Competing Coupon Promotions and Category Sales

Recent reports show that manufacturers in many consumer product industries continue to use coupons as one of their main promotional tools. The rising intensity of coupon competitions, however, makes the issue of having better measures for coupon effects ever more important. This paper proposes a method to assess the category expansion effect in an environment where rival brands distribute coupons repeatedly over a period of time. A consumer utility maximization model is presented in which the decision of coupon use is endogenized along with the demand decision. Using single-source detergent data as benchmark, the proposed model is an advance over the conventional regression model in that the latter tend to produce upward-biased estimations for the category impact of coupons.