June 18, 2007
Coupon Nation
Forget about the low redemption rates. Forget about the assertion that consumers wind up saving more when they shop at stores that follow an everyday low price (EDLP) strategy. Forget about all the reasons to eliminate coupons – because consumers won’t let you.
Over the years, retailers including Wegmans and Macy’s have found there’s a price to be paid for those that choose to operate sans coupons.
“Like it or not, consumers are addicted to coupons, and they count on them,” Susan M. Jones, vice president of business development and marketing at CMS Inc., told the Baltimore Sun. “You take it away and your competition doesn’t, you’re going to lose market share. Because a certain percentage of the consumer is looking for them.”
Howard Davidowitz, chairman of Davidowitz & Associates, said Macy’s learned that it could not take coupons away from consumers who used to shop at chains operated by May Department Stores.
“It was a disaster,” he said. “You have tens of millions of people who their whole driver of shopping is coupons. It’s not just something you can take away.”
While Macy’s has said it will increase its use of coupons, it is clear that the trend across retailing is toward less than more of the sales promotional tactic.
According to CMS, there were 11 percent fewer coupons issued in 2006 than in 2005. Consumers redeemed 13 percent fewer coupons over the same period.
Still, no one seems to be suggesting that coupons will be going the way of the dinosaur anytime soon.
“The coupon business is still alive and well,” George Whalin, CEO of Retail Management Consultants, told the Sun. “You look at things that consumers respond to, and coupons are still a very viable way of selling a product.”
Bud Miller of the Coupon Information Corp. said, “Coupons are part of an American way of selling products. They’re not going anywhere. They’ll evolve over time, but consumers demand them.”
Discussion Question: What is the state of the coupon business as you see it? Is it possible to wean consumers off of coupons once they’ve become used to them, such as in the case of Macy’s?
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The challenge here is the definition of “coupon.” Store promotion programs are all “clipless” in my area, so there is no actual coupon handling. FSI and manufacturer coupons are supplier efforts to steal some sales from competing brands. These require handling, for now. The technology will continue to make manufacturer supported discounts easier. The other factor will be demographics as the baby boom generation moves into lower income brackets spurred by retirement and has more time to look for bargains. I think both these factors will encourage even more use of “point of purchase discounts” that allow price sensitive consumers to buy the products they want at a reduced cost. This really seems like a win/win for everyone because it lets the retailer set a margin target that supports the services some customers want while enabling price sensitive customers to buy products at lower cost. I guess the big problem is the “high maintenance coupon shopper.”
The only method that works to wean consumers off of coupons is to implement over time a true EDLP format that has ongoing integrity and consistency with consumers. This means, no temporary price reductions, no feature ads with lower prices, and no other types of sales, other than mark-downs and close-outs. Once the consumer develops trust and perceives integrity in the program, they will not concern themselves with coupons nearly as much in your stores, as they do in other stores.
A clear definition of couponing is needed. In-Ad coupons distributed by retailers are high-impact vehicles, and a reduction in their distribution will adversely impact sales and profits.
Consumer Couponing–FSI’s, IRCs, Coupon Machines–are low impact vehicles except for new products.
The academic literature supports this, and I believe we saw the same thing in Dry Cereal when General Mills and Kellogg’s cut distribution of them. Category sales and shares were not impacted to any great degree (can someone confirm this?).
The most definitive academic literature on the issue was Ailawadi, Lehmann, and Neslin (2001) in the Journal of Marketing. The analyzed the effect of P&G’s move to a Value Pricing Strategy in Upstate NY (where Wegmans competes) from 1990-96. The net result is that P&G suffered a 16% loss in sales and share almost entirely due to reductions in price promotion. Couponing reduction of 50% had very little impact and big increasing in Advertising on mature brands had no effect.
The original concept for coupons was to build awareness and encourage trial for new products. Over the years, coupons became an important lever in the marketing mix for many kinds of products. Often, consumers viewed this as a treasure hunt for value. The coupon provided an incentive to purchase.
Unfortunately, as often happens, the market became saturated and coupons began to loose their impact. One need only weigh the Sunday newspaper to realize this. Consumers have been trained for many years to expect coupons on certain kinds of merchandise and only buy when they have a coupon.
