How brands are using coupons and rebates to navigate tariff-driven cost pressure

What actually changed after tariffs were introduced last year

When tariffs were announced last year, the immediate focus was on the headline numbers: a 10 percent across-the-board tariff for trading partners, and significantly higher rates layered on key import categories and regions.

At the time, rates like 34 percent on Chinese imports, 32 percent on Taiwan, 25 percent on South Korea, 24 percent on Japan, and 20 percent on goods from the European Union were framed as policy shifts. But what followed was something more structural than a one-time price increase.

Those changes didn’t just affect landed costs. They moved through the entire system: supplier contracts, freight agreements, production planning, and inventory cycles. The result was a slower but more persistent inflation of input costs across consumer goods.

At the same time, several trading partners introduced countermeasures, including Canada, China, and the EU, which added another layer of unpredictability to global sourcing.

So instead of a clean pricing reset, brands ended up dealing with staggered cost increases that have continued to surface over time.

Why did consumer confidence start shifting during the same period?

As cost pressure built, consumer confidence began to soften in a way that directly impacted demand planning.

The Conference Board’s Consumer Confidence Index fell by 7.2 points in March 2025 after a 7.0 point decline the month prior, marking four consecutive months of decline. Around the same time, the University of Michigan consumer sentiment index dropped to 57.9 from 64.7, reaching its lowest level since late 2022.

More important than the declines themselves was what those numbers signaled. Consumers were increasingly concerned about personal finances, business conditions, and job stability.

In practical terms, that translated into more cautious spending behavior. Even categories that weren’t directly impacted by tariffs started to see more price sensitivity because household budgets were tightening across the board.

For marketers, this created a difficult balancing act. Consumers were demanding more value at the same time brands were facing higher costs. Simply lowering prices wasn’t always an option, which forced many brands to rethink how they used promotions to maintain demand without sacrificing margin.

How brands responded to rising tariff pressure

As costs increased and demand became more cautious, brands were forced to rethink how they used promotions.

This is where a more structured promotions strategy started to emerge. Instead of relying on a single approach, most CPG and retail brands began balancing two core levers:

  • Building loyalty to reduce churn risk
  • Using targeted discounts to maintain competitiveness

The challenge wasn’t choosing between them, but knowing when to use each without permanently eroding price perception.

This is where coupons and rebates became very important marketing tools again, but for very different reasons than in previous years.

What’s the difference between coupons and rebates?

Coupons and rebates both address price sensitivity, but they do it in fundamentally different ways.

Coupons provide immediate relief at the shelf. They directly reduce friction at the point of purchase, which makes them especially effective when price increases start to impact conversion.

Rebates, on the other hand, function as a value-driven incentive. They require an extra step from the consumer, which naturally reduces redemption rates and gives brands more control over total discount exposure.

Here’s how that plays out in practice:

Coupons Immediate savings
at checkout
Protect conversion
and defend share
Rapid response to price
increases or competitive pressure
Rebates Post-purchase reward
after submission
Protect margin
and reward engagement
Loyalty programs and
targeted incentive campaigns

 

The important distinction isn’t just timing, but control. Coupons prioritize speed, whereas rebates prioritize efficiency.

Why coupons are still the fastest response tool

Coupons remain the fastest way to respond when price increases start impacting conversion because they immediately reduce the friction between shelf price and purchase decision.

In a highly competitive environment, speed matters more than ever. Consumers are not evaluating products in isolation. They are constantly comparing across retailers, channels, and even digital touchpoints.

If your price is slightly outside their expected range, the purchase decision often doesn’t get delayed but gets lost entirely.

That’s why coupons continue to be one of the most effective tools for protecting short-term demand. They give brands the ability to respond quickly to changing market conditions without making permanent adjustments to list price or retail pricing strategy.

Coupons are most effective when brands need to quickly stabilize demand in situations like:

  • After tariff-driven price increases are passed through to retail
  • When competitors respond with aggressive pricing or promotions
  • When category demand softens due to broader economic pressure
  • When retailers are pushing for short-term volume recovery

They aren’t a structural solution to pricing pressure, but they are often the first stabilizing tool brands reach for.

Are rebates becoming more important for margin protection?

