Money-off coupons and the consumer: are they worth the effort?

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Journal of Consumer Studies and Home Economics (1992) 16,389-398. Money-off coupons and the consumer: are they worth the effort? JANE KOLODINSKY and Design, University of Vermont, Burlington Department of Merchandising, Consumer Studies lGs the use of coupons a worthwhile practice for consumers? What defines a cost-effective money-off coupon user? In this study, the time cost of clipping and organizing grocery coupons is compared 10 actual savings received. Forty per cent of consumers did not reap savings at least equal to their time cost of coupon clipping. Cost-ineffective consumers ure identified and compared to the cost-effective group on several demographic and shopping characteristics. Differences are discussed in relation to consumer economics and super-shopper role models. Introduction In the U.S., one consumer spends 3 hours per week clipping and organizing coupons and saves about US$40.00 on his weekly food bill. Another consumer spends about 30 minutes per week clipping and organizing coupons and saves about $8.00 on her weekly food bill. Both of these persons earn $15-00 per hour at their jobs. Are these consumers cost-effective coupon clippers? A simple cost benefit analysis shows that the first consumer ‘spends’ $4540 in time to reap $40.00 in savings, while the second ‘spends’ $7.50 in time to reap $8.00 in savings. Clearly, when only the cost of time is considered, the second consumer is the cost-effective shopper when it comes to using coupons, even though the first consumer saves more. The following cost/benefit analysis examines in more depth whether the value of time expended by consumers on clipping coupons for a single shopping trip reaps at least an equal amount in savings. The approach may be useful in determining whether the use of money-off coupons in general is a worthwhile practice for consumers, or whether marketers are fooling consumers and consumers are fooling themselves into thinking that the benefits of using coupons outweigh the costs. Coupon use Those interested in consumer protection have taken opposing views on coupon Correspondcncc: Jane Kolodinsky PhD. Assistant Professor. Department of Merchandising, Consumer Studies and Design. I13 Terrill Hall, University of Vermont, Burlington. VT 05405. U.S.A. 389

Transcript of Money-off coupons and the consumer: are they worth the effort?

Journal of Consumer Studies and Home Economics (1992) 16,389-398.

Money-off coupons and the consumer: are they worth the effort?

J A N E KOLODINSKY and Design, University of Vermont, Burlington

Department of Merchandising, Consumer Studies

lGs the use of coupons a worthwhile practice for consumers? What defines a cost-effective money-off coupon user? I n this study, the time cost of clipping and organizing grocery coupons is compared 10 actual savings received. Forty per cent of consumers did not reap savings at least equal to their time cost of coupon clipping. Cost-ineffective consumers ure identified and compared to the cost-effective group on several demographic and shopping characteristics. Differences are discussed in relation to consumer economics and super-shopper role models.

Introduction

In the U.S., one consumer spends 3 hours per week clipping and organizing coupons and saves about US$40.00 on his weekly food bill. Another consumer spends about 30 minutes per week clipping and organizing coupons and saves about $8.00 on her weekly food bill. Both of these persons earn $15-00 per hour at their jobs. Are these consumers cost-effective coupon clippers?

A simple cost benefit analysis shows that the first consumer ‘spends’ $4540 in time to reap $40.00 in savings, while the second ‘spends’ $7.50 in time to reap $8.00 in savings. Clearly, when only the cost of time is considered, the second consumer is the cost-effective shopper when it comes to using coupons, even though the first consumer saves more.

The following cost/benefit analysis examines in more depth whether the value of time expended by consumers on clipping coupons for a single shopping trip reaps at least an equal amount in savings. The approach may be useful in determining whether the use of money-off coupons in general is a worthwhile practice for consumers, or whether marketers are fooling consumers and consumers are fooling themselves into thinking that the benefits of using coupons outweigh the costs.

