Measuring and Managing

Rajkumar Venkatesan & Paul W.
Farris
Measuring and Managing
Returns fromRetailer-Customized
Coupon Campaigns
The authors assess how and why retailer-customized coupon campaigns affect customer purchases. The concep-
tual model proposes effects on trip incidence and revenues through the mere exposure to campaigns (exposure
effect) and the redemption of coupons (redemption effect). The authors propose monetary savings of the coupons,
regularity of the campaigns, and coupon t with customer preferences as moderators. Analysis of data from
a group of regional grocery chains that were part of a quasi experiment demonstrates that retailer-customized
coupon campaigns have a positive exposure and redemption effect on customer purchases. Mere exposure to
customized coupon campaigns contributes more than coupon redemption to campaign returns. Consistent with
theoretical expectations, customized coupon campaigns are more effective if they provide more discounts, are
unexpected, and are positioned as specially selected for and customized to consumer preferences. The substantial
exposure effects suggest that managers should look beyond redemption rates and also consider sales lift from
nonredeemers when measuring the effectiveness of customized coupon campaigns.
Keywords: customer relationship management, retailer customer contribution, sales promotions, metrics,
customized coupons, retailer coupons, advertising exposure
S
hopper card data have enabled major retailers, such
as Kroger, Safeway, Meijer, and CVS, to offer
coupons for branded and private label products
through their own customized, direct-to-consumer programs
(Angrisani 2003). These programs differ from similar free-
standing inserts (FSI) cooperative programs in that the
offers are customized to each individual consumers pref-
erences (as reected in purchase histories),
1
are available
only to selected customers, and focus on increasing the
retailers customer revenues rather than brand sales. Cus-
tomized coupon programs represent major investments for
1
Customer preference is a broad construct with multiple de-
nitions. In this study, we refer only to preferences evident from
customer purchase behavior.
Rajkumar Venkatesan is Bank of America Research Associate
Professor of Business Administration, Darden Graduate School
of Business, University of Virginia (e-mail: Venkatesanr@darden
.virginia.edu). Paul W. Farris is Landmark Communications Profes-
sor of Business Administration, Darden Graduate School of Busi-
ness, University of Virginia (e-mail: Farrisp@darden.virginia.edu).
The authors thank a national retailer consortium for sharing data and
Valassis Inc. for sharing FSI coupon distribution information. The
manuscript beneted from the comments of Paul Hunter, Charles
Flem, Brian Sampsel, Aaron Giust, Curtis Tingle, Kusum Ailawadi,
Peter Debeare, Mir Salim, Kathryn Sharpe, S. Sriram, Joseph Pan-
cras, and seminar participants at the University of Virginia and Iowa
State University. The authors thank the three anonymous JM review-
ers for their guidance. This article was accepted under Ajay K. Kohlis
editorship. Gary Frazier served as coeditor.
retailers, and in our conversations with retailers, they con-
rmed that they are concerned about the cost of these
programs and are unclear on how to assess the potential
effects. Our primary objective is to develop a framework
for retailer-customized coupon campaigns that would allow
retailers to monitor, and possibly improve, the returns from
these programs. Four major factors motivate our research.
First, in contrast with extensive academic research on the
brand effects of coupons (Neslin 2002), almost no research
exists on the effects of customized coupon campaigns on
retailer performance. The main avenues through which
retailers benet from customized coupon campaigns are
through incremental store visits and incremental revenues
per visit. The combination of the resurgence of coupons
in the current economic environment (PR Newswire 2010)
and the recent initiatives of major retailers in this sector
supports the need for additional research.
Second, we propose that in addition to redemptions of
the customized coupons (redemption effect), the mere expo-
sure to customized coupon campaigns (exposure effect) can
affect customer purchases. Redemption effects have domi-
nated practitioners and academics assessments of coupon
programs. For example, trade journals often compare the
redemption rates of different coupon distribution methods
(e.g., FSIs, on-shelf, checkout, Internet) and imply that
retailers prefer higher redemption rates. Academic studies
have proposed that coupons may affect sales through mere
exposure in addition to redemption, but empirical evidence
is scarce (Neslin 2002), probably because of the lack of
detailed information on the distribution of coupons to indi-
vidual households. It might be that the recent ability to
2012, American Marketing Association
ISSN: 0022-2429 (print), 1547-7185 (electronic) 76
Journal of Marketing
Vol. 76 (January 2012), 7694
customize coupon campaigns according to buyer prefer-
ences and purchase histories will reduce consumer search
costs and increase consumer attention to these campaigns.
The exposure effects on customer responses may there-
fore be stronger for customized coupon campaigns than FSI
campaigns.
Third, effective customized coupon campaigns would
motivate managers to identify the underlying reasons and
thus enable them to replicate and improve their campaigns.
By assimilating conceptual and empirical research in rela-
tionship marketing and customized promotions, we argue
that in addition to the amount of discounts, customized
coupons might be more effective when they are unexpected
and if they t with customers general and idiosyncratic
preferences (Palmatier et al. 2009; Simonson 2005). We test
these arguments with a set of moderators of the exposure
and redemption effects.
Fourth, coupons distributed as FSIs through newspapers
or direct mail are not customized to individual consumer
preferences and are not designed for or intended to increase
retailers customer purchases. A comparison with FSIs pro-
vides a benchmark for assessing the extent to which cus-
tomization contributes to the retailers returns from coupon
campaigns.
In summary, the objectives of our study are as follows:
To propose a framework for understanding how and why cus-
tomized coupon campaigns affect retailers customer revenues
and quantify the returns to retailers,
To compare the magnitude of the exposure and redemption
effects of customized coupon campaigns,
To identify and test theoretical reasons for the effectiveness of
customized coupon campaigns, and
To provide an initial benchmark for customized coupon effec-
tiveness by comparing them with FSI coupons within two
heavily couponed categories.
Research Contribution
We employ data from a quasi experiment conducted in
eight noncompeting regional grocery retail chains located
across the United States and owned by the same rm. Our
substantive contribution is the development of a concep-
tual framework that addresses how and why customized
coupon campaigns affect retailers customer revenues. We
show that a rarely researched aspect of coupons (i.e., the
exposure effect) is important for assessing the effectiveness
of this new form of coupon campaigns. By comparing the
two main effects, we nd that exposure accounts for a sub-
stantial lift in customer contributions, net of marketing due
to customized coupon campaigns. Thus, this study reveals
that ignoring exposure effects can severely bias retailers
assessments of their customized coupon campaigns.
The moderators show that the effectiveness of cus-
tomized coupon campaigns improves if they provide more
monetary savings (or discounts) and are unexpected by
consumers. Customized coupons that offer discounts for
niche products that customers prefer are the most effec-
tive, followed by reward-focused customized coupons and
nally noncustomized coupons. The moderators suggest
that though mere exposure to customized coupon cam-
paigns can improve sales (regardless of coupon redemp-
tion), having discounts featured in the campaigns improves
the exposure effect.
Next, we develop the conceptual framework and hypothe-
ses. Then, we describe the data and the model frame-
work used to assess the conceptual model and present the
results from model estimation. Finally, we provide manage-
rial implications of the studys results and identify limita-
tions that can guide further research.
Conceptual Background and
Framework
Customized Coupon Campaigns
We dene retailer-customized coupon campaigns as cam-
paigns that, unlike sales promotions and FSI coupons,
retailers provide only to their best customers and include
offers that are customized to consumers preferences. The
FSI coupons are identied with the manufacturer as the
source of the discount, whereas the retailer is identied as
the primary source for the customized coupon campaigns.
The customized coupon campaigns are not mailed to every
customer who holds the retailers shopper card, nor are they
used as tools for customer acquisition. The retailers clas-
sify customers as best if they cross a certain threshold
of revenue contribution. Manufacturers provide coupons for
the campaign and fund the coupons redemption costs. The
retailer then identies the consumers whose preferences
match the offers. Unlike typical loyalty points programs,
customers are not aware of customized coupon campaigns
until they receive them, and retailers do not explicitly com-
municate the type of customer behaviors that are rewarded.
But they do inform the consumers that they received the
coupons because they are one of retailers best customers
and that the coupons were especially selected for them.
Prior Research
Whereas catalog literature focuses mostly on exposure
effects (Ansari, Mela, and Neslin 2008), coupons litera-
ture focuses on redemption effects but also suggests that
exposure effects are relevant for coupons. As Table 1
shows, prior empirical studies have documented the positive
effects of targeted sales promotions on manufacturer prots
(Pancras and Sudhir 2007; Rossi, McCulloch, and Allenby
1996) and consumer purchase intentions (Barone and Roy
2010). However, prior research has not investigated the
effects of customized coupon campaigns on retailer perfor-
mance, the primary focus of our study. We organize our
conceptual development according to the framework pro-
vided in Figure 1. Similar to research on retailer sales pro-
motions (e.g., Ailawadi et al. 2006; Heilman, Nakamoto,
and Rao 2002), we expect that customized coupons affect
promoted brand and category sales and have a halo effect
on sales of nonpromoted categories in the retail store. We
generate expectations of coupon campaign effects on three
aspects of customer behavior: trip incidence, trip revenue,
and customized coupon redemptions.
