenditure would be greater for
the higher price (p. 90). The implication of
Telser’s argument is that, for a given number of
coupons distributed, one would expect a higher
redemption rate when the price is low and a
lower rate when the price is extremely high.
There has been increased price uncertainty in
the orange juice market in recent years, which is
spawned in part by the effect of freezing weather
on supplies, foreign competition from Brazil, and
a turbulent money market, which directly affects
orange juice storage costs. The retail price of fro-
zen concentrated orange juice has increased from
less than 20 cents per six ounces in 1973, to more
than 39 cents in 1980 (Marketing Research Cor-
poration of America). The performance of
cents-off coupons in a market where retail price
has almost doubled in less than eight years is of
concern to the Florida orange juice industry.
This paper presents a case study of Florida’s
orange juice coupon programs with special em-
phasis on the impact of price on coupon redemp-
tion. The results and methods should have impli-
cation for other food items.
AN ECONOMETRIC MODEL
In previous studies, coupon redemption has
been identified to be influenced by (Bowman;
Ward and Davis, 1978a): (1) face value or savings
versus retail price; (2) media used for distribu-
tion; (3) the size of coupon drop or effort;1 (4)
amount and timing of other advertising; (5) cre-
ative factor, i.e., prominence of coupon; (6) retail
distribution of the commodity of interest and its
substitutes; (7) current competitive activity; (8)
demographic and geographic differences in con-
sumers; (9) product consumption cycle; and (10)
seasonal sales differences.
Several of these factors are controllable, and
adjustments can be made in advance (such as
factors 1 through 5). Many factors are only par-
tially controllable or not at all controllable (fac-
tors 6 through 10), but they nevertheless should
be used as guidelines when estimating the rela-
tionship between coupon redemption and
changes in consumption. For a given product,
factors 6 through 8 tend to remain constant and
are not considered causal factors of variation in
coupon redemption for the product.
Based on the foregoing factors, Ward and
Jonq-Ying Lee is Research Economist, Florida Department of Citrus and Assistant Professor, Food and Resource Economics Department, University of Florida, Gaines-
ville.
Florida Agricultural Experiment Station Journal Paper No. 3699.
The author gratefully acknowledges the comments and suggestions of Gary F. Fairchild, Danny L. Gunter, Max R. Langham, and anonymous Journal reviewers.
1 Effort or drop are defined here as the total number of coupons distributed for a promotional program.
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