Coupon use

Those interested in consumer protection have taken opposing views on coupon

Correspondcncc: Jane Kolodinsky PhD. Assistant Professor. Department of Merchandising, Consumer Studies and Design. I13 Terrill Hall, University of Vermont, Burlington. VT 05405. U.S.A.

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use. Uhl cites coupons as being vehicles that raise the cost of grocery items to consumers and cause consumers to lose sovereignty in the marketplace. He postulates that consumers can become slaves to coupons. While some consumers may save money, they do so at the expense of higher prices, and consumers who do not use coupons subsidize those that do.'

Antil, on the other hand, cites coupons as a method for saving money on grocery items. He argues that prices are not significantly higher because of coupons, and may even be lower than if marketers utilized other methods of promotion, some of which may be more costly.'

Despite this controversy, there is little doubt that consumers can save money on their grocery bills if they search for price information. Price dispersion in the grocery market is well doc~mented."~ Clipping and redeeming coupons is one source of price information that can lead to savings. However, despite availability of savings, one might expect that for many households, searching for lower prices is 'not worth the effort'. The cost of time is increasing in the form of higher wage rates and increased incomes.' Yet, there are indications that a significant percentage of consumers use coupons. Researchers report that 30% to 75% of shoppers use coupons.@' And there is an increase in reports of coupon use."'."

Who redeems coupons? Marketing studies have shown that 'deal prone' and 'value conscious' consumers are more likely to use coupons.I2-" Deal prone consumers have been found to have higher incomes, larger household sizes and to purchase national brands often.I4 For some categories of purchases, households with young children have been found to be both less deal prone13 and more deal prone." Consumers who use coupons have been found to be both highly price sensitive and to shop at non-discount stores."

Economists have found that employment and increased income do not necessarily decrease coupon use. Increases in education have been linked to increased coupon savings, leading to the hypothesis that more highly educated consumers are better able to locate, sort and use coupons to their advantage. In addition, consumers who are employed full-time redeem fewer coupons, but age does not appear to impact on coupon use.17

Yet, none of these studies has examined empirically whether it is worth while for consumers to engage in the use of coupons. In economic terms, if consumers equate the marginal benefits to the marginal costs of engaging in search, they are operating at an 'optimal' level and may be characterized as cost effective shoppers. la Equating these costs and benefits does not necessarily imply that consumers must obtain the lowest priced purchases or save the most. It is based instead on obtaining the greatest difference between savings obtained and costs incurred.

Methodology Ninety-five observations were obtained from a random sample of dual earner

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households in one county of a north-eastern state in the U.S.A. A telephone interview collected information about consumer demographics, perceptions of weekly shopping behaviour and grocery savings. A follow-up mail questionnaire collected information on actual grocery expenditures and savings. The final response rate to both the telephone and mail surveys was 30%. A comparison of the sample with the general dual-earner population indicated that it was fairly representative of the United States' population of dual earners.'" The sample was slightly more educated, and had a longer labour force tenure, but was not signific.antly different from the dual-earner population with regard to income, profession or size of household. Thus, some generalization of the results seems plausible.

Benefits are defined as savings obtained during 1 week of grocery shopping. The cost of time is defined by the wage rate. Because this study did not include the cost of transportation, the cost of time is considered a lower approximation of total costs of obtaining and using coupons. Using benefits and costs associated with price savings in a single shopping trip is an approximation of marginal costs and benefits. If shopping is looked at as a continuum, then one shopping trip can be considered to reap additional savings over, for example, 1 year of shopping. Likewise, costs of searching for lower prices for that shopping trip can be considered incremental costs. Using total costs and benefits allows the determina- tion of whether a shopper is operating within a range of optimum. Even though consumers who obtain savings greater than costs may not be at the point where marginal costs equal marginal benefits, they are all cost-effective coupon users.

Figure 1 identifies the range of consumers who can be identified in this study, represented by the area ABCD. Some of these consumers may be at an optimum, point E, where there is the greatest distance between total costs and benefits and marginal costs are equal to marginal benefits.