Theoretical Framework
Coupons both provide a savings value and inform con-
sumers about a product (Ward and Davis 1978). The multi-
benet theory posits that consumers derive value from sales
promotion through both mere exposure (e.g., seeing a pro-
motion for a product or brand) and usage (e.g., redeeming
Returns from Retailer-Customized Coupon Campaigns / 77
TABLE 1
Comparison of Proposed Conceptual Framework with Existing Research
Main Effect Moderator
Representative Customized Coupon
Research Coupons Redemption Exposure Redemption Exposure Redemptions Focus Metric
Narasimhan (1984); Neslin,
Henderson, and Quelch
(1985); Inman, McAlister,
and Hoyer (1990)
No Yes No Yes No Yes Manufacturer Brand choice
Bawa and Shoemaker
(1987); Leclerc and Little
(1997); Srinivasan,
Leone, and Mulhern
(1995)
No No Yes No No Yes Manufacturer Brand choice
Rossi, McCulloch, and
Allenby (1996); Pancras
and Sudhir (2007)
Yes Yes No No No No Manufacturer Brand choice
Barone and Roy (2010) Yes Yes No No No No Retailer Purchase intent
This study Yes Yes Yes Yes Yes Yes Retailer Retailer returns
a coupon when buying the product) (Chandon, Wansink,
and Laurent 2000). In other words, the same coupon could
produce both an exposure and a redemption effect. Thus,
the redemption effect is the change in customer purchases
due to coupon redemptions, and the exposure effect is the
change in customer purchases due to the mere receipt of or
exposure to the coupon campaign (e.g., Srinivasan, Leone,
and Mulhern 1995). Of course, exposure to customized
coupons is a necessary condition for customized coupon
redemption. We posit that customers are more likely to
notice the campaigns and also redeem the coupons if the
discounts provided are higher, the coupons match the con-
sumers preferences, and the campaigns are not expected
by the consumers.
Exposure Effect
On average, more than 50% of the space in customized
coupon campaigns is devoted to marketing messages.
2
As
Figure 2 illustrates, these campaigns also include brand
messages that are similar to feature advertisements or cat-
alogs. According to Inman, McAlister, and Hoyer (1990),
consumers with peripheral processing (or low need for cog-
nition) react positively to retailers communications with-
out considering price information. Studies investigating the
exposure effect of coupons have found that the adver-
tisement of the brand has a strong effect on redemption
(Leclerc and Little 1997) and can induce brand sales regard-
less of coupon redemption (Bawa and Shoemaker 1989;
Srinivasan, Leone, and Mulhern 1995).
We expect a positive exposure effect of a retailers
coupon campaigns on trip incidence, beyond the intent to
redeem coupons, for two reasons. First, customers may feel
gratitude toward the store for receiving coupons, which
reduces their search costs (Palmatier et al. 2009). Cus-
tomers may reciprocate by increasing the retailers share of
their shopping trips. Second, if customers have ill-formed
preferences about retailers in their neighborhood, retailer
2
The campaigns did not differ signicantly in the amount of
space allocated for brand messages. We therefore believe differ-
ences in the amount of space allocated for marketing messages
may not affect the exposure effect in our study.
communications, even those that do not provide a discount,
can lead customers to increase the retailers share of their
shopping trips (Simonson 2005). Abstract shopping goals,
such as gratitude, are associated with a higher degree of
unplanned buying (Bell, Corsten, and Knox 2011). Because
exposure to customized coupon campaigns improves grati-
tude, we expect that exposure to customized coupon cam-
paigns leads to higher trip revenue.
In addition to these factors, it might be that cus-
tomers increase trip incidence and trip revenue, intending
to redeem the coupon, but either forget to bring the coupon
or forget to redeem it during checkout. The customer might
also clip coupons for specic products and then decide to
use an on-shelf coupon or FSI coupon instead (Chandon,
Wansink, and Laurent 2000). In any of these scenarios, an
exposure to customized coupon campaigns should result
in a sales lift without redemption of the distributed coupons.
Thus:
H
1
: The higher the exposure to customized coupons, the higher
is the customers trip incidence and trip revenue.
Because exposure to the customized coupon campaign is a
necessary (but not sufcient) condition for coupon redemp-
tion, we do not posit a formal hypothesis for the effect of
exposure on redemption.
Redemption Effect
The intent to redeem customized coupons can lead to store
switching, or purchase acceleration, thereby affecting trip
incidence. Coupons literature proposes that consumers react
favorably to coupons if they perceive the costs of redemp-
tion (searching, clipping, and remembering to redeem) as
lower than the savings obtained (Neslin 2002). Customized
coupon campaigns have lower search costs than traditional
coupons, because the former are selected by the retailer to
match consumers preferences. Thus, customized coupon
campaigns, which are associated with a particular retailer,
can inuence consumers to perceive the net benet of shop-
ping with the retailer as higher and to substitute their shop-
ping trips in favor of the retailer (Kumar and Leone 1998).
Consumers might also accelerate their purchases because
the customized coupon campaigns have expiration dates
78 / Journal of Marketing, January 2012
FIGURE 1
Effect of Customized Coupon Campaigns
Trip
revenue
Trip
incidence
Regularity of
campaigns
Coupon
fit
Customized
coupon
exposure
Customized
coupon
redemption
Monetary
savings
H
2
Redemption
Effect
H
1
Exposure
Effect
H
3c
, H
4c
,
H
5c
, H
6c
H
3a
, H
4a
,
H
5a
, H
6a
H
3b
, H
4b
,
H
5b
, H
6b
that motivate the consumers to shorten their interpurchase
times (i.e., higher trip incidence with the retailer) (Bawa
1996; Neslin, Henderson, and Quelch 1985).
3
Purchase
acceleration is also higher when a feature is associated with
a price promotion (see Figure 2) and when there is uncer-
tainty in the availability of future discounts, as is the case
with customized coupon campaigns.
The redemption of customized coupons leads to higher
trip revenue because of (1) unplanned buying and
(2) income effects. First, out-of-store marketing, especially
consumer expectations of price savings from coupons,
should inuence customers to plan major shopping trips to
the sponsoring retailer (Kahn and Schmittlein 1992) and
engage in a higher degree of unplanned buying, leading to
higher trip revenues (Bell, Corsten, and Knox 2011). Sec-
ond, because retailers do not announce the availability of
customized coupons, the arrival of these coupons can be
an unexpected reward for customers. Redemption of unex-
pected coupons is associated with an income effect that
can increase purchases in other product categories (i.e., a
halo effect) (Heilman, Nakamoto, and Rao 2002), leading
to higher trip revenues. Thus:
H
2
: The higher the redemption of customized coupons, the
higher is the customers trip incidence and trip revenues.
Customized coupon campaigns should improve retailers
customer revenues because they provide unexpected dis-
counts and are tailored to customer preferences (Bawa and
Shoemaker 1989; Palmatier et al. 2009; Simonson 2005).
We include variables that capture these broad aspects as
moderators of the redemption and exposure effects.
4
3
Expiration dates in the customized coupon campaigns are
shorter (approximately 30 days) than those of FSIs (from three to
six months).
4
We did not include quantity restriction in coupons as a moder-
ator because less than 5% of the coupons distributed in our study
had a quantity restriction. Store-specic moderators, such as num-
ber of competing stores in the trading area, cannot easily be mod-
ied by the retailer. Because our study focuses on retailers best
Monetary Savings
Monetary savings, or higher coupon face value, can moti-
vate consumers to pay more attention to the brand mes-
sages in the customized coupon campaigns and improve
customer attitudes toward the brands, leading to a higher
exposure effect (Bawa 1996; Bawa and Shoemaker 1989;
Blattberg and Neslin 1990). Therefore, we propose that
the potential for monetary savings positively moderates the
exposure effect on customer behavior. Higher monetary
savings increase the net benets from coupons and affect
store switching and purchase acceleration. Thus, redemp-
tion effects on trip incidence should be higher when the
coupons provide higher monetary savings. Higher mone-
tary savings also increase the income effect consumers real-
ize when they redeem the customized coupons. Monetary
savings therefore can positively moderate the redemption
effect on trip revenue. It is well known that coupons with
higher face values are associated with higher redemption
rates. Thus:
H
3a
: The higher the monetary savings in a campaign, the
higher is the exposure effect on trip incidence and trip
revenue.
H
3b
: The higher the monetary savings in a campaign, the
higher is the redemption effect on trip incidence and trip
revenue.
H
3c
: The higher the monetary savings in a campaign, the higher
is the exposure effect on customized coupon redemption.
customers across all their stores, we did not expect a major store-
specic effect on customer behavior. We included store revenue
as a moderator and store-specic random effects but did not nd
a signicant effect. Consistent with previous research (Liu 2007),
we found that middle-tier customers were most responsive to the
customized coupon campaigns. The customer-specic moderator
inferences were not reliable, because the lowest-tier customers in
our study did not receive any coupon campaign.
FIGURE 2
Sample Coupon Campaigns

Campaign Regularity
Customers short-term feelings of gratitude lead to recipro-
cal behaviors that can increase long-term relationship qual-
ity and customer protability (Morales 2005). Gratitude
itself is dependent on customer perceptions of the rms
free will and benevolence in providing the reward. Bene-
ts available to every customer or those built on formalized
rules (e.g., points programs) are less likely to generate
feelings of gratitude (Palmatier et al. 2009). In contrast,
programs that retain some randomness or discretionary ele-
ments are more likely to generate gratitude and enhance
customer reciprocation. Although we are unable to measure
customer gratitude, we assess the moderating effect of an
antecedent of customer gratitudethat is, the unexpected
nature of the campaigns.
We expect that customized coupon campaigns received at
irregular intervals can consistently delight or surprise cus-
tomers because they are unexpected. Customers are also
more likely to believe that the retailer recognizes the value
they provide when the customized coupons are received
unexpectedly. If gratitude leads customers to be in a better
mood when visiting a store, it also would be related to
higher impulse purchases and higher trip revenue (Beatty
and Ferrell 1998). Irregular campaigns increase uncertainty
about future rewards, which can increase the redemption
effects of customized coupon campaigns. Thus, we expect
that exposure and redemption effects are higher for cus-
tomers who receive customized coupon campaigns at irreg-
ular intervals:
H
4a
: The less regular the customized coupon campaigns, the
higher is the exposure effect on trip incidence and trip
revenues.
