Coupons Along the Conversion Funnel: A Structural Approach

Abstract

We study how couponing affects consumer behavior online along the conversion funnel. Toward this end, we explore three explanations: Couponing can affect consumer response by changing (1) the cost a consumer incurs to visit the website (i.e., visit cost), (2) the cost she incurs to search for a product (i.e., search cost) upon visit, and (3) the utility from purchase through price discount (i.e., price discount). Leveraging the exogeneous variation generated from a randomized field experiment of couponing, we develop a structural model to measure the causal effects of the coupon on website visit, product search, and purchase conversion in an e-commerce setting. We find couponing lifts consumer purchases primarily through an increase in consumer visits to the website, and most of the coupon effects on consumer visits arise from lowering the cost for consumers to visit the website. Using policy simulations, we demonstrate the presence of the coupon effects through visit cost, search cost, and price discount, and quantify the magnitude of these effects along the conversion funnel. We discuss the implications for customer targeting and promotion evaluation.