To compare cost-effective versus cost-ineffective consumers, savings from using coupons during a single shopping trip were calculated. Then, the cost of obtaining savings was calculated by adding time spent locating and clipping coupons and multiplying by the wage rate of the major shopper. If a consumer saved more

0 Coupons redeemed

. \

.-G

Coupons redeemed

Fig. 1. identifying a cost-effective shopper. (a): - = total costs; --- = total benefits. (b): - = marginal costs; --- = marginal benefits.

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using coupons than the value of the time spent, he/she was identified as cost- effective. Otherwise, he/she was identified as cost-ineffective. Significant differ- ences in characteristics of the two groups of consumers were then identified.

Demographic characteristics include gender of major shopper, age of respon- dent, whether a respondent completed college or is employed in a professional occupation, number of older and younger children in a household, income, and hours of work per week. Shopping characteristics include choosing a store based on price, number of stores shopped at, time spent clipping coupons and reading the food advertisements, and whether a respondent chooses name brands most often. These variables have been included in previous research that examined coupon use.

Additional variables are included as well. Previous studies did not examine gender of the major shopper, most likely assuming that the majority of grocery shoppers are female. This study explicitly accounts for gender, as men now account for 17% of America’s grocery shoppers.’ This study also includes a variable which indicates whether the supermarket shopped at offered ‘double coupons’, that is, whether the actual savings obtained per coupon equals twice its face value. In the market area studied, over 50% of supermarkets offered this incentive.

In addition, whether a respondent enjoys clipping and using coupons is included. While never explicitly included in a study of coupon use, other researchers have explored shopping as either recreational or laborious, and enjoyment of shopping and searching for lower prices has been found to have an effect on grocery shopping An expansion of the basic costhenefit model of coupon use includes the notion that time spent in searching for lower prices can yield satisfaction directly.

In this model, the cost of search is not equal to the market wage, but instead to the wage discounted by the value of enjoyment.22 If the enjoyment of clipping coupons is significantly greater for those consumers found to be cost-ineffective, then a cost/benefit analysis based only on the monetary value of time may be inappropriate. Further examination of the value of time would then be necessary, taking into account how enjoyment decreases the cost of time spent clipping coupons.

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Results

A surprising 40% of consumers were identified as cost-inefffective because they saved less on their grocery bill than the cost of the time to gather their coupons. A logical direction to take when finding such a high percentage of this type of consumer is to examine how and why they differ from the 60% of consumers who obtained savings equal to or greater than their time cost of clipping and organizing coupons.

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Demographic characteristics

Demographic differences reveal some of the story, as seen in Table 1. Cost- ineffective consumers are younger, have higher incomes, but do not have significantly different wage rates. They also have more children over the age of six, tend to be in professional occupations, and more are male. However, this group is no more educated than the other group, nor do they differ in the number of children under the age of six in the household.

Shopping characteristics

Shopping characteristic reveal that cost-ineffective consumers spend over 250% more time clipping coupons, but reap only about 50% of the savings and redeem 50% as many coupons as cost-effective consumers. They are also more likely to shop at supermarkets that offer double coupons. Cost-ineffective consumers also spent over twice the amount of time as the other group actually shopping for groceries. They purchase only about 75% as many name brand items, but spend less on weekly groceries after coupon savings are accounted for. The cost- ineffective group of consumers is also more likely to choose a store because i t offers lower prices. However, there is no significant difference in the amounts either group of consumers perceive they save on their weekly groceries.

Enjoyment

Of particular interest is that of enjoying time spent clipping coupons because enjoyment of an activity should lower the time cost of engaging in it. However, cost-ineffective consumers did not receive greater psychic benefits from searching for lower prices than did cost-effective consumers. More specifically, they are no more likely to enjoy price search in general than consumers who obtained benefits greater than the time costs of clipping coupons. Therefore, it does not appear that enjoyment increases the benefits of coupon clipping or decreases the costs. A question remains as to why these consumers would use coupons if’the cost of obtaining savings was greater than the savings obtained.