Perhaps the solution lies in “less is more.” Studies have shown that it is often more productive to use less frequent, but more compelling promotions. This would reduce the clutter and training of consumers and increase the perceived value.
There are a lot of highly successful retailers that do not accept coupons, which leads me to believe consumers can be weaned. Aldi would be a good example. The elimination of coupons would take away one of the barometers indicating that a store is in trouble–the double and triple coupon promotions. For some stores, coupons have been a way of extending their life. For the consumer, coupons are generally issued for overpriced name brand products that are of little practical use. Personally I would like to see them eliminated, just to reduce all the wasted paper.
Years ago (I know I’m dating myself here), many retailers offered “green stamps.” They were used for discounts and other promotions, and no one thought that they would go away. At some point, some retailer will figure out how to eliminate coupons and, at the same time, have a better merchandising attraction.
I personally believe the only way to wean a shopper “trained” to respond to a retailer’s coupon strategy is to replace it with something that serves as a similar traffic/sales generator. If not, it can actually take away from brand allegiance.
My main point of example is with Limited Brands, where they spent a year or two sending me coupons for all of their stores: Limited, Express, New York and Company and Victoria’s Secret. It was very effective, as the offers were typically too tempting to resist and drove me into the mall time and again to redeem. After they took them away (other than for New York and Company), I actually felt slighted and have spent far less money with them. They replaced them with nothing–no email, no direct mail, etc.–and their actions said to me “you were a special customer but not anymore.”
That said, I do realize that if I had their credit card I would still be receiving such incentives. However, this kind of “forced” incentive program seems shortsighted as well and I hope to see more retailers get holistic and creative in how to incent traffic, sales and loyalty. We certainly have the tools…we simply need the smart strategic models to serve as a model for others.
Although media coupon distribution and redemption are declining in today’s fragmented media market it is important to qualify the intent of the coupon and to whom it is being targeted.
Obviously the larger value coupons (25% off) offered by retailers like Macy’s are intended to draw traffic into their stores–but I find that I am often frustrated by the large number of exclusions that change the coupon from an attraction to the retailer to a borderline “bait and switch.”
Coupons offered by CPG manufacturers are still quite effective in keeping “heavy” users in the brand franchise and will continue to be of value in the marketing mix. The other opportunity for media coupons is to deliver a breakthrough coupon (Free) to stimulate trial for a new product in the market.
In either case anything that can be done to deliver the coupon in a variety of ways (media – in-store, etc.) will increase its effectiveness.
I won’t attempt to additionally answer the questions posed, they are already well corralled. But I’ll ask two questions that one of today’s respondents might wish to further enlighten me.
1)What price penalty is dynamic and growing Wegmans paying for not accepting coupons?
2) Is couponing a discriminatory consumer practice?
Much of the research in the area of coupons reveals that there are several types of consumers, including those that are heavy coupon users. So the learning in this article is correct. Coupons will not go away any time soon. Further, any retailer that eliminates the tactic cold turkey will see a tremendous backlash from that segment of consumer who believes this is their “bargain chip.” In addition, it is very difficult, perhaps even impossible to change consumer behavior to the positive based on eliminating coupons. Therefore caution is to be displayed by any retailer who decides to drop coupons in lieu of a different promotional tactic. This can be a very steep uphill climb.
The smartest retailers will continue to get savvier in segmenting their customer base. This will allow understanding of each segments needs and point to strategies to satisfy those needs. One of those strategies will no doubt be more targeted offers. This will then result in better cross-sell and up-sell as well as open a whole new opportunity for direct consumer interaction. All of this can be leveraged for input on non-coupon related topics. Sounds like a win to me!
So the next step in the evolution of coupons will be in using more sophisticated ways of getting the coupon to the consumer who wants them, making the coupon more relevant and eliminating the waste associated with discarded Free Standing Inserts (FSI).
Lastly, I would be in error if I didn’t mention the unmentionable as it relates to coupons. You know what that is…it’s fraud! Fraud specifically will be addressed with more advanced back end technology solutions that eliminate most of the handling of coupons and expedite settlement. Such a solution will change the polarity of the coupon conversation from “oh no” to PLEASE TELL ME MORE. I have much insight into this subject. Please contact me direct if you would like to know more about solutions.