Yes—but not because they replace coupons. They’re becoming more important because they solve a different part of the problem.

Rebates allow brands to offer meaningful perceived value without applying that discount uniformly across every buyer. That makes them particularly useful in environments where cost pressure is persistent but margin protection is still a priority.

The most notable advantage is that rebates introduce intentional friction. Not every consumer completes the redemption process, which means total program cost can be significantly lower than equivalent upfront discounting.

This is why rebates are increasingly used for:

  • High volume categories where margin control matters
  • Loyalty-driven or repeat purchase programs
  • Targeted promotions tied to engagement or behavior
  • Situations where brands want to avoid permanent price erosion

In short, rebates give brands more precision at a time when pricing is less predictable.

Why promotions are now part of pricing strategy, not just marketing

One of the biggest shifts since tariff-driven price increases began is that promotions are no longer downstream from pricing decisions.

They are part of how pricing decisions are absorbed by the market.

When input costs rise, brands now have three levers: absorb margin pressure, pass costs through to consumers, or smooth the transition using promotions. Most brands are using a combination of all three.

Promotions now function as a buffer between cost volatility and consumer perception. That makes them a crucial part of the pricing strategy rather than a tactical marketing tool.

Why a balanced promotions mix matters more than ever

One of the biggest lessons from the past year is that there’s no single promotion that solves every challenge. Brands that relied too heavily on discounts risked eroding margin, while brands that focused exclusively on loyalty initiatives often struggled to maintain volume in highly competitive categories.

The goal isn’t to choose between coupons and rebates. It’s to understand when each tool can deliver the greatest impact. Coupons can help offset consumer resistance to higher prices, while rebates can drive engagement and protect profitability. Together, they give brands the flexibility needed to adapt as market conditions change.

This is why many brands are moving away from an either-or approach and instead building promotion strategies that can pull different levers depending on market conditions, competitive activity, and business goals.

What’s changing about promotion strategy?

The biggest change is that promotion planning is becoming less calendar-based and more responsive to real-time conditions.

Instead of locking in annual plans, brands are increasingly adjusting based on cost movement, demand signals, and competitive activity.

That shift typically shows up in a few ways:

  • Shorter promotion cycles instead of fixed annual calendars
  • Clear separation between coupon and rebate strategy
  • Faster execution when pricing pressure changes suddenly
  • Continuous optimization based on margin and conversion data

The brands seeing the most success aren’t necessarily offering the biggest discounts. They’re using promotions strategically and matching the right incentive to the right business challenge. In some situations, that means using coupons to quickly defend volume. In others, it means using rebates to encourage engagement while protecting margin.

Flexibility is no longer just operational efficiency. In a market shaped by tariffs, supply chain variability, and shifting consumer sentiment, the brands that can adapt fastest are often the ones best positioned to maintain both demand and customer loyalty.

Weathering tariff turmoil: how loyalty programs can improve customer retention

The evolution of consumer behavior in an uncertain market

What motivates someone to make a purchase used to be as simple as how much you want or need it, and how much it cost. Those days are long gone, and now the science behind consumer behavior and customer retention strategies is a full-blown industry. There are a few constants but changing market conditions and how we live in the world around us means consumer behavior will always be a moving target.

The recent COVID pandemic upended not just what we thought we knew about consumer behavior, but also how much consumers and brands could pivot to adapt to shattered supply chains, health regulations and items that suddenly became “must-haves”. (Who knew we would be hoarding toilet paper, hospital-grade face masks and hand sanitizer?)

How 2025 tariffs are reshaping customer loyalty strategies

In 2025, tariffs, threatened tariffs, and retaliatory tariffs are once again forcing brands to think hard about how they engage with consumers, while continuing to deliver the products and value shoppers’ demand.

Tariffs are taxes that eventually roll down to consumers to pay once brands run out of options to mitigate costs. That means brands need additional tools in their customer retention toolbox to retain customers and grow market share. One effective tool is a well-designed loyalty program. Not only can it boost customer engagement, but brands with loyalty programs are also gaining important information that can help them deliver more value to their customers.

