Introduction
In the rapidly evolving digital economy, e-commerce platforms are increasingly relying on platform-led coupons as a strategic tool to boost consumer engagement and drive sales. As user growth plateaus, competition for consumer attention intensifies, making it essential for platforms and merchants to collaborate effectively. One of the most powerful levers in this collaboration is the coupon—a simple yet impactful mechanism that can unlock latent demand.
But how should these coupons be distributed? Should the platform flood the market with abundant offers, or create artificial scarcity to drive urgency? More importantly, who should bear the cost—the platform or the merchant? These questions lie at the heart of modern e-commerce strategy.
This article explores the dynamics of coupon distribution through a game-theoretic lens, analyzing optimal strategies under different cost-bearing models. By understanding the interplay between coupon supply, pricing behavior, and consumer segmentation, we uncover actionable insights for platforms and merchants aiming to maximize profitability while maintaining cooperation.
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Consumer Heterogeneity and Coupon Strategy Design
Consumers are not uniform in their shopping behaviors. On any given platform, users fall into distinct segments based on purchase frequency:
- Low-frequency consumers: Shop occasionally, often triggered by promotions.
- High-frequency consumers: Regular buyers who may expect consistent rewards.
This heterogeneity directly impacts coupon strategy effectiveness. A limited number of coupons may satisfy infrequent shoppers but fail to retain power users. Conversely, unlimited access might erode margins without proportionally increasing loyalty.
To model this, researchers categorize coupon distribution into three strategic tiers:
- Supply-scarce strategy: Coupons are insufficient even for low-frequency users.
- Supply-intermediate strategy: Only low-frequency consumers’ needs are met.
- Supply-adequate strategy: All consumers, including high-frequency ones, can redeem coupons as needed.
The choice among these strategies hinges on who bears the coupon cost and how cross-selling and customer satisfaction influence overall profitability.
Platform vs. Merchant: Who Should Pay for Coupons?
When the Platform Bears the Cost
When the platform assumes the financial burden of coupons, a cooperative equilibrium emerges under the supply-adequate strategy. Here's why:
- The platform sets a high coupon denomination (e.g., $10 off).
- Merchants respond by raising their product prices, knowing consumers will use coupons.
- High redemption rates increase transaction volume and cross-selling opportunities.
- Customer satisfaction improves due to perceived value.
In this scenario, both parties benefit: the platform attracts more traffic, and the merchant enjoys higher sales volume—even at elevated prices—because effective demand expands.
This model mirrors real-world examples like Amazon Prime or JD PLUS, where platforms offer generous benefits (e.g., free shipping, exclusive discounts) funded entirely by the platform. The result? Increased user retention and broader ecosystem engagement.
When the Merchant Bears the Cost
If the merchant absorbs the coupon cost, the dynamic shifts dramatically. While platforms still prefer issuing large volumes of coupons to stimulate traffic, merchants face margin pressure.
Key challenges include:
- Reduced per-unit profit due to discounting.
- Risk of price wars if multiple merchants participate.
- Limited incentive to cooperate unless platform concessions are made.
To maintain cooperation, the platform must compromise by lowering the coupon denomination. For example, instead of offering $10 off, it might reduce it to $5. This adjustment protects merchant margins while preserving promotional momentum.
Real-world cases like Taobao’s 88VIP program illustrate this model: participating merchants automatically承担 a 5% discount cost per order. To prevent merchant attrition, Taobao balances promotion scale with profitability safeguards.
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Core Determinants of Optimal Strategy
Two critical factors determine whether the platform or merchant should bear coupon costs:
1. Customer Satisfaction Level
High customer satisfaction amplifies word-of-mouth and repeat purchases. When satisfaction is strong, platforms can justify bearing costs because long-term user retention offsets short-term losses.
2. Cross-Selling Potential
If coupon usage leads customers to explore additional products (e.g., buying accessories after a discounted main item), the platform gains more from increased basket size. In such cases, platform-funded coupons generate higher ROI.
When both factors are strong, platform-funded, supply-adequate strategies dominate. When weak, merchant-funded models with restrained issuance perform better.
Extended Insights: Shared Cost Models
Even when costs are shared between platform and merchant, core findings remain robust. For instance:
- With a 50/50 cost split, optimal denomination adjusts proportionally.
- Supply-adequate strategies remain preferable when cross-selling is high.
- Platforms still lead in setting terms, preserving strategic control.
Moreover, sensitivity analysis shows that results hold even when cross-selling effects vary with coupon value—validating the model’s applicability across diverse product categories.
Frequently Asked Questions (FAQs)
Q: What is a platform-led coupon?
A: A coupon initiated and managed by an e-commerce platform (e.g., Amazon, JD.com), where the platform decides the discount amount and rules, even if the merchant pays part of the cost.
Q: Why does it matter who bears the coupon cost?
A: It affects pricing behavior, profit distribution, and long-term cooperation. If merchants bear full costs, they may resist deep discounts; if platforms pay, they can drive broader adoption but must ensure ROI.
Q: Is more always better when issuing coupons?
A: Not necessarily. While sufficient supply boosts high-frequency users' satisfaction, excessive issuance can hurt margins. Strategic balance based on consumer behavior is key.
Q: How do coupons affect product pricing?
A: Merchants often raise base prices when large coupons are available, anticipating that consumers will redeem them. This helps offset discount costs while maintaining margins.
Q: Can small merchants benefit from platform-led coupons?
A: Yes—but only if participation rules are fair and cost-sharing is transparent. Smaller players need protection from predatory pricing or disproportionate cost burdens.
Q: Are digital coupons more effective than traditional ones?
A: Yes. Digital coupons allow precise targeting, real-time tracking, and integration with membership systems—making them far more efficient than paper-based predecessors.
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Conclusion
The optimal coupon strategy on e-commerce platforms isn’t one-size-fits-all—it depends on cost structure, consumer behavior, and ecosystem dynamics. Key takeaways include:
- Supply-adequate strategies work best when platforms bear costs, especially when customer satisfaction and cross-selling are high.
- Merchant-funded models require compromise, with platforms moderating coupon value to protect margins.
- Cooperation hinges on fairness: Platforms must balance traffic generation with partner profitability.
Ultimately, successful coupon programs align incentives across stakeholders. By leveraging data-driven insights and strategic game theory principles, platforms can design promotions that grow revenue, enhance loyalty, and sustain healthy merchant relationships—all without sacrificing profitability.
For platforms navigating this complex landscape, the message is clear: optimize not just for immediate sales, but for long-term ecosystem health.
Keywords: e-commerce coupons, platform-led promotions, coupon distribution strategy, consumer behavior, supply-adequate strategy, cost-sharing model, digital marketing optimization