Well, let’s see…my 72 year old mother in law still likes to spend an hour clipping coupons to save $3 on groceries! Even if I clip one or two, I never seem to have them with me when I’m at the store and they expire in my “coupon drawer.” Personally, I think coupons are not only a waste of paper, they are a waste of time. Newspaper use is declining and I think the whole process is outdated. Frequent shopper cards that reward you for spending money at the store with things like discounted gas seem like a better alternative. It’s like the airline and hotel industry that give you a free seat or room when you’ve accumulated enough points. Those programs genuinely reward their best customers and keep them coming back.
Coupons can be used effectively and efficiently as part of a marketing plan. They attract a particular segment of the population who tend to be bigger spenders and are less store loyal. The correct way to assess them is not to look at redemption rates (higher rates mean higher costs). Coupons also have other effects on sales besides the discount they offer. They have advertising value (and can improve advertising effectiveness if designed right) and they remind people about a product’s or store’s existence (I was thinking of buying that or going there…). Too many critics do not understand all the ways well-designed coupon promotions can contribute to a business.
It was mentioned that grocery, pet, and personal care coupons clipped from magazines and the Sunday paper have shorter redemption cycles than was true in the past. (In some cases only a few weeks or a month.) I wonder if this is a not so subtle way for manufacturers to still appear to offer coupons while conditioning consumers that couponing is not “worth the effort.” With longer expirations, an efficient consumer was usually able to cut, then hold the coupon until the item was needed or until the item went on sale so that the coupon delivered a double whammy. The shorter expirations force the customer to decide, “do I use the coupon now even though it means an extra 50 pounds of cat litter cluttering my garage, or shall I wait to buy the product when I actually need it-coupon or not?”
One thing I’ve learned being in the coupon business for 5 years is that it is a far more complex area than anyone outside the business could imagine. Coupons have many uses and can be used effectively for a variety of marketing objectives.
One critical thing to understand is the difference between the budgets that fund coupons vs. programs like loyalty card-driven discounts. Some of the suggestions above for cutting back on coupons don’t work because the money is earmarked for very different purposes.
EDLP and other forms of discounting fail to provide price discrimination the way coupons can (and have little advertising value as pointed out above).
A new generation of shoppers is coming of age in a time when newspapers are not their primary form of media consumption. Printable coupons (my business) and other forms of promotion continue to be effective ways to establish trial, brand loyalty, and purchase frequency among the new primary grocery shoppers.
And to answer the question above about Wegmans: they happily accept coupons these days.
Every Day Low Value is a farce, especially at a department store.
Customers, for the most part, are promotional driven. That’s why stores such as Boscov’s do so well. Shoppers love the thrill of a bargain and the coupon gives it to them.
Macy’s will never be successful with featuring items as EDLP or value. It doesn’t work in their environment, and never will.
They sell fashion and fashion is always seasonal. You got to move current inventory out of the store before new arrivals can be stocked on the floor. The only way to clear out seasonal merchandise is marking it down. That’s a fact of retail department store life.
I have said this before and will again. Coupons endear loyalty to the offer and not to the brand. Coupons have done more to hurt margin then any other retail practice. Yet it is like a drug habit that can provide a quick high followed by a crash. Once started, it is very hard to quit.
There are other programs available. Our CashValue card program is one and I would be happy to discuss with any interested parties.
There is quite a bit of fact in the above commentary, but I believe it understates the importance coupons can have in today’s retail climate. Having worked with and for numerous retailers (including a current heavily promotional mid-box chain), I’ll offer the following benefits:
1) Touchpoint with Customers – Data can show that consumers will still respond to offers that are motivational in nature, and coupons provide a mechanism to gauge the impact of a consumer offer. This is important information for retailers to weigh business strategies
2) Having run analysis on markets with and without coupons, a retailer can still drive traffic to the stores with coupons. Perhaps this is “buying” sales, but it provides a retailer the opportunity to drive traffic into a refreshed assortment, which should be able to more than offset the coupon cost. The biggest challenges lie in anniversarying the offer a year later and managing pull-forward sales, which requires a retailer to stay fresh and innovative.
Keys to success lie in managing the offer, distribution, and tie to corporate/assortment strategies, as well as mining information on customer demographics, competitive offerings, and product information.