The data behind customer retention: why 79% of consumers join loyalty programs

A recent PYMNTS study found 79% of consumers surveyed said they participate in at least one retail membership, subscription or brand loyalty program. For brands, retaining customers and growing sales revenue are primary drivers for developing a loyalty program, however, there are also advantages to programs that reward participants simply for staying active.  In a competitive product environment customers have choices, meaning every brand has to work to keep and grow their market share.

Loyalty programs: costs to consider

A good loyalty program comes with costs. These include designing a program that helps you achieve your goals, enhances the customer experience, and follows compliance regulations. There are costs associated with the benefits and rewards brands give customers who participate in the program, and of course the costs involved in letting customers know about the program. Finally, brands will need to work with a partner or find the resources in house to build a platform the brand or their partners can manage, evolve, and keep the program running.

Designing the program begins by understanding your goals. Are you trying to keep customers from migrating to lower cost options? There was a time when customers were fairly brand loyal once they settled on a product they liked, but the pandemic changed that behavior. A McKinsey study that looked at consumer patterns following the worst of the pandemic found nearly 40 percent of consumers faced with a shortage of the item they wanted to buy were willing to switch products or brands to get what they needed. More than 30 percent switched retailers. A good loyalty program can entice a shopper to sideline their newfound wanderlust and stick with your brand.

Building a tariff-resistant brand through strategic loyalty design

Perhaps you are a B2B brand, and you face competition not just from other brands sitting on the shelf next to your product – but from their salespeople who are actively trying to woo your customer. This is where a well-designed loyalty program can incentivize your customers to stick with you. Discounts, prizes, and rewards are just as compelling for a B2B customer as they are for a B2C shopper.

Creating memorable brand experiences that keep customers coming back

It might be tempting to simply ride on the coattails of someone else’s loyalty program. This is especially true for CPG brands. Major retailers have their own loyalty programs that can highlight various products, thus offering brands the benefit of retaining customers at a much lower cost.

However, a retailer’s loyalty program is designed to keep customers loyal to the retailer, not a particular brand. And any brand relying solely on a retailer’s program is losing out on one of the most valuable benefits of a loyalty program, the opportunity to learn more about your customer. Brands can consider flipping the script by designing a loyalty program in partnership with a retailer, giving brands control over the customer experience – and feedback. Arrowhead has worked with clients to design and manage loyalty programs with retailers that resulted in significant engagement. While the program benefited the partner retailer, our clients gained valuable insights that will help them strengthen customer loyalty moving forward.

Your customers want to be heard and loyalty programs can be a great way to engage deeper with these participants. A brand can establish actual dialogue to share new product ideas, get audience feedback and more, including customers early access to a highly anticipated release, inviting members to special events, a way to share product samples, and conduct market research with people who are already your customers. These go beyond price to offer consumers value they won’t find elsewhere.

The name of the game: long-term retention and growth

Plain and simple, loyalty marketing programs are about keeping people loyal to the brand.  They can come in many flavors depending on your goals. Chief among them is offering value beyond just price. As competitive products improve in quality, it becomes increasingly harder to keep your customers – especially if your competitor’s price is lower. Loyalty programs are a great way to ensure you are using every tool at your disposal to engage your customers, offer them value, and understand how you can keep your customers moving forward.

Mitigating tariffs: how brands can prepare for rising prices in consumer goods

The uncertainty of tariffs under the incoming administration

As brands worldwide assess the policies of the incoming Trump administration, one that stands out is the promise of tariffs. Should they happen, they will have a cascading impact on consumers and how brands engage with their customers. Until there is more clarity on how tariffs might be implemented, brands are facing 2025 with a high degree of uncertainty. This is the time to dig into your marketing playbook and evaluate your strategies for mitigating tariffs to ensure you continue to engage your customers and build brand loyalty.

What could be impacted by tariffs?

Good question. President-elect Trump has singled out China, Mexico, and Canada in recent weeks, which could raise prices on raw materials for manufactured goods, as well as consumer goods like cars, groceries, gas, clothing, consumer electronics and appliances, and adult beverages. The number one beer in the U.S. right now happens to be a Mexican import.

Responding to a policy that is still on the drawing board is a sizeable gamble for brands. Our economy depends on supply chains around the world, as well as lower cost labor overseas, and moving all that infrastructure onshore to avoid tariffs altogether would be a herculean and likely unsustainable undertaking for most.

