Couponing When Preferences Change: To Whom and How Many?

Couponing When Preferences Change: To Whom and How Many?

Employing a differentiated product duopoly model with repeat purchase, this paper examines optimal targeted couponing when consumers have changing preferences and are forward-looking. To find optimal couponing, we consider the following sequential decision of couponing. Firms first decide how many of their own customers they will offer coupons to. Having determined the number of defensive coupons to be offered, firms decide how many of rivals’ customers they will offer coupons to. Focusing on a symmetric equilibrium, we find that the firms can maximize profits by distributing coupons to all of their own customers and only them.