Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

The Dark Side of Coupons -- 5 Reasons They Could Be Costing You Big

In the midst of riding out a tumultuous economy, we all want to save a buck and avoid paying full price if we can.

But rather than just watching their sales dwindle away, manufacturers and retailers have responded with a special tactic, creating a craze that was once reserved for only the most frugal of individuals -- the coupon craze.

According to the NCH Marketing Services 2011 Coupon Facts Report released by marketing research firm Valassis (NYSE: VCI), consumer packaged goods (CPG) manufacturers delivered $470 billion worth of coupons in 2011 alone -- a 26% increase over the pre-recession period of 2007. 

So why are companies generously passing on these pocket-sized discount deals to consumers? Isn't the point of a business to make money rather than lose it? 

Yes, and companies have mastered the art of getting consumers to save more -- and shop more.

Coupons may seem like an obvious way to trim expenses, but before you invest your precious time and money into printing and clipping those coupons, read on to learn how they may not be saving you as much as you think. 

 

Coupon Warning #1: You'll Be Brainwashed by the Word "Free"

Is any word in the English language sweeter than "free"? We all perk up at the idea of getting something for nothing. With coupons, however, we tend to overestimate just how great of a deal something is when it's labeled "free." 

The Duke University study "Zero as a Special Price: The True Value of Free Products" found that consumers are more than twice as likely to pick up a free Hershey's Kiss over one that's priced as low as $0.01. Why? Researchers found that consumers overreact to free items, responding much differently to a price reduction to zero than any other price reduction. 

So before you get caught up in a deal promising free gifts with purchase, consider if that "free" lure merits the purchase of that first item, or if you're just being misled into the deal.

Coupon Warning #2: You'll Spend More on Expensive Brands That Are "On Sale"

Ever receive coupons that offer discounts on an expensive brand in the mail or your inbox? Stephanie Nelson, author of "The Coupon Mom's Guide to Cutting Your Grocery Bills in Half," explains that these coupons are often from stores that have been tracking your purchasing history and preferences through store loyalty cards. Because these stores have access to your spending habits, they may try to upsell you on more expensive brands of your favorite items. 

Even though it's hard to resist buying a brand name "on sale," these coupons may not be saving you much at the checkout counter. Generally, if a coupon discounts a brand that normally costs more than other brands, compare the after-coupon price -- you may save more by just sticking with generic.

[For more great saving tips, check out The Absolute Best Ways to Save in 2011]

#-ad_banner_2-#Coupon Warning #3: You'll Treat Yourself to Luxuries

In a 2008 Harvard Business School study, "Mental Accounting and Small Windfalls: Evidence from an Online Grocer," researchers discovered that shoppers at an online grocery website who used a $10-off coupon spent $1.59 more than shoppers who opted not to use the coupon. The extra spending was mostly because customers spent money on "marginal grocery items" that they typically wouldn't buy. 

The urge to reward your frugality by splurging on one or two special purchases, such as a high-quality chocolate bar, is hard to resist. But these tempting extra purchases may end up costing you more than the amount you'd save with the coupons, so be sure to stick to things you need rather than things you want.

Coupon Warning #4: You'll Spend More Time (and Money) in the Store

Retailers have long understood that the more time you spend in the store, the more likely you are to start buying things you hadn't intended to. When you're shopping in several departments with multiple coupons to sort through, it's easy to spend more time in stores than you normally would and fall victim to impulse buys. 

Know exactly what you need to pick up before you walk into the store with your coupons, and stick to your original plans. If you're confronted with an impulse buy, ask yourself twice if you really need the item before you toss it into your shopping cart.

Coupon Warning #5: You'll Buy Bulk Items You Don't Really Need -- Or Want

Carefully consider coupons that require the purchase of more than one item. According to the Valassis study, 33%  of grocery coupons distributed require an additional purchase. Try to avoid these coupons, unless you really need all of the items required to get the deal. Most of the time, you'll end up spending more money than you would if you just bought the item you want at full price. 

Keep in mind that the most common coupon categories are pre-packaged sugary or salty snacks, cookie dough and soda. Even if you do end up saving money, you may want to consider what the products may be costing your health.

[Follow our smart shopping with coupons tips: How to Save Hundreds of Dollars on Groceries (and other expenses)]

The Investing Answer: Create an honest list of what you truly need before setting foot in a store to avoid buying things you didn't budget for or simply don't need. If a coupon motivates you to purchase something that you weren't planning to buy, you've defeated the whole purpose of saving money.