The Redemption Sweet Spot
The overall decline in coupon redemption rates in the U.S. and Canada raises a question as old as coupons themselves: What prompts a consumer to redeem?
For an ICOM Information & Communications analysis of coupon redemption drivers, a data pool was assembled that allowed the research to break down coupon redemption trends across a variety of market segments, including health and beauty, food and beverage, and apparel. Information was derived from a 20-year database assembled in the course of designing 6,300 targeted direct mail programs and issuing 425 million coupons to 28 million U.S. and Canadian households.
Coupon variables that were analyzed included expiration, value, volume and product type. User-related variables examined such characteristics as current versus competitive user, frequent versus infrequent user, store-brand versus non-store-brand user, and American versus Canadian redemption characteristics.
Finding the Sweet Spot
Time and value are two important variables to consider when looking to predict coupon redemption. Of them, value in recent years has been stable or increasing, while the trend has been to cut expiration lengths. In the majority of cases, a shorter expiration length reduces redemption far more than any corresponding increase in value can make up.
In fact, the research shows a significant change in redemption time for targeted coupons over a recent 10-year period. From 1996 to 2000, consumers took an average of 5.5 months from coupon distribution to redemption. In the following five years, from 2001 to 2006, average redemption times for the same consumer leapt to 6.5 months, nearly a 20 percent increase.
And the research indicates there is an optimal value-expiration sweet spot for most target groups. The sweet spot is a combination of value relative to retail price plus expiration length that yields maximum redemption. For example, the data shows the sweet spot for a food and beverage coupon targeting competitive product users is 26 percent to 50 percent value with a 12-month expiration period. Altering the expiration length or the value relative to price could have a negative affect on redemption.