Table 2 is helpful in summarizing the characteristics of cost-effective and cost- ineffective consumers. Consumers with characteristics of cost-ineffective shoppers (column 1 ) might want to evaluate the time they spend clipping coupons and the actual savings they obtain.

Discussion and implications

This study yields three clear results: (i) many consumers do not obtain coupon savings equal to or greater than their opportunity cost of time, measured by the wage rate, ( i i ) these consumers differ from consumers who do obtain savings

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Table 1. Comparison of cost-effective versus cost-ineffective coupon users

Variable

Cost-ineffective Cost-effective consumers consumers

Definition (n = 38) ( n = 57) ?-stat.

coupons Price

Male Stores

Enjoy Cliptime

Readtime

Shoptime

Persave

Savings

Double Act exp Per exp

Brands

Age Coll Prof

Persons Young kids Old kids Income Wage Worktime

Number of coupons used Cites price as reason for choosing grocery store Percentage of male shoppers Number of stores shopped at weekly Enjoys clipping coupons Minutes spent clipping coupons weekly Minutes spent reading weekly food advertisements Minutes spent in weekly shopping Perceived dollar savings from all sources on weekly grocery expenditure Actual dollar savings from coupon use on weekly food expenditure Store doubles coupons Weekly grocery expenditure Perceived weekly expenditure on groceries Chooses name brands most often Age of major shopper Completed college Percentage of major shoppers with a professional job Household size Number of children under 6 Number of children 6-18 Total family income (US$) Hourly wage rate shopper Hours worked per week

3.21

0.552 0.189

1.50 0.10

50.23

39.86

60.92

10.21

6.08 0.63

65.66

67.26

0.39 35.55 0.50

0.66 3.23 0.78 0-45

43,743 9.15

37.42

6.29

0.368 0.052

1.42 0.08

19.38

19.12

66.00

9.42

12.12 0.80

77.04

75.29

0.5 1 39.26 0.385

0.40 3.47 0.68 0.77

8.69 33.38

38,103

-3.70***

1.78* 1.93**

0.559 0.28

3*22***

3.40***

-0.72

0.47

-4.67*** 1.80;

- 1.99;'

- 1.56

2.63*** - 1.92**

0.23

2.56; * * 1.04 0.62 1.72** 1.82* 1.29 1.42

* P 6 0.10 level. **P 6 0.05 level. * * * P d 0.01 level.

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Table 2. Characteristics of cost-ineffective and cost-effective coupon users

Cost-ineffective consumers tend to Cost-effective consumers tend to

be younger be older spend less on groceries use fewer coupons spend more time clipping coupons clip fewer coupons save less save more have higher total incomes be male be female purchase fewer name brands be professionals choose a store because of low prices

spend more on groceries use more coupons spend less time clipping coupons clip more coupons

have lower total incomes

purchase more name brands

equal to or greater than their market wage on several demographic and shopping characteristics, and (iii) enjoyment of coupon clipping does not explain differences between cost-effective and cost-ineffective shoppers. The results open the door to many other questions which can be summarized in the question, 'If time is money, why do so many consumers clip grocery coupons?'

Economic and demographic forces

The cost of time, measured by the wage rate, does not differ significantly between cost effective and ineffective shoppers. The differences between the two groups appear to arise because cost-effective shoppers spend less time clipping coupons and obtain higher coupon savings.

One explanation is that cost-effective consumers are more likely to shop at stores that offer double manufacturer coupons. When the double coupon incentive was removed (coupon savings were halved), not one shopper in the sample would have obtained benefits greater than the time costs of coupon clipping. Double coupons appear to be of help to the consumer, and in this study provided the only chance for consumers to be cost effective. Double coupons may also be related to the finding that cost-effective consumers purchase a greater percentage of name brand items. for which manufacturer coupons are readily available. If double coupon incentives are unavailable, it may make sense for consumers interested in saving money to re-evaluate the cost of purchasing name brands with a coupon to the cost of purchasing a substitutable store or local brand without a coupon.