H
4b
revenues.
H
4c
higher is the exposure effect on customized coupon
redemption.
Coupon Fit
Noncustomized coupons. Noncustomized coupons simply
provide $ off the next purchase. The coupons provide a
baseline for comparing the effect of reward campaigns and
niche products. Because customized coupons are available
only to the retailers best customers, they can be consid-
ered offers exclusive to some of the retailers customers.
Consumer evaluations of coupons reect their exclusivity,
in addition to their monetary savings (Chandon, Wansink,
and Laurent 2000). Consumers tend to view exclusivity
positively (Dreze and Nunes 2009), and some empirical evi-
dence suggests that exclusive offers lead to higher redemp-
tion rates (Feinberg, Krishna, and Zhang 2002). However,
recent research shows that consumers evaluate exclusive
offers more positively when they identify strongly with
the group that is eligible to receive the offers or have
exerted much effort to belong to such a group (Barone
and Roy 2010). It is unclear whether a retailers best
customers, dened by their revenue contribution, strongly
identify with this group, because consumer spending is
a weak indicator of positive rm attitudes (Reinartz and
Kumar 2000). Furthermore, because customized coupon
campaigns are not preannounced, consumers are not aware
of the effort required to be eligible for these coupons. We
leave the effect of noncustomized coupons as an empirical
issue because of this conicting theoretical and empirical
evidence.
Reward campaigns. In reward campaigns, the retailer
provides coupons for products that the customer purchases
often. In contrast, cross-selling campaigns provide cus-
tomers coupons for categories in which they have not yet
made a purchase with the retailer. Simonson (2005) pro-
poses that customers can judge correctly if a coupon ts
their preference in categories in which they have well-
dened preferences. Thus, customers who receive reward
campaigns are more likely to be satised with these retailers
because of the effort expended by the retailers to learn their
preferences. In contrast, cross-selling campaigns offer the
opportunity to try new products at a lower risk (Chandon,
Wansink, and Laurent 2000); however, consumers might
not want to increase their risk by stockpiling new products
(Narasimhan, Neslin, and Sen 1996). Reward campaigns
may have a higher exposure effect, because coupons for
familiar brands may be more effective in generating con-
sumer attention.
Redemption of coupons in reward campaigns have a
higher chance of providing customers an income effect,
because they obtain savings for products they normally
purchase. This higher income effect leads to higher im-
pulse purchases in nonpromoted categories (Heilmann,
Nakamoto, and Rao 2002) and therefore higher basket
revenues. Furthermore, discounts provided by a store on
products that customers typically purchase may be more
effective than cross-selling coupons for generating store
switching. When the customer is in the store, the store can
benet from the halo effect of customer purchases in non-
promoted categories. Because customers are more likely to
redeem coupons in reward campaigns, the exposure effect
on customized coupon redemption is higher for reward
campaigns than for cross-selling campaigns. Thus:
H
5a
: The higher the proportion of reward campaigns, the higher
is the exposure effect on trip incidence and trip revenues.
H
5b
: The higher the proportion of reward campaigns, the
revenues.
H
5c
: The higher the proportion of reward campaigns, the higher
is the exposure effect on customized coupon redemption.
Niche products. Niche product offers are based on the
assumption that customers preferences can be divided into
those shared by many other customers and those idiosyn-
cratic to the customer or a small segment. We dene niche
products as categories with less-than-average penetration
among the retailers customer base, such as ethnic foods,
baby products, and pet foods. Idiosyncratic or signature
preferences that separate consumers from others tend to
be overweighted in consumers evaluations of customized
offers (Kivetz and Simonson 2003). A match or mismatch
on an idiosyncratically important attribute can often deter-
mine the offers perceived attractiveness. Thus, we expect
that consumers view the choice of niche products coupons
as conrmation that the retailer understands their idiosyn-
cratic preferences:
H
6a
: The higher the proportion of coupons for niche products,
the higher is the exposure effect on trip incidence and trip
revenues.
H
6b
: The higher the proportion of coupons for niche products,
the higher is the redemption on trip incidence and trip
revenues.
H
6c
: The higher the proportion coupons for niche products,
the higher is the exposure effect on customized coupon
redemption.
Data
We obtained data for this study from a quasi experi-
ment conducted by eight noncompeting retail chains located
across the United States and owned by a single rm.
We have purchase histories of 2,500 households that were
members of these retailers shopper card programs for
a two-year period. The quasi experiment was conducted
before the economic downturn of 2008 and therefore
was not affected by the recent increase in coupon usage.
For each customer,
5
we observed the entire baskets pur-
chases for every store trip. For each product purchased in
the basket, we observed the price paid, the brand name,
5
In our study, a customer refers to a household.
merchandising factors (e.g., feature, display), the redeemed
coupons face values, and the type of price discount. Cus-
tomers could also obtain price discounts from national
brand coupons distributed through FSIs and other media,
a price reduction provided by the retailers for the shopper
card members, and private label FSI coupons funded by the
retailers.
Beginning in the 37th week of the rst year, all eight
retailers instituted a customized coupon program for
shopper card members. A total of 40 customized coupon
campaigns were mailed during the following 66 weeks.
Approximately 400 consumer packaged goods manufactur-
ers provided coupons in one or more campaigns, with a
maximum of three national brands per manufacturer per
campaign. Approximately 63% (n = 1,584) of the house-
holds in our sample received at least one customized
coupon campaign between the 37th and the 102nd week.
These customers formed the test group in this quasi exper-
iment, and the control group consisted of the rest of the
customers. Because the retailer only selected its best cus-
tomers to be part of the test group, targeting in our study is
restricted to selection of customers who received the cus-
tomized coupon campaigns. Customers with shopper cards
from all eight retail chains had an equal opportunity to
receive the mailings. On average, the test group customers
received four campaigns over the 66 weeks. Substantial
variation exists in the total number of campaigns mailed to
the customers. For example, 21% of the test group received
fewer than 5 campaigns, and 7% of the test group received
more than 20 campaigns. Customers could not receive more
than 1 campaign in any week.
Each campaign provided an average of 18 coupons from
both the manufacturers and the retailers (primarily for pri-
vate labels). Of these coupons, 7% were for private labels.
In general, only customers who spent more per trip and
visited the retailers stores more often took part in the
customized coupon campaigns. None of the campaigns
posed any restrictions on FSI redemptions, and the man-
ufacturer coupons were mostly redeemable at other retail-
ers as well. However, the customized coupon campaigns
had the retailers logo in the mailer. The cover letter con-
tained a message from the retailer thanking the customer
for being the retailers Best Customer and stating that
the enclosed discounts were available only for the retailers
best customers, chosen to match the customers preferences.
The message content emphasized the benets of the brands
rather than the savings in the coupons. For example, the
Thanksgiving campaign provided recipes that included the
products that sponsored the coupons. The coupons them-
selves appeared on three pages in the center of the booklet
(see Figure 2).
Variable Operationalization and
Descriptive Statistics
Table 2 provides the operationalization and the descriptive
statistics of the dependent variables. On average, a customer
spent $33 each week and redeemed approximately 4.1 cus-
tomized coupons on the trips with coupon redemptions.
Control factors. Using prior research, we classify the
control factors as seasonality, customers past experience
with the retail chain, and customers response to con-
ventional price promotions and feature or display. Details
on the operationalization of the control factors appear in
Table 2. Recency, cross-buying, lagged trip revenue, and
lagged trip incidence capture customers past experience.
Table 2 also shows that, on average, each shopping basket
contains nine product categories. Approximately 7% of the
products in the shopping basket coincided with a feature
or a display. Customers used FSI coupons for .5% of the
products in their basket, and a retailer discount or sales pro-
motion was available for 21% of the products a customer
bought. On average, customers redeemed 14 FSI coupons
over 102 weeks. We used a preference-weighted nonprice
promotion variable to control for retailer-sponsored cate-
gory advertisements, in addition to the customized coupon
campaigns.
6
We measured each customers preference for a
brand as its rank in the customers precampaign spending
in the category (weeks 136). The standard deviation of the
preference-weighted nonprice promotion variable indicated
that many customers nonpreferred categories are also fea-
tured each week.
Moderators. All the moderators we explored vary across
customers. We operationalized monetary savings using the
average face value of coupons in a campaign and the num-
ber of coupons per campaign. The face value of the cus-
tomized coupons averaged 36% of the product price, and
customers received 18 coupons per campaign. The stan-
dard deviation of campaign regularity indicated substantial
variation in the frequency of the campaigns across cus-
tomers. On average, 62% of the customized coupon cam-
paigns were classied as reward campaigns. We classied
categories as niche if they fell in the 050th percentile in
terms of their total number of transactions across customers.
Approximately 36% of customers received a majority of
the customized coupons for niche categories, and 1.4 of
the 72 coupons received by customers on average were not
customized.
Exploratory Analysis
In Table 3, we compare the average weekly revenue for
(1) the trip, (2) promoted brands (brands that provided
at least one customized coupon), (3) nonpromoted brands
(brands from the promoted categories that did not provide
a coupon), and (4) nonpromoted categories, for customers
in both the test and control groups. The retailer selected
customers who were already providing more trip revenue
for inclusion in the customized coupon program. After the
launch of the customized coupon program, weekly trip rev-
enue per customer for the test and control group customers
increased by $9 and $1, respectively. An analysis of vari-
ance test showed that the percentage increase in weekly trip
revenue per customer in the test group (24%) was signif-
icantly higher than the percentage increase in the weekly
trip revenue per customer in the control group (11%).
The weekly revenue for promoted brands after launch of
the customized coupon campaigns was signicantly higher
for only the test group customers ($.60). The weekly rev-
enue did not change signicantly for the nonpromoted
brands in promoted categories during the same time frame
for either the test or control groups. The exploratory results
indicated that customized coupon campaigns can increase
6
We thank a reviewer for suggesting this variable.