In short, a well executed strategy can be quite beneficial.
The BIG miss here is that the percentage of consumers who use coupons is relatively small overall, but admittedly, not small enough for some stores who have used coupons aggressively to draw that small percentage to their store. Yes, it is tough to do without even 1% of customers, but if the margin on their purchases is diminished with the coupon is there any negative effect other than on gross volume? But if the store is dependent on coupon clippers to the tune of 20% the effect could be immediately disastrous.
HOWEVER, in the bigger picture here, consider that coupons may DRIVE AWAY certain psychographic types who are repelled by the thought of them, not just not using them. Those who grew up in the coupon craze of the 70s are drawn back in time to 18% mortgage rates, very cheap small (high mileage) cars such as Vega and Pinto, plastic on the windows, Hamburger Helper, etc. Those people are turned off by coupons and those who peddle them.
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The challenge here is the definition of “coupon.” Store promotion programs are all “clipless” in my area, so there is no actual coupon handling. FSI and manufacturer coupons are supplier efforts to steal some sales from competing brands. These require handling, for now. The technology will continue to make manufacturer supported discounts easier. The other factor will be demographics as the baby boom generation moves into lower income brackets spurred by retirement and has more time to look for bargains. I think both these factors will encourage even more use of “point of purchase discounts” that allow price sensitive consumers to buy the products they want at a reduced cost. This really seems like a win/win for everyone because it lets the retailer set a margin target that supports the services some customers want while enabling price sensitive customers to buy products at lower cost. I guess the big problem is the “high maintenance coupon shopper.”
The only method that works to wean consumers off of coupons is to implement over time a true EDLP format that has ongoing integrity and consistency with consumers. This means, no temporary price reductions, no feature ads with lower prices, and no other types of sales, other than mark-downs and close-outs. Once the consumer develops trust and perceives integrity in the program, they will not concern themselves with coupons nearly as much in your stores, as they do in other stores.
A clear definition of couponing is needed. In-Ad coupons distributed by retailers are high-impact vehicles, and a reduction in their distribution will adversely impact sales and profits.
Consumer Couponing–FSI’s, IRCs, Coupon Machines–are low impact vehicles except for new products.
The academic literature supports this, and I believe we saw the same thing in Dry Cereal when General Mills and Kellogg’s cut distribution of them. Category sales and shares were not impacted to any great degree (can someone confirm this?).
The most definitive academic literature on the issue was Ailawadi, Lehmann, and Neslin (2001) in the Journal of Marketing. The analyzed the effect of P&G’s move to a Value Pricing Strategy in Upstate NY (where Wegmans competes) from 1990-96. The net result is that P&G suffered a 16% loss in sales and share almost entirely due to reductions in price promotion. Couponing reduction of 50% had very little impact and big increasing in Advertising on mature brands had no effect.
The original concept for coupons was to build awareness and encourage trial for new products. Over the years, coupons became an important lever in the marketing mix for many kinds of products. Often, consumers viewed this as a treasure hunt for value. The coupon provided an incentive to purchase.
Unfortunately, as often happens, the market became saturated and coupons began to loose their impact. One need only weigh the Sunday newspaper to realize this. Consumers have been trained for many years to expect coupons on certain kinds of merchandise and only buy when they have a coupon.
Perhaps the solution lies in “less is more.” Studies have shown that it is often more productive to use less frequent, but more compelling promotions. This would reduce the clutter and training of consumers and increase the perceived value.
There are a lot of highly successful retailers that do not accept coupons, which leads me to believe consumers can be weaned. Aldi would be a good example. The elimination of coupons would take away one of the barometers indicating that a store is in trouble–the double and triple coupon promotions. For some stores, coupons have been a way of extending their life. For the consumer, coupons are generally issued for overpriced name brand products that are of little practical use. Personally I would like to see them eliminated, just to reduce all the wasted paper.
Years ago (I know I’m dating myself here), many retailers offered “green stamps.” They were used for discounts and other promotions, and no one thought that they would go away. At some point, some retailer will figure out how to eliminate coupons and, at the same time, have a better merchandising attraction.