Another explanation is that cost-ineffective consumers purchase name brands less often. They also spend more time reading food advertisements. Perhaps this group scans both national and store brands, then decides which purchase will save

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the most. One indication of this possibility is the discrepancy between perceived and actual savings for the cost-ineffective group. While there was no significant difference in perceived savings between the two groups, cost-ineffective con- sumers received half the actual savings as cost-effective consumers. Because this study only included the value of coupons redeemed when calculating savings, those who use fewer coupons and purchase other brands on sale without a coupon may actually save more on their weekly food bill. Therefore, they may be cost- effective consumers when all forms of price information search are combined. It is not possible to glean this from the results of this study and is an area fruitful for future research.

Cost-effective consumers also spend more on weekly groceries as well as save more. There is the possibility that the ‘more you buy, the more there is to save’. However, it is not clear whether consumers purchase items they would not have if a coupon was not available. This is another area fruitful for future research.

Finally, consumer characteristics play a role. Previous research indicates that families with young children use more coupons.’s It appears that the time it takes to clip the coupons they do use is not warranted. And, although higher-income consumers may use more c ~ u p o n s , ’ ~ * ’ ~ * ’ ~ they appear not to be making the most efficient use of their time. This supports Levendahl’s” hypothesis that those on higher incomes may purchase more name brands, but may be no more efficient in obtaining coupons than other groups. In addition, as fairly new forces in the shopping arena, males may not have enough experience in coupon clipping and use to be cost effective.

Are consumers rational?

Perhaps some consumers value their home time at a rate lower than their market wage. Indications are that being younger, male and professional may be related to how shoppers value their shopping time versus their market time. To these consumers, home time may be worth less than market time. This explanation preserves the assumption that consumers are rational utility maximizers, but does not address why these consumers short-change themselves as to the value of their non-market time. The idea that cost-ineffective shoppers may discount their price of shopping time because they enjoy it, thus making it ‘less expensive’, was not supported in this research.

A more esoteric interpretation of these results is that some consumers may only consider the benefits of using coupons without regarding time used to gather and clip coupons as having value. The use of coupons is usually framed according to the benefits receivable, i.e. money off. It would be interesting to investigate how consumers would behave if coupon use were framed in terms of their costs. For example, ‘it takes 35 minutes of your time to clip coupons worth $3.00. Is it worth your time to clip the coupons?’ Research has indicated that consumer choice may be different when wording of questions includes both costs and benefits2’

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‘Market maven’ role models

Perhaps some consumers feel that they should be doing something to save on their groceries. After all, it is an expenditure that is somewhat controllable as far as budgeting is concerned. There is evidence of ‘market mavens’: those that feel obligated to be informed about the marketplace and are particularly attentive to media.” Do some consumers look upon these persons as role models. or at least with the perception that ‘if they can do it, so can I?’ It may be relatively easier to clip a coupon when it is found than to organize it, remember to take it to the supermarket, locate the correct brand, and redeem it at the checkout. This study only examined time spent clipping and organizing coupons, not the time and effort needed to actually redeem a clipped coupon. However, because cost- effective consumers did not spend a significantly different amount of time actually shopping for groceries, one is led to believe that these consumers may be somewhat more organized than the cost-ineffective group.

So, is coupon clipping worth the effort? For some, the answer is a definite yes. For others it is no. The results of this study have indicated that demographics, shopping characteristics and market forces may play a role in determining the cost effectiveness of using coupons as a way to save money on groceries. And, while it has provided some answers to questions regarding who is cost effective and why, it raises many other questions. Given that couponing is increasing, this appears to be an area fruitful for future research.

Acknowledgement

This research was funded in part by the New York State Board of Agriculture and Markets, and by a Grant-in-Aid of research from Sigma Xi, the Scientific Research Society.

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