TABLE 2
Variable Operationalization and Descriptive Statistics
Variable Operationalization M SD
Trip revenue Dollar amount spent by a customer with the retailer
in a week 331 578
Customized coupon Number of customized coupons redeemed by customized
redemption coupon redeemers in a week 41 46
Recency Days since a customers last purchase 145 364
Cross-buying Number of different product categories bought by the
customer per trip 92 119
Feature or display Percentage of products in a customers basket on a
display or feature 75% 11
FSI redemptions Percentage of products in a customers basket bought
with an FSI coupon 5% 03
Retailer discounts Percentage of products in a customers basket bought
with a retailer discount 214% 24
Conventional promotions
a
Cumulative number of FSI redemptions over
two-year period 140 363
Preference-weighted Product of number of categories in a week that have a
nonprice promotion brand on feature or display and the customers
category preference 165 314
Coupon face value Average of face value as a percentage of product prices
for all the customized coupons received by the customer 36% 02
Number of coupons Number of customized coupons provided in a
single campaign 178 46
Campaign regularity Ratio of the difference between the maximum and minimum
intercampaign duration (weeks between two consecutive
campaigns) and the mean intercampaign duration. Lower
values imply more regular campaigns. 11 82
Reward campaigns Percentage of campaigns that provided customized
coupons for products the customer has already
purchased 62% 25
Niche products Equals 1 if majority of customized coupons were in
categories with category penetration below
50th percentile. 36% 48
Noncustomized coupons Number of noncustomized coupons received by
a customer 14 195
a
We report the mean of cumulative promotions across customers in the 102nd week.
revenue and that the increase in sales of the promoted
brands is an important reason for the effectiveness of
the customized coupon campaigns. The difference between
weekly trip revenue and revenue from promoted categories
showed that these campaigns also have a substantial halo
effect on nonpromoted categories.
By our denition, only the exposure effect could increase
sales of promoted and nonpromoted categories among
nonredeemers. However, both exposure to customized
coupon campaigns and the redemption of customized
coupons could affect sales of promoted and nonpromoted
categories for redeemers. Customized coupon campaigns
affected sales of promoted and nonpromoted categories for
both redeemers and nonredeemers, though the increase in
sales was higher for redeemers than for nonredeemers.
7
These exploratory analyses provided empirical motivation
for studying both the exposure and the redemption effects
of customized coupon campaigns.
7
The results for total revenue of promoted and nonpromoted
brands were similar to the weekly revenue and are available on
request.
Model Development
We developed our model with three major purposes in
mind. First, we assessed the effects on three correlated
but separate customer behaviors: trip incidence, trip rev-
enue, and customized coupon redemptions. Because these
customer behaviors are correlated and also likely affected
by common antecedents, we modeled them simultaneously
and directly estimated the covariance in the errors of their
respective regression equations. Second, prior research sug-
gests that marketing campaigns may affect sales for sev-
eral weeks after the week of exposure, through a carryover
effect (e.g., Rao and Miller 1975). We allowed for carry-
over effects by developing a stock variable for customized
coupon exposure and redemption of customized coupon
campaigns. Third, as is clear from Table 3, the retailers
provided more customized coupons to higher-spending cus-
tomers. We accounted for this endogeneity in the selec-
tion of customers for the customized coupon campaigns by
modeling the joint distribution of customer behavior and
the retailers targeting decisions.
We adopted a Bayesian approach to our model spec-
ication (Rossi and Allenby 2003). The objectives of
TABLE 3
Customer-Level Exploratory Analysis
Test Group (n=1,584)
Time Relative to Customized Test Group Control Group Nonredeemers Redeemers
Coupon Program (n=1,584) (n=916) (n=1,150) (n=434)
Weekly Trip Revenue per Customer ($)
Before (weeks 136) 38 9 39 36
During (weeks 37102) 47 10 47 48
Weekly Revenue per Customer for Promoted Brands ($)
Before (weeks 136) 347 02 343 365
During (weeks 37102) 410 03 408 423
Weekly Revenue per Customer for Nonpromoted Brands in Promoted Categories ($)
a
Before (weeks 136) 347 09 350 340
During (weeks 37102) 352 07 350 360
Weekly Revenue per Customer for Nonpromoted Categories ($)
Before (weeks 136) 31 9 32 29
During (weeks 37102) 39 10 39 40
a
Only categories with at least one promoted brand were included in the analyses.
Notes: Means in bold were signicantly different at p < 01.
our model framework were accomplished by adopting a
hierarchical Type III Tobit model (Amemiya 1998) that
simultaneously allowed for moderators and accounted for
the endogeneity of customized coupon campaigns using
the incidental parameter approach (Manchanda, Rossi, and
Chintagunta 2004).
Customer Behavior
Let TI
it
be a binary variable that indicates whether cus-
tomer i visited a store in week t. Let TR
it
and CCR
it
rep-
resent trip revenue and customized coupon redemptions for
customer i in week t, respectively.
8
Because in any week t,
we observed trip revenue and customized coupon redemp-
tions from customer i only if that customer visited a store
(TI
it
> 0), we modeled customer behavior using a Tobit III
specication (Amemiya 1998). This specication allowed
trip revenue and customized coupon redemptions to be con-
ditional on trip incidence TI
it
. Let TI
it
be a latent variable
that represents customer is utility for visiting the retailer
in week t. We assumed that a customer would visit a store
(TI
it
= 1) if and only if his or her utility for visiting the
store was positive (TI
it
> 0). The main effects of customized
coupon campaigns and the control factors affected trip inci-
dence, as follows:
TI
it
= p
10i
+p
1Ri
Stock_R
1it
+p
1Ei
Stock_E
1it
+o
11
Q2 (1a)
+o
12
Q3+o
13
Q4+o
14
Rec
it
+o
15
TI
it 1
+o
16
CB
it
+o
17
FD_Prom
it
+o
18
FSI_Red
it
+o
19
Ret_Disc
it
+o
1,10
NPP_Pref
it
+r
1it
TI
it
= 1 if TI
it
>0, and 0 otherwise,
where
TI
it
= a latent variable indicating customer is utility for
visiting the store in week t;
8
Exploratory tests rejected the null hypothesis of unit roots
in the weekly data, indicating that it is not necessary to model
changes in the dependent variables.
p
1i
= ]p
10i
, p
1Ri
, p
1Ei
], or customer-specic coefcients
that capture the intercept and the redemption and
exposure effects on trip incidence;
o
1
= ]o
11
, o
12
, . . . , o
1,10
], or coefcients that capture
the effect of control factors on trip incidence;
Stock_R
1it
= stock of the customized coupon redemptions for
customer i in week t;
Stock_E
1it
= stock of the exposure to customized coupon cam-
paigns for customer i in week t;
Q2, Q3, Q4 = dummy variables for quarters 2 through 4 (quar-
ter 1 is the base case);
Rec = recency of customer transactions;
CB = level of cross-buying;
FD_Prom = propensity of the customer to respond to features
or displays;
FSI_Red = propensity of the customer to redeem FSI
coupons;
Ret_Disc = propensity of the customer to purchase products
with retailer discounts; and
NPP_Pref = preference-weighted nonprice promotions.
Let LTR
it
and LCCR
it
indicate natural logarithms of trip
revenue and the number of customized coupons redeemed,
respectively, by customer i in week t.
9
Then, LTR
it
and
LCCR
it
are classied as unobserved when customer i does
not visit a store in week t (TI
it
= 0). We modeled the natural
logarithm of trip revenue and customized coupon redemp-
tions for observations with TI
it
= 1, as follows:
LTR
it
= p
20i
+p
2Ri
Stock_R
2it
+p
2Ei
Stock_E
2it
+o
21
Q2 (1b)
+o
22
Q3+o
23
Q4+o
24
Rec
it
+o
25
TR
it 1
9
We obtain LTR
it
and LCCR
it
by taking the logarithm of
TR
it +1
+1 and CCR
it +1
+1, respectively, to avoid taking logs of 0.
The AndersenDarling test statistic was less than 1.93 for both
LTR and LCCR, thus failing to reject the null hypotheses of nor-
mal distribution.
+o
26
CB
it
+o
27
FD_Prom
it
+o
28
FSI_Red
it
+o
29
Ret_Disc
it
+o
2,10
NPP_Pref
it
+r
2it
, and
LCCR
it
= p
30i
+p
3Ri
Stock_R
3it 1
+p
3Ei
Stock_E
3it
+o
31
Q2 (1c)
+o
32
Q3+o
33
Q4+o
34
Rec
it
+o
35
TR
it 1
+o
36
CB
it
+o
37
FD_Prom
it
+o
38
CP
3it
+o
39
NPP_Pref
it
+r
3it
.
Error distribution. The subscripts 1, 2, and 3 in Equa-
tions 1a1c label the effect of the drivers on trip incidence,
trip revenue, and customized coupon redemptions, respec-
tively. The linkages among the three equations in a Type
III Tobit model are captured by the error structure. Speci-
cally, we assume that the unobserved error terms, r
1it
, r
2it
,
and r
3it
, are distributed multivariate normal, with mean 0
and a variancecovariance matrix as specied in Equa-
tion 2. Equations 1a2 represent a Tobit III specication.
