Modeling coupon values for ready‐to‐eat breakfast cereals

Abstract

This study identifies the determinants of coupon values at the brand level within the context of a complex marketing program. A two-equation, fixed-effects, panel-data model accounts for the bidirectional causality between brand prices and discount levels. The empirical model is fitted with data on household purchases of ready-to-eat (RTE) breakfast cereals and captures the industry's 1996 price cuts and discount reductions. Higher brand prices cause coupon values to rise, supporting the price discrimination hypothesis. Coupon values fall with in-store displays and more intense advertising but rise when couponed products are featured in store flyers. Discount levels are positively related to brand market share and the size of discounts redeemed for rival cereals. Coupon values fall with increasing brand loyalty among RTE cereal purchasers. Cereal prices are positively affected by coupon values, advertising expenditures, input costs, and the prices of competing brands. Inventory levels are negatively correlated with brand price. [EconLit citations: Q130, D120, L130]. © 2003 Wiley Periodicals, Inc. Agribusiness 19: 223-243, 2003.*

The Determinants of Coupon Discounts for Breakfast Cereals

“…However, that longstanding practice was broken in April 1996. Per capita consumption of branded cereals stagnated in the early 1990s because of the rising differential between branded and private-label cereal prices (Price, 2000;Price & Connor, 2001). Consumers were also switching to more portable foods such as bagels and breakfast bars (Canedy & Abelson, 1999).…”

“…Brand market share (MS i ) is also thought to influence discount levels. Manufacturers are assumed to use coupons as share-maintenance tools (Price, 1999). Therefore, a positive relationship between brand market share and discount levels is expected.…”

“…17 Inputs were separated into grains (wheat, rice, corn, oats, and barley), sugar, oil, nuts, dried fruit, paperboard boxes, and plastic bags, according to a list of primary inputs in the Census of Manufactures (U.S. Census Bureau, 1992). The amounts of the various food ingredients (in percentage terms) were chosen based on cereal type (Price, 1999). Annual producer price indexes for the commodities and packaging materials were gathered from the U.S. Bureau of Labor Statistics (1999).…”