Coupons get customers in the door, but there are limits to their value. "Mass-mail coupons are costly, and they lose their effectiveness in attracting new customers once a local store is established," says Robyn Miller, general manager of eight Fantastic Sam's hair salons, in Louisville, Ky. She now uses targeted coupon promotions.

Stylists personally hand each customer a holiday discount coupon for the next visit. The celebration theme keeps the customer from inferring that services aren't worth full price. The holiday linkage also helps remind customers of the coupon's expiration date and encourages them to return in a timely fashion. A month without a holiday is turned into a "customer appreciation month."

Miller recruits new customers by mailing postcards to new homeowners, whose names are supplied free by the local paper. She also relies heavily on word-of-mouth communication. To get the word out, Fantastic Sam's teams up with local employers to offer discounts through company benefit programs. The employees learn about the discounts through their company's internal communications.

Do targeted promotions pay off? "You bet," says Miller. The $100 cost of printing coupons to distribute in the salons is nothing compared to the $6,000 it would cost for a single mass mailing. Since switching from mass-mail coupons two years ago, Fantastic Sam's has redeemed 5,000 additional coupons each year, and revenues are up $1 million.