1

12
13
22
23
23
. (2)
Identication. Because our model includes a simultane-
ous system of equations (Equations 1a1c), the estimated
coefcients can be identied only if there is at least one
unique variable in each equation. We used the lagged value
of the redemption stock (Stock_R
3it 1
) to model customized
coupon redemptions in week t (CCR
it
) in Equation 1c,
because as we explain subsequently, we used the depen-
dent variable (CCR
it
) to calculate the redemption stock at
time t. Furthermore, the lagged redemption stock captures
the reinforcing effect of past customized coupon redemp-
tions on future redemption. We used lagged revenue instead
of lagged trip incidence to model revenue and customized
coupon redemption. We used the cumulative number of
FSI redemptions until time t 1 as the conventional pro-
motions variable for the customized coupon redemptions
equation (CP
3it
). The cumulative redemption value captures
customers tendency to redeem coupons, which is more
appropriate for predicting a customers level of customized
coupon redemptions. The conventional promotion variable
in the customized coupon redemption model (CP
3it
) and
the lagged revenue (TR
it 1
) in the trip revenue model also
ensure identication of the simultaneous system (Equa-
tions 1a1c) used to model customer decisions.
Unobserved customer and environmental factors may
affect the dependent and control variables, leading to a
correlation between the control variables and the errors in
the regressions. Therefore, we used lagged variables of all
the control factors (except seasonality) as instruments. The
Lagrange multiplier test indicated that the errors in the trip
revenue and customized coupon regressions were not seri-
ally correlated, conrming that the lagged variables were
valid instruments for the control factors (Greene 1993).
10
10
The Lagrange-multiplier test for serial correlation allows for
lagged dependent variables in the panel data model. The substan-
tive results of our study did not change when we included two-
period lagged control variables instead of a single-period lagged
Stock of redemption and exposure effects. Similar to
Ansari, Mela, and Neslin (2008), we accommodated the
potential carryover effect of customized coupon campaigns
by including a stock variable for redemption and exposure.
In week t, the stock variable for an exposure effect to cus-
tomized coupon campaigns is given by
Stock
E1it
= CC
it
+X
1E
StockE
1it 1
, (3)
where
CC
it
= number of customized coupon campaigns mailed to cus-
tomer i in week t, and
X
1E
= the carryover of exposure to customized coupon cam-
paigns on trip incidence.
Carryover or dynamics were captured by the weights in
the stock variable, X
1E
. Large values of X
1E
imply that the
customized coupon campaign has an effect well into the
future. In the rst week (t = 1), the exposure stock equals
the number of customized coupon campaigns in that week
(CC
i1
). The exposure stock in the second week (Stock
E1i2
)
equals the sum of the number of customized coupon cam-
paigns in the second week (CC
i2
) and the carryover effect
times the exposure stock in week 1 (X
1E
CC
i1
). Equation 3
provides a generalization of this recursive process for any
arbitrary week t.
The section Derivation of Stock Variables and Esti-
mation Algorithm in the Web Appendix provides further
details on the derivation of the stock variable (see http://
www.marketingpower.com/jm_webappendix). We modeled
the exposure effect of coupon campaigns on trip revenue
and customized coupon redemption similar to Equation 3.
We used the number of redemptions by customer i in week t
(CCR
it
), instead of the number of customized coupon cam-
paigns (CC
it
), to measure the stock of the redemption effect.
The expiration date of the coupons was not relevant for our
model, because only coupons that have not expired con-
tribute to the number of customized coupon redemptions
in a week (CCR
it
), and the redemption of coupons and the
exposure to campaigns affect customer behavior beyond the
expiration date through the carryover effect.
Moderators of Redemption and Exposure Effects
Our specication for the moderators allowed for both a
main effect and an interaction of the moderators with the
redemption and exposure effects. Moderator effects were
assessed through a hierarchical model for the customer-
specic coefcients, as follows:
p
i
= A
0
+A
1
FVal
i
+A
2
NumC
i
+A
4
RegC
i
(4)
+A
4
RewP
i
+A
5
NC
i
+A
6
NumNC
i
+v
I
,
variable. We also estimated a model that allowed for serially cor-
related errors over a single period, to accommodate lagged depen-
dent variables and endogeneity of the customized coupon cam-
paigns. However, the coefcient of the serial correlation was not
signicantly different from 0. The results are available on request.
where
p
i
=]p
10i
, p
1Ri
,...,p
3Ei
] = a 91 column vector of the nine
customer-specic coefcients in Equations 1a1c;
FVal
i
=average customized coupon face value received by
customer i;
NumC
i
=number of customized coupons per campaign received
by customer i;
RegC
i
=regularity of the campaigns received by customer i;
RewP
i
=proportion of reward-focused campaigns received by
customer i;
NC
i
=1 if majority of the coupons received by customer i
are for niche products;
NumNC
i
=number of noncustomized coupons received by cus-
tomer i;
A =]A
0
, A
1
, . . . , A
6
] = a 97 matrix of coefcients of the
moderators, where each A
0
, A
1
, and so on, are 91
column vectors; and
v
i
=is a customer i-specic error term that is distributed
normal with 0 mean and variance V
p
, v
i
N(0, V
p
).
Endogenous Selection of Customers
The customer-specic intercept and the number of cus-
tomized coupon campaigns a customer receives (and thus
the stock variables) may be correlated because customers
who spend more also receive more customized coupon cam-
paigns. Also, if the retailers mailed customized coupon
campaigns to customers they expected to be more respon-
sive, the coefcient of the exposure and redemption stocks
(i.e., slope coefcients) would be correlated with the stock
variables. The preexisting differences among customers
and retailer decision rules for selecting customers for the
customized coupon campaigns represent omitted variables
that are correlated with the stock variables in our model.
This situation could lead to a correlation among the inter-
cepts, the stock variables, and the unobserved error terms
(r
1it
, r
2it
, r
3it
) in Equations 1a1c, resulting in inconsistent
estimates of the customer-specic coefcients, p
i
.
11
We adopted recent developments in econometrics to
account for the correlation of the stock variables with both
the intercept and the slope coefcients (Donkers et al. 2006;
Manchanda, Rossi, and Chintagunta 2004). This methodol-
ogy acknowledges that customized coupon campaigns are
not random variables but are outcomes in line with retail-
ers knowledge about customers past purchase behavior.
The intuition is to model the joint distribution of customer
behavior variables in Equations 1a1c and the number
of customized coupon campaigns the customers received.
We modeled the effect of the omitted variables regarding
retailer decisions in the distribution of the number of cus-
tomized coupon campaigns customer i received in time t
(CC
it
). The customer-specic coefcients p
i
therefore were
estimated after accounting for the omitted variables.
We included the recency, frequency, and monetary value
(RFM) score (a measure of customers revenue potential),
the history of customized coupon campaigns sent, and the
customers propensity to respond to conventional promo-
tions to predict CC
it
. We included an instrumental variable,
11
The endogeneity in our study differed from price and sales
promotion endogeneity, because the customized coupon cam-
paigns varied across customers, whereas the price and sales pro-
motion decisions were common to all customers.
incidence in popular coupon categories, which correlated
with retailer decisions but not with customer behavior.
12
The instrumental variable exploited the unique characteris-
tic that the availability of coupons depends on manufactur-
ers willingness to provide customized coupon promotions.
In our data, more coupons were available in the baby, bak-
ing, frozen food, pet, frozen pizza, and frozen meat cate-
gories. Retailers were more likely to select customers who
purchased in these categories for the customized coupon
campaigns, but purchases in these categories were not sig-
nicantly correlated with customers trip incidence, trip rev-
enue, or customized coupon redemptions. Let CC
it
equal 1
if customer i received a customized coupon campaign in
week t and 0 otherwise. We modeled CC
it
using a probit
model, as follows:
CC
it
4(CC
it
), (5)
CC
it
= j
1
IPC
i
+j
2
RFM
it 1
+j
3
CC
it 1
+j
4
CP
4it
(6)
+Unobserved factors
i
+r
4it
,
where
4 = cumulative normal distribution;
CC
it
= retailers latent utility from sending a cus-
tomized coupon campaign to customer i in
week t;
IPC
i
= incidence of purchases in popular coupon
categories for customer i in weeks 136;
RFM
it 1
= average of the RFM value of customer i in
week t 1;
Recency = number of weeks since customer is last
purchase;
Frequency = number of trips made by customer i during
weeks t 1 through t 12;
Monetary value = average revenue per trip incidence provided
by customer i during weeks t 1 through
t 12;
CP
4it
= cumulative number of conventional promo-
tion redemptions until week t, measured sim-
ilarly to CP
3it
in Equation 1c; and
Unobserved factors = ]p
10i
, p
1Ri
, . . . , p
3Ei
], or the nine customer-
specic coefcients in Equations 1a1c.
The unobserved factors related to retailers judgment,
not captured by the customers purchase data. In Equa-
tion 6, we used the customer-specic intercepts and slope
coefcients of the stock variables from Equations 1a1c
to capture unobserved factors. We simultaneously esti-
mated the parameters in the customer decision models
(Equations 1a3), the hierarchical model of the moderators
(Equation 4), and the retailer decision model (Equations 5
and 6) using a Markov chain Monte Carlo algorithm.
Details on the likelihood function, the prior distributions
of the model parameters, and the estimation algorithm
appear in the Derivation of Stock Variables and Esti-
mation Algorithm section in the Web Appendix (http://
www.marketingpower.com/jm_webappendix). The Model
Comparisons and Post Hoc Analyses section in the Web
12
Instrumental variables were not required to account satis-
factorily for the correlation among the customer-specic inter-
cepts, slopes, and covariates in the customer decision model
(Wooldrige 2010).
Appendix provides details on the unobserved factors and
estimates of the retailer decision equation.
Discussion of Results
We wrote the code for estimating the proposed model in
the software R. The estimation involved 20,000 Markov
chain Monte Carlo iterations.
13
Every other draw of the last
10,000 iterations was eliminated to generate an uncorre-
lated posterior sample of 5,000 observations.
14
Model com-
parisons revealed that the proposed model provided the
best in-sample t and predictive accuracy. Details on the
model comparison appear in the Model Comparisons and
Post Hoc Analyses section, and details on the convergence
of the estimation algorithm and the posterior plots of the
estimates from the proposed model are in the Posterior
Plots of the Estimates section, both in the Web Appendix
(http://www.marketingpower.com/jm_webappendix).
