CONSUMER PROMOTIONS 381On the other hand, there are a number of disadvantages, the most important being the
potential damage to the image of the product and the store. Although promotions always run
the risk of damaging a brand’s high-quality image, this is more the case with immediate and
directly visible price cuts. When price cuts are used too frequently, the company runs the risk
of selling discounts rather than products. Furthermore, too frequent price cuts infl uence
the consumers’ expectations of the normal price: no price cuts may be perceived as price
increases. Price cuts can be very expensive for both the manufacturer and the retailer. Large
extra volumes may be required to compensate for the loss of margin per unit. Th erefore,
although the promotion campaign may be successful in terms of extra volume or extra trial,
its profi tability may be far from impressive.
Coupons are vouchers representing a monetary value and with which the consumer can get
a discount on a specifi c product. Coupons may be inserted in print ads, in direct mailings or
in newspapers and/or magazines. Th ey can also be off ered online, on mobile phones, on-pack,
in-pack or near-pack, or be distributed aft er a previous purchase. AMEX cardholders can get
targeted deals within their Facebook account. Th e deals are based on their own and their
friends’ likes and interests. If the consumer accepts the promotional off er, it is automatically
added to his or her AMEX credit card. When shopping in a store later on, the coupon can be
redeemed when the AMEX card is used.^13 Th e percentage of coupons distributed that are
used when buying a product is called the redemption rate. Coupons are popular worldwide
although huge variations between countries exist. North American and Asia-Pacifi c con-
sumers heavily used coupons in 2011 (used by 65% and 55% of the citizens respectively).
In Europe the average percentage of people using coupons is 38%, with huge diff erences
between Belgium and Portugal (63%), Greece (55%), France (53%) and Spain (50%) on the
one hand, and Northern and Eastern European countries on the other hand in which coupon
usage is rather marginal.^14
As a promotional tool, coupons can serve a number of objectives, of which stimulating
trial is a very important one. Couponing has the advantage that the consumer gets an imme-
diate discount, provided that he or she has noticed and is prepared to use the coupon. Th e
consumer does not have to do much to enjoy the promotion. Manufacturers can target a
couponing campaign very well, in specifi c media and/or retail outlets, and for specifi c product
categories and towards well-defi ned target groups. Th e retailer also benefi ts from couponing
in the sense that it oft en generates extra sales. A problem with couponing is that it is oft en
diffi cult to predict the redemption rate, and thus the couponing budget. Furthermore, instead
of inducing trial, couponing may only have the eff ect of ‘subsidising’ already loyal customers.
Th e latter is not necessarily a disadvantage, since ‘basket-fi lling’ by existing customers may beFor a price cut to be profitable, certain – sometimes unrealistic – conditions have to be met. Suppose a six-pack of
chocolate bars costs €2. The manufacturer’s margin is €0.4. A price cut of 10% means that the chocolate bars are
now sold at €1.8. If the price cut is fully absorbed by the manufacturer, this means that half (€0.2/0.4) of the profit
margin per chocolate bar pack is being given away. To enable the manufacturer to earn as much total profit as
before, twice as many chocolate bars will have to be sold; that is, the sales volume will have to increase by 100%.
Hence, a status quo in profitability implies a price elasticity of demand of 10, i.e. a price cut of 10% should lead to
an increase in demand of 100%.BUSINESS INSIGHT
Price cuts are not always profitableM12_PELS3221_05_SE_C12.indd 381M12_PELS3221_05_SE_C12.indd 381 5/6/13 2:58 PM5/6/13 2:58 PM