Fast Clip

With the economy in its third year of doldrums, it’s little surprise that consumers say they’re using coupons as a way to pinch pennies. But scratch beneath the surface, and trends in coupon usage aren’t nearly as clear-cut.

As reported in PROMO’s 2003 Annual Report (distributed with this issue), marketers spent $6.8 billion on coupon promotions in 2002, an increase of 4.5 percent. And fully 71 percent of consumers polled by NCH Marketing Services said they believe coupons save them a lot of money (this was up from 50.9 percent in 2001). But the Lincolnshire, IL-based research firm also learned that just 18.5 percent of the shoppers they interviewed “always” use coupons, down nearly three percentage points from 2001; and 23.3 percent admitted they “rarely” use coupons, up almost 5.5 percentage points. And several industry sources have reported lower redemption rates this past year.

How can consumers claim to recognize the value of coupons, but fail to use them? First: shorter expiration times. Nearly 70 percent of consumers surveyed by NCH complained that coupons expired before they had a chance to redeem them; only 52.6 percent had made the same comment the year before. Consumers’ impressions are based in reality: According to CMS Inc. of Winston-Salem, NC, 92.5 percent of all CPG coupons distributed had expiration periods of five months or less in 2002, as compared to 91.8 percent for 2001. The average expiration period of coupons distributed decreased 4.8 percent, from 3.15 months to 3 months. The average expiration period of FSI coupons, in particular, decreased 1.5 percent to 2.66 months.

Second: Consumers are responding to a narrower spectrum of brands participating in coupon programs as retailer-imposed costs raise the bar for many smaller manufacturers. Large manufacturers, such as Procter & Gamble, still bargain for respectable ROI from retailers, but middle-tier and smaller brand manufacturers are folding their coupon promotion programs in those channels.

So how to motivate those hesitant clippers? And where will coupon growth come from for marketers? The mission for 2003 is to find more compelling techniques for driving redemption — and sales. “In the nineties, a lot of advertising money was spent on brand awareness and enhancement,” says Paul Gordon, executive VP, sales and marketing for coupon mailing firm ValPak, a division of Cox Target Media, Largo, FL. “During the downturn, more sales driving is going on, and that’s where coupons are strongest. Coupons are counter-cyclical, because they are valued when consumers are more focused on how they spend their money.

“But getting the coupons to our audience isn’t enough,” Gordon is quick to say, “We’ve got to activate them.” ValPak has recently repositioned itself as a “lifestyle guide” that matches advertisers to particular consumers’ needs and demands. He claims that the demographic overlays the company applies make mailings “more than just a disparate bunch of coupons in an envelope.” The company saw circulation rise six percent in 2002, and usage was up 15 percent, which ValPak attributes to this strategy. The key is “prism clustering,” which fine-tunes the coupon offerings in solo or cooperative mailings. “There’s a cost-value proposition that prohibits most advertisers from going solo,” Gordon admits.

The ValPak strategy may indicate another swing in the pendulum between targeted coupons and broad-reach programs. From 1995 to 1999, the total number of coupons dropped steadily as marketers targeted more geographically and demographically. But the trend reversed in 2000 back to broad-reach programs, as CPG brands re-opened the coupon floodgates with broad-spectrum efforts. At the time, Charlie Brown, VP-marketing of NCH observed that, “[Targeted efforts] may have a better percentage rate, but they didn’t move enough volume to make it worthwhile.”

But ValPak has found plenty of willing marketers these days: It was up about 15 percent for the first quarter of 2003, and is projecting continued double-digit growth through the year. Despite the stop-start economy, “we know people are still spending money every day, and we want to be part of that process,” says Gordon.

Make it worthwhile

While increasingly sophisticated target marketing can add to a coupon program’s cost, another factor is impacting ROI: Higher face value. The last two years have seen a trend toward sweetening the offer. According to CMS, the average face value of CPG coupons distributed in 2002 increased $0.04 to $0.81, up 5.2 percent. The largest factor behind this increase was a $0.06 increase in average face value of FSI coupons to $0.81.

But a few marketers are varying their coupon programs with redemption offers for other than cents-off. Fuel Rewards is a free gas-for-groceries program (parent is Centego Marketing, Dallas) in place at just under 700 grocery stores across the country. When a shopper enters one of the participating stores (including Kroger, Meijer, H-E-B, Safeway, and others), they pick up a Fuel Rewards shopping brochure that lists products on the program. At present, about 500 products are in the program, including brands from Bristol Myers, Coca-Cola, Colgate-Palmolive, ConAgra, Del Monte, General Mills, Kellogg, Lipton, Minute-Maid, P&G, Quaker Oats and Unilever.

The company has shelf tag signage detailing the amount of free gas to be awarded at point-of-purchase. A shopper who buys two boxes of Alka Seltzer might get a voucher for $1.50 in free gas, or $2.00 for buying two rolls of Kodak film (offers vary by store and rotate on a regular basis). At check out, a voucher for the gas is printed at the bottom of the store receipt, and redeemable at a participating fuel provider (usually the gas station in the parking lot of the grocery store).

In 2002, a company spokesperson says, consumers earned more than $16 million in free gas savings through the program. Of that, nearly $3.2 million of free gasoline has been redeemed (a nearly 20 percent national average redemption rate, way above other CPG coupon efforts, that usually redeem at one to three percent). Fuel Rewards expects to be in at least 1,000 stores by middle of 2003.

Virtual clipping

Online couponing has begun to rebound as marketers, recovering from dot-com aversion, rediscover the merits of instantaneous downloading and redemption. Internet coupons accounted for 0.2 percent of total redemption and 0.1 percent of total distribution in 2002, according to CMS. The coupon research firm has projected industry redemption volume for Internet coupons increased 475.8 percent last year vs. 2001, and there is plenty of room for that to grow in 2003. Projected industry distribution for Internet coupons increased 110 percent.