Exposure and Redemption Effect of
Customized Coupons
Table 4 provides the estimates of A
0
, which represent
the mean of the random effects of the customer-specic
intercepts and the exposure and redemption effects. The
customized coupon campaigns have a signicant, positive
exposure effect on trip incidence (5.40, p < .01), trip rev-
enue (1.43, p < .01), and customized coupon redemptions
(.08, p < .01). Therefore, the estimated exposure effects sup-
port H
1
. Approximately 5% of the exposure effect on trip
incidences (X
1E
= .05, p < .01), 2% of the effect on trip
revenue (X
2E
= .02, p < .01), and 11% of the effect on cus-
tomized coupon redemptions (X
3E
= .11, p < .01) carries over
13
The iterations lasted ten hours on a standard desktop computer.
14
We considered the model estimates signicant if more than
99% of the posterior distribution did not contain 0.
TABLE 4
Estimated Effects of Customized Coupons and Control Factors
Log of Trip Trip Log of Customized
Revenue Incidence Coupon Redemption
Intercept 127 (.06) 45 (.05) n.s.
Customized coupon redemption 15 (.05) n.s. N.A.
Lagged customized coupon redemption N.A. 24 (.02)
a
27 (.09)
Carryover of customized coupon redemption (
R
) n.s. n.s. n.s.
Customized coupon exposure 143 (.07) 540 (.21) 08 (.03)
Carryover of customized coupon exposure (
E
) 02 (.006) 05 (.007) 11 (.04)
Quarter 2 (both year 1 and 2) n.s. n.s. n.s.
Quarter 3 (both year 1 and 2) n.s. n.s. n.s.
Quarter 4 (both year 1 and 2) 11 (.02) 15 (.01) 29 (.05)
Recency 004 (2e4) 034 (3e4) n.s.
Lagged trip revenue 07 (.005) n.s.
Lagged trip incidence 08 (.0001)
Lagged cross-buying 012 (.001) 021 (.002) 003 (1e4)
Conventional promotion 007 (1e 4)
Lagged feature or display 006 (.0009) 003 (.0006) N.A.
Lagged propensity to redeem FSI coupons 20 (.03) 122 (.43)
Lagged propensity to use retailer discounts 19 (.01) 133 (.25)
Preference-weighted nonprice promotion 025 (.001) 047 (.005) 0003 (1e5)
a
The model was reestimated with lagged redemption stock for trip incidence after we observed a nonsignicant effect of the customized coupon
redemption for trip incidence. The coefcient of lagged redemption stock is from the reestimated model.
Notes: n.s. = not signicant (i.e., 0 lies within 99% of the posterior distribution). N.A. = not applicable.
to the next week. Thus, more than 99% of the exposure
effect of customized coupon campaigns on trip incidences,
revenue, and customized coupon redemptions occurs within
two to three weeks. Similar to Neslin, Henderson, and
Quelch (1985), we observe a signicant, positive redemp-
tion effect on trip revenue (.15, p < .01); no signicant
redemption effect on trip incidence; and a signicant, neg-
ative effect of lagged redemptions on current customized
coupon redemption (.27, p < .01). Therefore, the estimated
redemption effects provide partial support for H
2
. The esti-
mates of X
R
(or the weight of the redemption stock variable)
were not signicantly different from zero, which implies
that redemptions of customized coupons do not have a sig-
nicant carryover effect on future customer behavior.
We reestimated our model including lagged redemp-
tion stock for trip incidence (Equation 1b) after observ-
ing a nonsignicant effect of current redemption stock
on trip incidence. The estimates in Table 4 show a sig-
nicant and negative lagged redemption effect on trip
incidence (.24, p < .01).
15
This nding, combined with
the positive redemption effect on trip revenue, sug-
gests that customers may accelerate purchases when they
redeem customized coupons. The Model Comparisons
and Post Hoc Analyses section in the Web Appendix
provides additional descriptive statistics that suggest pur-
chase acceleration (see http://www.marketingpower.com/
jm_webappendix). Although we proposed both purchase
acceleration and store switching as drivers of the redemp-
tion effect, we could not evaluate store switching, because
we lacked access to consumers purchases in competing
stores. A negative redemption effect on trip incidence also
could be observed with store switching if a customer
15
The other estimates of customized coupons, moderators, and
control factors were not substantially affected after including the
lagged redemption stock variable in the trip incidence equation.
switched to the focal store in the week of coupon redemp-
tion and went back to competitive stores in other weeks.
Our primary objective in this study was to assess the
redemption effects of customized coupons on customer pur-
chases. Our results provide motivation for additional stud-
ies to evaluate the process that leads to redemption effects,
such as purchase acceleration and store switching.
We also estimated our model on a subsample of 1,150
test group customers who were nonredeemers of the cus-
tomized coupon campaigns. The campaigns had a positive,
signicant exposure effect on trip incidence (5.27, p < .01)
and trip revenue (1.47, p < .01), even among nonredeemers.
The carryover effect of exposure among nonredeemers also
was similar; 5% of the exposure effect on trip incidence and
2% of the exposure effect on revenue carried over to the
next week. This effect, even among nonredeemers provided,
additional support for the exposure effects of customized
coupon campaigns.
Control Factors
The seasonality factors in Table 4 indicated that cus-
tomers had higher trip incidence and trip revenue and also
redeemed more customized coupons during the holiday sea-
son than in other quarters. As Table 4 shows, more recent
shoppers, customers with higher degrees of cross-buying,
and higher levels of past activity (either lagged trip rev-
enue or lagged trip incidence) were more likely to visit
the store and spend more per visit. In line with Inman,
McAlister, and Hoyer (1990), we found signicant, posi-
tive effects of the lagged feature or display promotions and
the current period preference-weighted nonprice promotion
on customer behavior. Therefore, we infer that customized
coupons have an exposure effect on customer behavior,
beyond the widely acknowledged exposure effects of fea-
tures and display. Customers who were likely to redeem
more FSI coupons provided lower trip revenue and trip inci-
dence. Customers likely to purchase more products with
retailer discounts provided higher trip revenue and trip inci-
dence. Finally, customers who redeemed more conventional
coupons also were likely to redeem customized coupons.
Retailer Decision Model
Estimates from the retailer decision model indicated that
retailers considered customers past spending, prior coupon
redemptions, and prior exposure to customized coupon
campaigns when selecting customers for the customized
coupon campaigns. We observed signicant effects of some
of the customer-specic coefcients p
i
in the retailer deci-
sion model, which emphasizes the importance of accom-
modating unobserved factors in the retailer selection model.
Further details on the estimates from the retailer deci-
sion model appear in the Model Comparisons and Post
Hoc Analyses section in the Web Appendix (http://www
.marketingpower.com/jm_webappendix).
Moderators of Redemption and Exposure Effects
Table 5 provides the effect of the moderator variables on the
intercepts of trip revenue, trip incidence, and customized
coupon redemption. These direct effects provide face valid-
ity to the results. That is, higher coupon face values, more
coupons per campaign, and coupons that provide higher t
were associated with higher trip revenue, trip incidence,
and customized coupon redemptions. Campaign regular-
ity reduced trip revenue but increased customized coupon
redemption. Table 5 also provides estimates of the modera-
tors of the redemption effect and the exposure effect on trip
revenue, trip incidence, and customized coupon redemption.
All the moderators with a signicant effect in Table 5 sup-
ported the proposed hypotheses. The moderators affected
coefcients of the lagged redemption stock in the trip inci-
dence and the customized coupon redemption equations.
The signicant moderating effects of the number of
coupons per campaign and the face value of a coupon in
Table 5 provided support for H
3a
and H
3c
and partial support
for H
3b
. The results revealed that monetary savings were
essential for the effectiveness of the customized coupon
campaigns. In line with H
4a
, the regularity of the campaigns
was negatively associated with the exposure effect on trip
revenue and trip incidence. We found partial support for
H
4b
, because the regularity of the campaigns was negatively
associated with the redemption effect on trip revenue. How-
ever, campaign regularity did not signicantly moderate the
exposure effect on customized coupon redemptions, imply-
ing that the surprise effect of coupon campaigns did not
affect redemptions.
Customers who received more noncustomized coupons
exhibited a reduced exposure effect on trip revenue and trip
incidence. Customers who received more reward campaigns
and coupons for niche products had an enhanced exposure
and redemption effect on trip incidence, trip revenue, and
customized coupon redemption, in full support of H
5a
, H
5c
,
H
6a
, and H
6c
but only partial support for H
5b
and H
6b
. Our
results do not preclude the possibility that the exclusive
noncustomized offers are more effective than offers that are
customized but not exclusive. The comparison of the cus-
tomized coupon campaigns and FSIs provided a benchmark
with offers that were neither customized nor exclusive. The
moderators of the lagged redemption effect on trip inci-
dence and customized coupon redemption also supported
the substantive results of our study.
Comparison with FSIs
We compared customized coupon campaigns and FSIs in
the cereal and yogurt categories. Because FSI coupons are
distributed every week, we were unable to capture variation
in consumer exposure if we focused on total basket spend-
ing. However, FSI coupons are not distributed every week
for all categories. So by focusing on a subset of categories
that are popular among customers and heavily couponed
(cereal and yogurt), we captured the variance in coupon
exposures. In the category analyses, we modeled only pur-
chases in these categories.
The duration of the FSI coupon exposure corresponded
with the expiration date of the coupons available in the FSI
distribution data. Because FSIs were available to all cus-
tomers within a certain zip code, we matched the FSI and
customized coupons from the zip codes in the shopper card
data.
