Do Stores Lose Money on Coupons?
Every year, stores across the nation print millions of dollars worth of coupons for their customers. How do these companies make any money providing all of these deals? And do they lose cash on their coupons? The short answer is that companies don’t lose money on coupons. The longer answer showcases how and why businesses can offer large amounts of coupons to their customers every year.
Coupons Draw in Customers
Every retail shop worth its weight in gold carries thousands of items from hundreds of manufacturers. Each of these manufacturers wants to do anything necessary to capture the attention of a buyer and to draw them to their product. Fancy labels, catchy slogans, and colorful designs are just a few of the ways that manufacturers and retailers capture your attention.
And coupons are another one of these methods. When a manufacturer puts an item on sale, the buyer immediately notices it. And coupons that save even more money capture buyer attention even more heavily. For example, one dog food manufacturer offers a coupon for $0.25 off while another offers one for $0.50. Which of these is going to capture the attention of the buyer more readily than the other?
Obviously, the item with the bigger deal is likely to sell more. And here’s the big kicker: people who buy a product on sale are more likely to purchase multiple copies of the same item at that discounted price. The benefit here is obvious. If a store sells higher numbers of a product, they are more likely to make a profit on it. That’s why stores and manufacturers still offer – in limited amounts these days – doubling and stacking offers.
Discounted Items are Still Profitable
Buyers may still wonder how a store and a manufacturer can sell a product so cheaply and still make money. Isn’t the price set by the manufacturer and retailer as low as possible to make profits? Not exactly. In fact, the exact opposite is true. Manufacturers and retailers set prices on products as high as they think that consumers will tolerate. The actual cost of creating a product is always much lower than its selling price.
For example, an item like toothpaste may cost $2-4 on the shelf before a deal. However, a $0.50 discount drives the price down even further. But even at this lower price the manufacturer and the retailer spent less money creating, packaging, shipping, and displaying that product than an individual pays for it. This setup is simply a capitalist fact and is part of what drives the economy. The markup costs help the manufacturer and the retailer profit, pay their employees and continue their services.
That’s just one reason why you might see a product have such varying prices in stores near you. Smaller shops typically have to ask for more money because it costs more to ship items to them because they aren’t buying in bulk. Larger retail shops like Wal-Mart and Target not only buy more copious amounts of items but sell more of them at once, which allows them to set much lower prices than other stores.
Customer Loyalty and Satisfaction is Priceless
Companies who lose a few pennies on their profit line when offering coupons are still investing in their future by creating a higher rate of customer loyalty. This factor explains why stores that offer huge discounts often remain in business long past their competitors. For example, there is a small store in the even tinier town of Atlanta, Michigan (Freddie’s) that draws in customers every week due to their wild sales.
For example, this store is known to offer limitless (and often 50-75 percent) discounts on items such as potato chips, bottled water, processed foods, and much more. People who see these advertisements might think that the store is mad and likely hemorrhaging money. However, people travel for hundreds of miles to visit Freddie’s during these sales, with some people coming all the way from Canada to buy large amounts of many items in bulk.
The trick here is that the store often sells items that have reached their expiration date or which – and here’s the really clever idea – weren’t selling that well in the first place. Rather than keep large amounts of unsold product on their shelves, stores like Freddie’s discount them at incredible rates. As a result, people come to their shop and use their coupons. And while they are there, these people probably buy other items that aren’t on sale, increasing the store’s profit line even further.
And you can bet that those coupons, as huge of a dealer as they offer, still provide Freddie’s with a profit. Just as importantly, these deals create an intense brand of customer loyalty that more than makes up for lower immediate profits on an item. Customers who appreciate these deals are more likely to continue shopping at a store, even when no sales are in effect, thereby driving up profits in the long term.