If you've ever watched the TV show Extreme Couponing or read about a customer who got $200 worth of groceries for next to nothing, you've probably wondered what's in it for the manufacturers and stores who offer these coupons. Are they actually making money in the process, or are customers getting away with legalized robbery?

The truth is that coupons create a win-win situation for both companies and consumers. Manufacturers and stores are benefiting from coupons. If they weren't, they wouldn't issue them or accept them. To find out how they benefit, let's examine some of the reasons why companies offer coupons.

TUTORIAL: Budgeting Basics- Introduction

To Get Consumers' Attention
According to the Food Marketing Institute, the average supermarket carried 38,718 items in 2010. Out of thousands of products, companies need a way to steer consumers toward their product instead of a competitor's, and a coupon can help an item stand out. If you have a coupon for a specific brand of paper towels, for example, it will probably be the first brand you'll check the price on among the ten different brands in the paper towel aisle. (For related reading, see 6 Tricks To Make Coupons Work For You.)

To Advertise a New Product
Consumers need to be enticed to take a chance on a new product, especially price-sensitive, coupon-using shoppers. A company could advertise its new product by offering free samples, but instead of spending money both on the product itself and on getting the product into consumers' homes, it could offer a tempting, high-value coupon and actually make a sale. If the consumer likes the new product enough, they may buy it at full price in the future when introductory coupons are no longer available.

To Buy Loyalty
Numerous factors go into getting and retaining customers: merely offering a bargain price or a superior product isn't always enough. When a store or manufacturer provides a coupon, the discount generates goodwill and brand/store loyalty. Think about how you feel when you get a coupon from your favorite store in the mail, doesn't it make you feel like the company values your business and wants to keep you as a customer?

To Get Repeat Business
Some promotions require consumers to use a reward on their next visit to the store. Such coupons draw customers into the store once to buy something and get a coupon, and again to buy something else and use the coupon.

For example, a recent Albertsons' grocery store promotion gave customers a coupon for $10 off their next visit when they purchased $100 in qualifying gift cards. Even if the customer did the bare minimum and walked out with $10 in free groceries on the follow-up visit, that customer might be more likely to come back in the future after having gained some familiarity with the store when they did their coupon shopping. Other customers will spend beyond the coupon limit, so the store might profit from the promotion right away. Also, the promotion notified customers that Albertsons is a place where they can buy gift cards, which means that the store might gain business the next time that customer wants to purchase a gift card. (For related reading, see Best Loyalty Programs For 2011.)

To Target Their Marketing Efforts
To get the best discounts at most major grocery store chains, customers must sign up for a store loyalty card and have the cashier scan it each time they make a purchase. In exchange for giving customers lower prices, companies get detailed information about the card user's buying behavior. What days and times does he or she visit the store? How much does he or she spend per trip? How often does he or she shop? What does he or she buy? Does he or she only buy things that are on sale? Does he or she always use coupons?

Companies can use this valuable information in their decisions about what products to carry, what prices to set, what to put on sale, how much of a discount to offer and more. This information also helps companies with targeted marketing efforts.

"Retailers are able to market to us much less expensively when they offer promotional programs that entice us to share our personal information with them," says Stephanie Nelson, founder of CouponMom.com.

When companies know what you buy thanks to store loyalty cards, they can save money on marketing costs while sending you offers you're more likely to use. Instead of sending a coupon for diapers to every household in a nearby zip code, the store can send diaper coupons only to customers who have purchased diapers in the past.

TUTORIAL: Budgeting Basics- Goal Setting

Message to Sellers: Don't Miss Out
Nelson, who has been a strategic couponer for more than a decade, says that coupons "must be working, because businesses are putting out more promotions than ever." She points out that companies can put any kind of limitations or exclusions on coupons that they want to, but says that "people are looking out for coupons. If any company wants to ignore couponing, they are missing out." (For related reading, see 6 Sneaky Ways Coupons Make You Spend More.)

Related Articles
  1. Investing Basics

    10 Companies That Yuppies Love

  2. Investing News

    How 'Honesty' Could Pay off for Jessica Alba

  3. Personal Finance

    Invest in Costco? First Understand Its Balance Sheet

  4. Investing Basics

    The 5 Reasons Why RadioShack Went Out of Business

    Learn five reasons why RadioShack went bankrupt: store concentration, online competition, product concentration, management issues and financial missteps.
  5. Active Trading Fundamentals

    How Groupon Makes Money

    Find out how Groupon makes money, including a rundown of how Groupon works and what benefits it provides to the businesses it partners with.
  6. Stock Analysis

    J.C. Penney: Identity Crisis or Buy Opportunity?

    With so many recent leadership changes, J.C. Penney might be suffering from an identity crisis. Here's why and what you need to know.
  7. Stock Analysis

    The Logic Behind Sears' REIT

    Learn what strategy Sears employed with the divestment of its 266 real estate properties to a separate real estate investment trust.
  8. Stock Analysis

    How Nike (NKE) Continues to 'Do It'

    Other than style, do sneakers from any maker really differ that much? That's debatable. But this is certain: Nike sets the standard for selling an image.
  9. Investing Basics

    Why You Might Buy Your Next Car from Costco

    Costco, one of the strongest retailers around, has its hooks in all sort of sectors, including autos.
  10. Professionals

    Are These the 10 Best Stocks in the World?

    Most of the top 10 stocks in the world have performed exceptionally well over the past several years. Here's a look at their future prospects.
  1. Fast Fashion

    Definition of "fast fashion."
  2. Duty Free

    Goods that international travelers can purchase without paying ...
  3. Online-To-Offline Commerce

    A business strategy that draws potential customers from online ...
  4. Chargeback Period

    The timeframe during which a credit card issuer can dispute with ...
  5. Fast-Moving Consumer Goods (FMCG)

  6. Customer To Customer (C2C)

    A business model that facilitates an environment where customers ...


  3. What are some common ways product differentiation is achieved?


  5. What factors make it difficult to compare performance ratios between retail stocks?

  6. Which socially responsible retailers appeal most to ethical investors?

    Ethical investors have many reasons to consider companies in the retail sector. The sector is broad and features an abundance ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

so you'll never miss a feature!