16
On average, a customer spent $.70 and $.18 per trip
on cereal and yogurt, respectively. Among trips with at least
one customized coupon redemption, the average numbers
of customized coupon redemptions were 3.25 and 1.8 in
16
This analysis included FSI distributed through all media,
including newspaper and direct mail.
TABLE 5
Inuence of Moderators
Intercept Redemption
b
Exposure
Moderators LTR (
10i
) TI (
20i
) LCCR (
30i
) LTR (
1Ri
) TI (
2Ri
) LCCR (
3Ri
) LTR (
1Ei
) TI (
2Ei
) LCCR (
3Ei
) Effect Size
a
Coupon face value n.s. 05 (.01) 21 (.01) 31 (.11) 15 (.06) 11 (.01) 41 (.16) 23 (.02) 14 (.02) 104%
Number of coupons 02 (.005) 01 (.005) n.s. 01 (.001) 04 (.01) 01 (.003) 04 (.006) 01 (.007) n.s. 135%
Campaign
regularity 25 (.07) n.s. 06 (.02) 08 (.02) 11 (.01) 07 (.01) 22 (.06) 12 (.01) n.s. 116%
Reward
campaigns 112 (.41) 15 (.55) 15 (.08) 06 (.02) n.s. n.s. 92 (.15) 22 (.04) 15 (.01) 126%
Niche products 24 (.11) n.s. 07 (.04) 43 (.18) 33 (.16) 06 (.01) 29 (.18) 15 (.02) 08 (.03) 140%
Noncustomized
coupons 14 (.03) 11 (.01) n.s. 004 (.0004) n.s. n.s. 05 (.01) 03 (.004) n.s. 97%
a
Customers who received the average number of coupons per campaign have prots that are 135% higher than customers who did not receive any coupons in any campaign.
b
For redemption effects, the moderators in trip incidence and customized coupon redemption affect lagged stock variables.
Notes: n.s. = not signicant (i.e., 0 lies within 99% of the posterior distribution). LTR = log of trip revenue, TI = trip incidence, and LCCR = log of customized coupon redemption.
R
e
t
u
r
n
s
f
r
o
m
R
e
t
a
i
l
e
r
-
C
u
s
t
o
m
i
z
e
d
C
o
u
p
o
n
C
a
m
p
a
i
g
n
s
/
8
9
TABLE 6
Comparison of Customized and Freestanding Insert Coupons
Cereal Yogurt
Log of Log of
Customized Customized
Log of Category Category Coupon Log of Category Category Coupon
Revenue Incidence Redemption Revenue Incidence Redemption
Intercept 53 (.004) 52 (.01) n.s. 54 (.005) 59 (.02) n.s.
Redemption of customized
coupons 03 (.006) n.s. N.A. 05 (.008) n.s. N.A.
Lagged redemption of
customized coupons N.A. 16 (.02) 49 (.02) N.A. 13 (.01) 44 (.06)
Exposure to customized
coupons 64 (.03) 247 (.13) 34 (.02) 156 (.09) 148 (.04) 11 (.04)
Carryover of customized
coupon exposure (
CE
) 10 (.007) 11 (.02) 10 (.04) 10 (.02) 11 (.008) 13 (.05)
Redemption of FSI
coupons n.s. n.s. N.A. n.s. n.s. N.A.
Lagged redemption of
FSI coupons n.s. 02 (.001) n.s. n.s.
Exposure to FSI coupons 02 (.002) 83 (.17) n.s. n.s. n.s. n.s.
Carryover of FSI coupon
exposure (
FE
) 02 (.002) 02 (.007) n.s. n.s. n.s. n.s.
Notes: We do not report carryover of the redemption effect of customized and FSI coupons, because it was not signicant for either category
on any customer decision variables. n.s. = not signicant (i.e., 0 lies within 99% of the posterior distribution). N.A. = not applicable.
the yogurt and cereal categories, respectively. In the analy-
sis, we added FSI redemption and exposure stock variables
to Equations 1a1c. Table 6 provides the results from the
category-specic model.
The results indicated that FSIs had an exposure effect
on category incidence (.83, p < .01) and category revenue
(.02, p < .01) for cereal only. The FSIs did not have signif-
icant redemption effects on cereal or yogurt purchases. In
contrast, customized coupons had substantial exposure and
redemption effects on customer behavior for both cereal and
yogurt. Customized coupons thus provided a more robust
effect on retailer customer behavior than noncustomized
coupons. We compared the effect sizes of targeted and
mass FSI coupons by projecting the nancial value of the
coupons.
17
Quantifying the Financial Value of
Customized Coupons
We quantied the nancial value of customized coupons
by predicting the increase in customer contributions, net
of marketing, from mailing a single additional customized
coupon campaign in the 103rd week. Customer contribu-
tions net of marketing (CCNM
it
) is the difference between
the estimated contribution of customer i in week t and the
associated variable marketing costs, represented as
CCNM
it
= |CGM
i
TR
it
FCCCR_PVT
it
R_Disc
it
] (7)
TI
it
(U_CCCC
it
),
17
This analysis did not address the potential effect of coupons in
these categories on brand market shares across or within specic
retailers, which was not the objective of the comparison.
where
U_CC = the unit cost of each customized coupon campaign,
CCR_PVT = the number of private label customized coupons
redeemed by the customer,
R_Disc = the level of retailer discounts available through the
shopper card, and
FC = face value of the private label customized coupon.
When there is no customer incidence, the retailer only
incurs the cost of mailing the customized coupon cam-
paign (U_CCCC
it
). The customer contribution and all the
marketing costs, including retailer discounts, private label
coupon redemptions, and the cost of mailing the coupons,
get realized only when a customer visits the store. We
obtained customer contribution from the product of the
customer-specic margin (CGM
i
) and the trip revenue pro-
vided by customer i in week t (TR
it
). The margin for cus-
tomer i is provided by
CGM
i
=
C
c =1
pc
ic

CM
c
, (8)
where
CM
c
= gross margin for category c, which is the average of the
margins of all the brands within category c,
pc
ic
= probability of observing category c in customer is basket
or trip, and
C = number of categories in a store.
As shown in Equation 8, a customers gross margin is
the weighted sum of the gross margins for all the categories
in the store. A category gross margin (
CM
c
) is the average
of the gross margins obtained by the retailer from all the
brands in that category. The customer- and category-specic
weights, p
ic
, are the probability of observing a purchase
from a category in a customers basket. The incidence prob-
ability of category c in customer is basket is the ratio of the
number of trips (out of the 102 weeks in our data) in which
category c appears in customer is basket to the number of
trips made by customer i in those 102 weeks.
In our estimate of customer margin, customers who
spend more in higher gross margin categories than oth-
ers have a higher contribution. We could not include
brand margins in the customer contribution calculation,
because the information was not available. Our metric
therefore cannot distinguish between customers who pur-
chased higher and lower margin brands, and we refer
to our metric as customer contribution net of marketing.
The metric had face validity in our context because cus-
tomized coupon campaigns and redemptions were not sig-
nicantly related to the change in brand share for each
customer.
18
We also were interested in the effects of a
customized coupon campaign that contained coupons from
several brands and categories. We provide details on the
brand share analyses and assess the sensitivity of our results
to including brand-level margins in the Model Compar-
isons and Post Hoc Analyses section in the Web Appendix
(http://www.marketingpower.com/jm_webappendix).
Because manufacturers reimburse coupon discounts for
national brands, we did not include them in Equation 7.
Consistent with the retailers beliefs, U_CC was set to $.5,
and the average face value of private label coupons was
equal to $.50. We then performed the simulation to quantify
the nancial value of customized coupon campaigns.
We assumed the retailer did not use a customized coupon
campaign in the third year. To calculate the redemp-
tion effect, we predicted the customer contribution net
of marketing (Equation 7) for each customer i for three
weeks starting from the 103rd week, considering the carry-
over effect of customized coupon campaigns on customer
purchases and coupon redemptions. Because 4% of the
coupons in our data were for private labels, we obtained
CCR_PVT
it
equal to 4% of the predicted number of cus-
tomized coupon redemptions.
Assume the retailer sends a single customized coupon
campaign to all the customers in the sample in week
103. We computed the corresponding increase in cus-
tomized coupon redemption and the redemption effect on
trip incidence and trip revenue until week 106 to calculate
the customer contribution net of marketing attributable to
redemptions.
The difference in the customer contribution net of mar-
keting thus calculated provided the incremental customer
contribution net of marketing from customized coupon
redemption, INC_CCNM
Redemption
.
19
We used a similar pro-
cedure to calculate the returns from exposure to customized
coupon campaigns and for the redemption and exposure
effects of FSIs. For FSIs, we only used the category-specic
models. Table 7 provides the results from the simulation.
18
Customized coupon campaigns might not relate to change in
brand share if multiple brands within the same category provided
coupons across the different campaigns.
19
In accordance with the estimation algorithm for our model,
we calculated the average of INC_CCNM
Redemption
across the pos-
terior sample to obtain the expected incremental redemption and
exposure effects.
TABLE 7
Returns from Customized Coupon Campaigns
Predicted Average Lift
in Customer Contribution
Net of Marketing ($)
All Customers (n = 2,500)
Basket (104)
a
Customized coupons 1522
Cereal (2.3)
FSI coupons 0003
Yogurt (.9)
FSI coupons 0007
Only Nonredeemers (n = 1,150)
Basket (102)
Cereal (2.2)
FSI coupons 0001
Yogurt (1.0)
FSI coupons 5e8
a
Values in parentheses are customer contributions net of marketing
without a customized coupon campaign.
The effect size was highest for the moderators that affect
coupon t, which implies that the selection of the right
products for the customized coupons had a stronger inu-
ence on customer behavior than the discounts provided or
the timing of the campaigns. Campaigns with a higher
number of noncustomized coupons were least effective.
