The $3.50 coupon is for their drugstore products. There's nothing deceptive or wrong with that.
Just off the top of my head, the following is a list of a few prestige brands available in downtown Chicago area Ultas:
Lancome, Clinique, Clarins, Smashbox, Tarte, Urban Decay, Laura Geller, Becca, IT, Mally, Lorac, Lipstick Queen, Stila, Bare Minerals, Philosophy, Dermalogica, Perricone, Peter Thomas Roth, Pur Minerals, Too Faced, Benefit, Anastasia, LeCouvent Des Minimes, Ahava, First AId Beauty, Soap & Glory, Juice Beauty, Butter London.
There are many more, plus due to their salon license they have an impressive selection of prestige haircare and hair tools. About four times a year-- which is twice more than their competitor -- they have a 15% off these products for their loyalty customers, and there's no tier system involved with how much discount a customer gets.
Lastly, just being able to use my points when I want to... and for real products in the store (not just sample size configurations) is great. Just yesterday I used some of my points to buy a nice ($30) "full-sized product" Quidad haircare set.