Coupons are a surprisingly subtle invention. Now that anyone can offer them (because now anyone can have a store), it's worth a second to think about what they're for.
First benefit to the marketer is that coupons allow you to offer different prices to different people.
There's a reason that most coupons are not trivially easy to find or redeem. By trading effort for a discount, the marketer says, "if you care about price, I'll sell it to you cheaper, but you have to prove it." Hence the original idea behind Priceline. It was intentionally awkward to use so that the airlines could be confident that only the fare-obsessed would use it.
"Outlet" malls are just coupons in disguise. There's a reason that Armani doesn't have an outlet store on Fifth Ave. in NY. The drive is your way of proving you're serious about price.
The second benefit is that they provide the shopper with a totem. Paper coupons are best, but even digital codes work. With something tangible in hand, the shopper feels as though they have the power to go make an exchange. It's not just about trading money for the object or service. It's about trading in this thing I have in my hand (or pasted onto my clipboard). If I don't buy the thing, I've just lost the value of my totem. Now the purchase isn't just about spending money... it's about realizing the value of a thing I possess--or losing it forever.
Which leads to the third benefit: a coupon can mean now. Give me a coupon and I am forced to make a decision. Will I buy the service or product before the coupon expires or gets lost, or should I forfeit this thing of value?
Three benefits from one tool--and two caveats.
The first: don't do a coupon unless you can execute properly. It needs to be big enough matter. It needs to avoid alienating the middleman (retailer) if that's not you. And it can't destroy the product and what it stands for. No coupons for high-end plastic surgeons, please. Why? Because those that don't want to use the coupon might see it, and its very existence means the surgeon is no longer who you thought they were. No coupons for Tiffany's either.
The second: if you make the use of the coupon a hassle, you've blown it. Barbeques Galore lured me in with a 10% off coupon. Yes, I'm a cheapskate, but it was the totem that got me to go do something I'd been meaning to do anyway. It took me two minutes to find the item I was replacing. I handed them the coupon, picked out some overpriced accessories and stood as they wrote up the whole thing.
The clerk handed me the receipt, and I asked, "Where's the discount? It seems to be missing." The manager walked over and said that the coupon wasn't valid because the grill was on sale.
Well, sure, that's their privilege, but:
They didn't tell me, I had to ask
The coupon said no such thing
They didn't even apply the coupon to the non-on-sale other stuff.
No budging on their part, I finished my transaction and went home.
So, the smart marketer used the coupon properly. The short-term minded sales ops team decided that they could boost profits by alienating the very people the marketer lured in. One more reason that the marketer needs to be responsible for the whole chain.
The best thing about coupons in the post-newspaper insert era is that they are trivially easy to test and practically free to distribute.
PS Bryan Murley points out the other key benefit of coupons... they make it easy to track the media. That's why newspapers embraced them early on. Proof! Now, of course, they make it easy for you to see what's working and what's not. Thanks, Bryan.