Customer contribution net of marketing would increase by
approximately 25% if customers were exposed to more
reward campaigns. The inclusion of coupons for niche
products improved the effectiveness of the customized
coupon campaigns by another 19%.
Mere exposure to a single customized coupon cam-
paign increased customer contribution net of marketing by
$15.22 over three weeks, compared with no customized
coupon campaign. Thus, a single customized coupon cam-
paign should improve customer contribution net of mar-
keting by 14% over three weeks. More than 90% of
the predicted returns from customized coupon campaigns
could be attributed to the direct mere exposure effect. The
moderators showed, however, that the coupons themselves
were essential for improving the direct exposure effect of
customized coupon campaigns. The predicted redemption
effect also might be lower, because only about 27% of the
consumers who received the campaigns redeemed any cus-
tomized coupons. Furthermore, redemption of private label
customized coupon campaigns reduced customer contribu-
tions net of marketing. Our results therefore suggested that
customized coupon redemptions had a marginal effect on
customer contribution, over and beyond the exposure effect.
When we considered only the cereal category, cus-
tomized coupon campaigns provided a lift of $.01 over
three weeks. We infer that customized coupons provided a
substantial halo effect on customer spending in other cat-
egories because the retailer-level incremental returns from
a single customized coupon campaign ($15.22) was more
than 30 times the incremental returns for a single cate-
gory ($.01).
20
Among nonredeemers, a single customized
coupon increased the customer contribution net of market-
ing by $14.83. Our comparison of the FSIs and customized
coupons were restricted to shopper card members. The dif-
ference in returns of customized coupons and FSIs could
change if nonmembers of the shopper card program also
were included in the analyses.
Effect Sizes of the Moderators
Table 5 provides the effect sizes of the moderators on cus-
tomer contribution net of marketing. For each moderator,
we computed the customer contribution net of marketing
at the mean level of the moderator and the mean level of
the redemption and exposure stock.
21
The baseline was the
customer contribution net of marketing obtained when none
of the moderators had an effect (i.e., all were 0). We com-
puted the effect size of a moderator as the ratio of the
customer contribution net of marketing at the mean level of
the moderator to the baseline customer contribution net of
marketing. For example, Table 5 shows that customers who
received the average number of coupons per campaign pro-
duced returns that were 135% higher than customers who
did not receive any coupons in any campaign.
Alternative Explanations
Correlation of Exposure Effects and
Purchase History
If the customized coupons were provided for brands that
customers typically purchase, the exposure effect could be
spuriously correlated with customers purchase amounts.
Our study design and the availability of coupons for cat-
egories in which customers have not bought before (i.e.,
cross-selling coupons) led us to believe that customer pur-
chase history did not confound the exposure effects in our
study. First, the trip revenue for nonredeemers was sig-
nicantly higher in months when they were exposed to
the coupon campaigns than in months when they were not
exposed. If the campaign did not have a true exposure
effect, the higher trip revenue and trip incidence would
not coincide with the months when the household received
more campaigns. Second, a substantial portion of the rev-
enue increases came from nonpromoted categories, indicat-
ing a halo effect. Even if exposure were correlated with
consumption in promoted categories, the halo effect was
not. Third, we would not be able to distinguish between
exposure and consumption in promoted categories if all
consumers received the same number of campaigns every
week. In our study, the households varied in the number
of campaigns they received, and the increase in customer
purchases correlated with the number of campaigns they
received.
Almost 38% of the campaigns launched by the retailer
had coupons for categories that the households did not buy
with the retailer. In reward campaigns, more than 70% of
20
We multiplied the incremental category-level prots by 30
because we classied the products into 30 categories.
21
For moderators that were dummy variables, we assessed the
marginal effect when the moderator variable was equal to 1.
the coupons were for categories (and brands within the cat-
egories) that the customer had bought before the coupon
campaigns were initiated. In contrast, in the cross-selling
campaigns, fewer than 6% of the coupons were for cate-
gories that the customer had bought before the customized
coupon campaigns were initiated. We estimated a model
of exposure for reward and cross-selling campaigns sep-
arately for the nonredeemers and for all customers and
found a signicant exposure effect for the cross-selling
campaigns. Further details regarding our justication for
the exposure effect are in the Model Comparisons and
Post Hoc Analyses section in the Web Appendix (http://
www.marketingpower.com/jm_webappendix).
Lagged Exposure Effects
Both the exposure and redemption effects may account for
purchase acceleration due to customized coupons. We esti-
mated our model to include lagged exposure in the trip
revenue, trip incidence, and customized coupon redemp-
tion equations. We also included lagged redemption in the
trip revenue equation. We did not estimate the stock vari-
ables in this model because in our previous estimation, the
carryover coefcients indicated that campaigns before two
weeks prior did not affect customer purchases substantially
(both exposure and redemption effects). The results from
this model showed a signicant and negative lagged expo-
sure effect on trip incidence, trip revenue, and customized
coupon redemption. We also observed a signicant, nega-
tive lagged redemption effect on trip revenue. The results
therefore implied that lagged exposure and redemption both
captured the effects of purchase acceleration. In the model
with lagged exposure and redemption effects, the incremen-
tal returns from customized coupons was estimated to be
$15.10 per customer for a three-week period. Our model
with the stock variables thus accounted for a substantial
portion of the lagged exposure and redemption effects.
22
Managerial Implications and
Further Research
Implications
To our knowledge, this is the rst study to quantify the sub-
stantial nancial effects of customized coupon campaigns,
a rapidly growing form of coupons. If the campaigns target
the top 20% of retailers customer bases, the returns from a
single campaign should be equivalent to approximately .9%
of the retailers annual net income. The customized coupon
campaigns therefore represent a promising application of
customer relationship marketing data for retailers.
The mere exposure to a customized coupon campaign
increases customer contributions net of marketing. The
large increment in the returns due to customized coupons
even among nonredeemers and the variation in the magni-
tude of the exposure effect across the different categories
provide additional face validity for our results. Therefore,
we suggest that retailers should use metrics that incorpo-
rate exposure effects on total customer sales, in addition
to redemption rates, to evaluate their customized coupon
campaigns. The exposure effect also suggests that retailers
22
Further details regarding the estimates of the model with
lagged exposure effects are available on request.
should pay attention to the quality of the coupons copy, as
well as the discounts face value.
The relatively weak returns from FSIs suggest that retail-
ers would be better off developing their own customized
coupon campaigns than relying on any spillover from
manufacturer-sponsored FSI campaigns. A comparison of
the trip and category effects shows that the customized
coupon campaigns generate a substantial halo effect on
sales in the nonpromoted categories. Thus, retailers should
bundle coupons with complementary products or provide
recipes that highlight nonpromoted categories in the store
to leverage the potential halo effect. Although redemp-
tions may be a relatively small part of the incremental
returns from customized coupon campaigns, the coupons
themselves seem necessary to achieve customer attention
and the exposure effect. This assertion is consistent with
Neslins (2002) and Leclerc and Littles (1997) work, but
to our knowledge, this study is the rst to provide empiri-
cal evidence.
In line with prior research (Heilman, Nakamoto, and Rao
2002; Palmatier et al. 2009), our results reveal that customer
delight/gratitude for unexpected benets is responsible for
the effectiveness of the customized coupon campaigns. We
nd that unexpected customized coupons increase the effec-
tiveness of retailers customized coupon campaigns more
than regular quarterly mailings, which are more prevalent.
In addition, customized coupon campaigns are most effec-
tive when they reect customers preferences. For retailers,
this nding offers further evidence of the value of niche
products beyond what they contribute to the bottom line.
In an era of assortment reduction pressures, knowledge of
customer purchasing habits is critical for choosing the right
products. The moderators suggest strategies that can allow
retailers to provide lesser and low value discounts, thereby
increasing the margins of both retailers and manufacturers.
Limitations and Further Research
Although our quasi experiment provided good external
validity, truly randomized lab experiments would enable
researchers to develop detailed theory on the process
through which customized coupons affect customer behav-
ior. For example, we were unable to test directly the
assumptions that customized coupon campaigns had sur-
prise or delight aspects but rather used a proxy to estimate
the inuence of gratitude. Further research could extend our
additive model of moderators to include interactions among
them. For example, it would be useful to know whether
coupons for niche products that are rewards are more effec-
tive than coupons for niche products that are cross-sales.
Further research could compare the value of customized
coupon campaigns with other mechanisms that inuence
customers outside the store, such as television advertising.
We investigated only the direct-mail distribution mecha-
nism. Other popular distribution mechanisms include print-
ing a coupon at checkout for future visits and providing an
in-store kiosk at which customers can obtain customized
coupons for their current trip. In this study, we focused on
the implications for retailers. Further research investigating
the exposure value of customized coupon campaigns for
manufacturers would also be valuable. In addition, we only
assessed the returns from a single customized coupon cam-
paign. A promising research avenue would be to assess the
customer lifetime value implications of several customized
coupon campaigns. We did not compare nonexclusive cus-
tomized coupons with customized exclusive coupons. Such
a comparison would improve understanding of the rela-
tive importance of customization and exclusivity for cus-
tomized coupon campaigns. The exclusive noncustomized
coupons in our study only provided cash, not coupons
for the same categories or brands across all customized
coupons. Furthermore, these coupons appeared in the same
campaign with other customized coupons, which made it
difcult to disentangle the effects of noncustomized and
customized coupons in our study. We acknowledge that the
lift due to the halo effect in nonpromoted categories, which
our methodology classies with exposure effects, might
be attributable to coupon redemption among redeemers,
which would reduce the relative size of the exposure
effect. The lift among nonredeemers however indicates that
the exposure effect is substantial. If retailers systemati-
cally promoted higher margin brands and consumers tended
to redeem coupons disproportionately on higher margin
brands, the relative effects of exposure and redemption on
customer prots could shift.
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