Clipping Coupons: Redemption of Offers with Forward-Looking Consumers

Working Paper Number: 
WP 18-10

Consumer redemption behavior pertaining to coupons, gift certificates, product sampling, rebates, and the like, has been the focus of much scholarly inquiry and the extant literature has documented two noteworthy empirical regularities - a bump in redemptions close to offer expiry and greater redemption with shorter redemption windows. In the extant work, these phenomena have been explained by invoking myopic consumers. Against this backdrop, we ask a simple question: can these phenomena survive if we assume rational, forward-looking consumers?  Accordingly, we develop a model consisting exclusively of forward-looking consumers and incorporate two constructs highlighted in the literature - forgetting and stochastic redemption costs. We derive consumers' period-by-period redemption rule and subsequently illustrate the emergence of the two aforementioned empirical regularities.

JEL Codes: 
D11, D81, D91

Joseph Kissan