I personally believe the only way to wean a shopper “trained” to respond to a retailer’s coupon strategy is to replace it with something that serves as a similar traffic/sales generator. If not, it can actually take away from brand allegiance.
My main point of example is with Limited Brands, where they spent a year or two sending me coupons for all of their stores: Limited, Express, New York and Company and Victoria’s Secret. It was very effective, as the offers were typically too tempting to resist and drove me into the mall time and again to redeem. After they took them away (other than for New York and Company), I actually felt slighted and have spent far less money with them. They replaced them with nothing–no email, no direct mail, etc.–and their actions said to me “you were a special customer but not anymore.”
That said, I do realize that if I had their credit card I would still be receiving such incentives. However, this kind of “forced” incentive program seems shortsighted as well and I hope to see more retailers get holistic and creative in how to incent traffic, sales and loyalty. We certainly have the tools…we simply need the smart strategic models to serve as a model for others.
Although media coupon distribution and redemption are declining in today’s fragmented media market it is important to qualify the intent of the coupon and to whom it is being targeted.
Obviously the larger value coupons (25% off) offered by retailers like Macy’s are intended to draw traffic into their stores–but I find that I am often frustrated by the large number of exclusions that change the coupon from an attraction to the retailer to a borderline “bait and switch.”
Coupons offered by CPG manufacturers are still quite effective in keeping “heavy” users in the brand franchise and will continue to be of value in the marketing mix. The other opportunity for media coupons is to deliver a breakthrough coupon (Free) to stimulate trial for a new product in the market.
In either case anything that can be done to deliver the coupon in a variety of ways (media – in-store, etc.) will increase its effectiveness.
I won’t attempt to additionally answer the questions posed, they are already well corralled. But I’ll ask two questions that one of today’s respondents might wish to further enlighten me.
1)What price penalty is dynamic and growing Wegmans paying for not accepting coupons?
2) Is couponing a discriminatory consumer practice?
Much of the research in the area of coupons reveals that there are several types of consumers, including those that are heavy coupon users. So the learning in this article is correct. Coupons will not go away any time soon. Further, any retailer that eliminates the tactic cold turkey will see a tremendous backlash from that segment of consumer who believes this is their “bargain chip.” In addition, it is very difficult, perhaps even impossible to change consumer behavior to the positive based on eliminating coupons. Therefore caution is to be displayed by any retailer who decides to drop coupons in lieu of a different promotional tactic. This can be a very steep uphill climb.
The smartest retailers will continue to get savvier in segmenting their customer base. This will allow understanding of each segments needs and point to strategies to satisfy those needs. One of those strategies will no doubt be more targeted offers. This will then result in better cross-sell and up-sell as well as open a whole new opportunity for direct consumer interaction. All of this can be leveraged for input on non-coupon related topics. Sounds like a win to me!
So the next step in the evolution of coupons will be in using more sophisticated ways of getting the coupon to the consumer who wants them, making the coupon more relevant and eliminating the waste associated with discarded Free Standing Inserts (FSI).
Lastly, I would be in error if I didn’t mention the unmentionable as it relates to coupons. You know what that is…it’s fraud! Fraud specifically will be addressed with more advanced back end technology solutions that eliminate most of the handling of coupons and expedite settlement. Such a solution will change the polarity of the coupon conversation from “oh no” to PLEASE TELL ME MORE. I have much insight into this subject. Please contact me direct if you would like to know more about solutions.
Well, let’s see…my 72 year old mother in law still likes to spend an hour clipping coupons to save $3 on groceries! Even if I clip one or two, I never seem to have them with me when I’m at the store and they expire in my “coupon drawer.” Personally, I think coupons are not only a waste of paper, they are a waste of time. Newspaper use is declining and I think the whole process is outdated. Frequent shopper cards that reward you for spending money at the store with things like discounted gas seem like a better alternative. It’s like the airline and hotel industry that give you a free seat or room when you’ve accumulated enough points. Those programs genuinely reward their best customers and keep them coming back.
Coupons can be used effectively and efficiently as part of a marketing plan. They attract a particular segment of the population who tend to be bigger spenders and are less store loyal. The correct way to assess them is not to look at redemption rates (higher rates mean higher costs). Coupons also have other effects on sales besides the discount they offer. They have advertising value (and can improve advertising effectiveness if designed right) and they remind people about a product’s or store’s existence (I was thinking of buying that or going there…). Too many critics do not understand all the ways well-designed coupon promotions can contribute to a business.
