Digital Redemption of Coupons: Customer Perceptions of Satisfying and Dissatisfying Price Discrimination

Coupons in the form of “promotion codes” are now a mainstay of the online shopping experience, but online coupon redemption differs substantively from that in traditional retailing. Generally, offline redemption of coupons is customer-initiated while Internet shoppers are usually prompted to enter a code towards the conclusion of the checkout process. Some controversy exists over the effect this prompting may have on shopper perceptions and behaviors such as shopping cart abandonment. While a number of reasons may explain why consumers would leave a site mid-purchase, we hypothesize that perceived inequity by those not having codes or those without the means to acquire them is an alternative explanation for dissatisfaction and abandonment. We create an online experiment to test for such effects. While completing a hypothetical purchase, some respondents received a completed code field, others an empty field, and still others were not prompted for a code (the control group). Results showed strong negative effects on price fairness, satisfaction, and intention to complete the purchase in the code-absent group and positive effects on fairness and satisfaction in the code-present group. Moreover, differing presentations of the code prompt and terminology for the code itself (promotion, coupon, discount) were evaluated. Subtle differences were observed in the phrase used to describe the code. Controlling for a self-reported reference price for a generic product in the purchase scenario (a birthday gift), intent to complete the purchase (or not abandon the shopping cart) differed significantly across treatments. Implications for price discrimination and firm profitability were drawn from these findings. Lastly, we present suggestions for effective market segmentation through the use of online coupon codes.