If One Coupon is good, are Three Better?

Consider this scenario – You are at a casual dining chain restaurant like Chilis, Applebee etc. You are done with your meal, paid your check and finishing off your last drop of coffee. Then the manager walks by, asks you about your experience and voila gives you  not one, not two, but three $10 coupons good for your future visits. The coupons require a minimum of $20 purchase, can be used one per visit and have a three month time period. Coupons are valid at all locations.

Are you more likely to visit the restaurant in the future because you received three coupons  than if you had received just one coupon?

The case of single coupon has been studied at length in the marketing literature and yes it does work in generating repeat visits. Whether the coupon driven visits are profitable or not is a different question and it depends on percentage of customers who would not have visited without the coupons. Coupon driven visits are profitable when

(ave tab per visit less coupon ) * % who visited only because of coupon

>

(coupon amount) * % who would have visited anyway

Suppose one coupon is good for business in generating incremental revenue, are three coupons better?

The answer comes from Prospect Theory and Mental accounting. When presented with one $10 coupon with strict expiration date, letting the coupon expire will create a sense of loss in the minds of customers. When presented with three such coupons, even though the coupons are not additive, customers will see the value as additive. Not using any of them will cause a greater sense of loss (loss curve is convex – prospect theory). A customer who lets all three coupons expire will have greater sense of loss than the one who lets the single coupon expire. So those who receive three coupons are more likely to revisit at least once than those who received just one coupon.

Since this increases percentage of customers who visit because of coupons, the restaurant stands to gain from giving more than one coupon to the customer who is less likely to visit otherwise.

Finally, what if the customer decides to use all three coupons? At an average restaurant tab of $50, that is $120 incremental revenue (since all restaurant costs are sunk, this goes straight to bottom line).

If one coupon is good, three are indeed better!

You do not have to settle for the theoretical explanation – this is easy to experiment. Do  A/B tesst and see if this works for your business.

Whether this trains the customer to expect coupons and reduces their reference price is a topic for different post.

2 thoughts on “If One Coupon is good, are Three Better?

Comments are closed.