It was mentioned that grocery, pet, and personal care coupons clipped from magazines and the Sunday paper have shorter redemption cycles than was true in the past. (In some cases only a few weeks or a month.) I wonder if this is a not so subtle way for manufacturers to still appear to offer coupons while conditioning consumers that couponing is not “worth the effort.” With longer expirations, an efficient consumer was usually able to cut, then hold the coupon until the item was needed or until the item went on sale so that the coupon delivered a double whammy. The shorter expirations force the customer to decide, “do I use the coupon now even though it means an extra 50 pounds of cat litter cluttering my garage, or shall I wait to buy the product when I actually need it-coupon or not?”
One thing I’ve learned being in the coupon business for 5 years is that it is a far more complex area than anyone outside the business could imagine. Coupons have many uses and can be used effectively for a variety of marketing objectives.
One critical thing to understand is the difference between the budgets that fund coupons vs. programs like loyalty card-driven discounts. Some of the suggestions above for cutting back on coupons don’t work because the money is earmarked for very different purposes.
EDLP and other forms of discounting fail to provide price discrimination the way coupons can (and have little advertising value as pointed out above).
A new generation of shoppers is coming of age in a time when newspapers are not their primary form of media consumption. Printable coupons (my business) and other forms of promotion continue to be effective ways to establish trial, brand loyalty, and purchase frequency among the new primary grocery shoppers.
And to answer the question above about Wegmans: they happily accept coupons these days.
Every Day Low Value is a farce, especially at a department store.
Customers, for the most part, are promotional driven. That’s why stores such as Boscov’s do so well. Shoppers love the thrill of a bargain and the coupon gives it to them.
Macy’s will never be successful with featuring items as EDLP or value. It doesn’t work in their environment, and never will.
They sell fashion and fashion is always seasonal. You got to move current inventory out of the store before new arrivals can be stocked on the floor. The only way to clear out seasonal merchandise is marking it down. That’s a fact of retail department store life.
I have said this before and will again. Coupons endear loyalty to the offer and not to the brand. Coupons have done more to hurt margin then any other retail practice. Yet it is like a drug habit that can provide a quick high followed by a crash. Once started, it is very hard to quit.
There are other programs available. Our CashValue card program is one and I would be happy to discuss with any interested parties.
There is quite a bit of fact in the above commentary, but I believe it understates the importance coupons can have in today’s retail climate. Having worked with and for numerous retailers (including a current heavily promotional mid-box chain), I’ll offer the following benefits:
1) Touchpoint with Customers – Data can show that consumers will still respond to offers that are motivational in nature, and coupons provide a mechanism to gauge the impact of a consumer offer. This is important information for retailers to weigh business strategies
2) Having run analysis on markets with and without coupons, a retailer can still drive traffic to the stores with coupons. Perhaps this is “buying” sales, but it provides a retailer the opportunity to drive traffic into a refreshed assortment, which should be able to more than offset the coupon cost. The biggest challenges lie in anniversarying the offer a year later and managing pull-forward sales, which requires a retailer to stay fresh and innovative.
Keys to success lie in managing the offer, distribution, and tie to corporate/assortment strategies, as well as mining information on customer demographics, competitive offerings, and product information.
In short, a well executed strategy can be quite beneficial.
The BIG miss here is that the percentage of consumers who use coupons is relatively small overall, but admittedly, not small enough for some stores who have used coupons aggressively to draw that small percentage to their store. Yes, it is tough to do without even 1% of customers, but if the margin on their purchases is diminished with the coupon is there any negative effect other than on gross volume? But if the store is dependent on coupon clippers to the tune of 20% the effect could be immediately disastrous.
HOWEVER, in the bigger picture here, consider that coupons may DRIVE AWAY certain psychographic types who are repelled by the thought of them, not just not using them. Those who grew up in the coupon craze of the 70s are drawn back in time to 18% mortgage rates, very cheap small (high mileage) cars such as Vega and Pinto, plastic on the windows, Hamburger Helper, etc. Those people are turned off by coupons and those who peddle them.