Modeling coupon values for ready‐to‐eat breakfast cereals

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].