The Impact of Coupons on the Search-to-Purchase Funnel: Theory and Empirical Evidence

Abstract

Firms use coupons to stimulate demand. Although couponing is popular in practice, limited research has examined the causal effects of coupons on visit, search, and purchase behaviors among heterogeneous customers. In this paper, we explore coupon effects using data from a randomized field experiment with an online retailer in which customers were divided into two heterogeneous customer segments (low value and high value) with two types of coupon discounts (base value and better value). We find couponing is effective in increasing revenue, primarily by attracting customers who purchase without coupon redemption, and the lift in revenue per customer is larger for the high-value segment. Using clickstream data of customer visit and search behavior, we find most of the revenue lift arises from a corresponding lift in the likelihood of visiting the website under couponing. Though the lift in visit likelihood is relatively homogeneous across customer segments under the base coupon, the high-value segment has a higher purchase conversion rate than the low-value segment, leading to an amplified revenue lift. We also find a deeper discount leads to higher redemption and purchase conversion for the high-value segment but does not change visit likelihood. Finally, most of the search behaviors are unchanged under couponing, suggesting the mix of customers brought in under couponing are similar to those who visit without receiving the coupon promotion.