It’s possible the new administration will have more targeted tariffs, as we saw under the first Trump administration, and continued through the Biden administration. Until there is more guidance from the Trump administration, many manufacturers and retailers are taking a defensive position as they plan for 2025 and beyond.

The potential impact on consumer goods

Generally, tariffs are used to try to level an unequal playing field for industries that struggle when a foreign government floods markets with cheaper goods. The hope is consumers will simply “buy American”. In fact, there might be opportunity for some industries to profit if targeted, one-time tariffs prompt consumers to switch brands. For example, American whiskey brands could benefit if consumers shy away from Canadian brands made more expensive by tariffs.

The Tax Foundation, a non-partisan tax policy group that produces research and analysis on tax policies estimates the tariffs imposed by the first Trump administration and continued under President Biden, cost U.S. households an additional $200-$300 in tax collections annually, on average. If consumers start feeling the pain from rising prices due to tariffs, particularly in categories they interact with regularly, like fuel and groceries, they might pull back on more discretionary purchases.

Tariffs could also have a more widespread impact than the imported goods they target. In one scenario, as prices could rise in one category of foreign products, similar brands in the U.S. that don’t fall under tariffs could raise prices as well, if they believe the market will bear it. That could eventually prompt consumers to switch to cheaper alternatives, as they did when inflation was rising during the pandemic. In another scenario, countries hit by tariffs could retaliate, initiating a trade war, slowing down the economy, and possibly slowing job growth, which impacts the ability of consumers to spend.

Strategies for brands to mitigate the impact of tariffs

Large and small brands aren’t sleeping on the promise of tariffs, even if it’s unclear how they would roll out. Some are expediting orders from overseas suppliers, hoping to build in a way to cushion later price increases. Large brands, like shoemaker Steve Madden, are moving production out of China.

For many brands, this is the time to control what you can control, and that is your relationship with your customers. As brands had to do when inflation was driving consumers to lower-priced alternatives, or to not buy at all, this is the time to do an inventory of your marketing tactics with an eye on strategies for mitigating tariffs that might directly impact your ability to deliver the quality and value your customers expect.

Loyalty programs offer a time-tested strategy to excite customers about your brand and incentivize them to choose your brand over a competitor. What in the new year can improve your loyalty program, or make it stand out if shoppers aren’t fully aware of it? Loyalty programs aren’t just for shoppers. Many brands find success with programs that incentivize retailers and their team members to help showcase your brand to shoppers. At Arrowhead, we have helped numerous clients develop loyalty programs that help increase in-store sales not just by offering incentives to highlight a brand, but also through knowledge-based programs that train salespeople how to best position your brand and reward them for doing so.

Quick-to-market strategies to respond to tariff impacts

While the incoming president has promised action on tariffs on “day one”, we might also see tariffs roll out over several months or years if they are used as a negotiating tool. That increases the need to be able to respond quickly to market conditions. A quick-to-market (QTM) strategy can help brands spin up a campaign to incentivize shoppers without a lot of lead time and expense. The key is having a platform that gives you a template to streamline decisions, and preferably one that is agnostic to the scale of the campaign – big or small, it works because it is a templated format. Some brands might choose to build such a platform in-house, while others rely on an outside partner that has a ready-to-go solution. Arrowhead’s QTM was designed to help brands move quickly and at scale – with our compliance features built-in, so our clients are always protected, not matter which solution they choose.

Using coupons and rebates to attract customers amid price hikes

If tariff’s drive-up prices, consumers will be looking for deals on their favorite products or cheaper alternatives. This could be an opportunity to attract new shoppers who would find more value in your product or offer a way to lessen the blow on any price increases for a product they already love. Coupons and rebates are proven strategies that may nudge shoppers toward your product when comparing products directly.

Controlling your brand strategy in uncertain times

Brands may try to influence economic policy, whether it’s through legislative channels, or public opinion. In the end, the only thing brands can truly mange is how they react to policies and conditions that impact the economy. Brands control the relationship they have with their customers. Evaluating that relationship now, working with your marketing team or your promotional partner can help you find ways to engage, delight and show value to your customers to help weather changes that come as a new administration plots its course for the U.S. economy.