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Couponing and Price Leaders

In the bleak economy in the first half of 2009, coupon redemption rose 19% compared to the same period in 2008. Even the largest Price Leaders (see Audio Tip #83: Price Leader Products and Companies on StrategyStreet.com) have had to go along with this development. The three largest discount clubs, Costco Warehouse, Sam’s Club and BJ’s Wholesale Club have increased their couponing to club members. (See Audio Tip #120: Using Low Price to Gain Share in Hostile Markets.)

Each of these three clubs carries a membership fee to join the retailer. These club membership payments entitle the retail shopper to take advantage of the large scale purchase economies each of these stores enjoys. The stores pass on these purchasing economies in the form of low prices for their members. Often these low prices alone are enough to provide these club-oriented retailers with attractive sales growth. However, even they have suffered in the bad economy of 2009 as consumers have spent less on discretionary items.

Now each chain is offering tailored coupons to selected members. Sam’s Club offers electronic coupons through kiosks at its stores. Today these coupons are offered to its highest paying membership categories, the Advantage and Business Plus cardholders. With the new coupon program, these selected members will receive three new coupons, good for about a month.

BJ’s has traditionally accepted manufacturers’ coupons which Sam’s does not accept. In the last few years, it has also provided members with coupons available at its web site for purchases in its stores.

Costco has been offering once-a-year coupon books, containing discounts with expiration dates staggered throughout the year. This keeps customers coming back to take advantage of the discounts. About a year ago, it began sending monthly coupon books with discounts expiring after four weeks.

In a tough market, even the lowest-priced of the Price Leaders have to offer something extra to keep the customers coming in.

A coupon is a form of discount (see Audio Tip #114: The Key Components of a Price on StrategyStreet.com), the method a company uses to convey a discount to a customer. Our research has determined that there are eight other forms of discount. Many of these forms reduce the cost of the discount to the company, while giving the full value of the discount to the customer.

Posted 8/27/09

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