April 17, 2012
CPGmatters: Increased Coupon Fraud Underscores Need for Better Security Measures
Through a special arrangement, what follows is an excerpt of a current article from CPGmatters, a monthly e-zine, presented here for discussion.
With the annual cost of coupon fraud estimated to be nearly a half billion dollars, coupon security was high on the agenda recently at CIC’s Industry Leadership Summit.
"While most consumers are honest, you have a few individuals in that mix who understand the industry very clearly," said Bud Miller, executive director of the Coupon Information Council (CIC). "They understand the policies. They do their research, they try to game the system, and it’s our job to keep that from happening."
CIC recommends a combination of coupon and return policy reviews, adoption of recommended voluntary best practices, and awareness of the abusers’ tactics. The latter include internet coupon trading boards and two how-to manuals: Shoplifting Tips and Techniques IV and the How to Make Coupons manual, now in a second edition, authored by an individual who has since been arrested.
Mr. Miller pointed out that the same people are involved in counterfeiting coupons and shoplifting, and their materials are shared on the same websites. Consistently prosecuting violators will help deter both these illegal activities.
The industry has taken big steps forward by implementing the coupon DataBar, and a standardized hologram for free and high-value coupons, he notes. "If retailers take full advantage of the new bar coding system, we will resolve the issue of coupon decoding."
As a result of the "Extreme Couponing" reality TV show, which Mr. Miller said features excessive and abusive coupon practices, there have been more thefts of newspapers, which contain coupons and FSIs. Some thefts are from boxes on the street, and others from stores.
Return fraud will be a focus area for CIC in the near future. Return fraud occurs when people use high-value coupons to buy a product, or large amounts of the same product, and then come back to the store, or another store in the same chain, for a refund of the purchase price and the coupon value. If done repeatedly in different places, the perpetrator can make hundreds or even thousands of dollars in a short time, Mr. Miller noted.
Mr. Miller concluded, "By working together on security issues of mutual concern, industry participants can get the big picture, understand the nature of the threat, and find reasonable, cost-effective, practical solutions."
BrainTrust
Recent Discussions
Discussion Questions
Discussion Questions: Are retailers underestimating the costs of coupon fraud? What steps should the industry and individual retailers be taking to help prevent coupon fraud?
Poll
Wait a minute … with all the stories on coupons, now we find out half a BILLION is fraud? How does that play into the “everyone is using coupons more and more?”
What steps should the industry use? Stop leaning on the crutch of coupons and create brands that can stand on their own legs without slotting fees and gimmicks.
This story could — in large part — have been written five, ten, fifteen, twenty or thirty years ago and I guess that’s the point. And, by the way, the question isn’t whether or not retailers underestimate coupon fraud, it’s why manufacturers haven’t been more effective in putting teeth into the zero tolerance toward fraud practices so many of them put in place several decades ago.
The best way to prevent coupon fraud — really prevent it as opposed to thinking you are preventing it — is to stop issuing coupons. Over the years coupon abusers have proved remarkably flexible in their ability to adapt to new anti-fraud technologies and practices.
As for return fraud, one could become more draconian in one’s returns policies, but that’s fodder for another question.
Invest in sharp LP staff to monitor behavior. Invest in better software solutions at POS and online processing systems to do likewise and prevent theft/ gaming. Be selective with your couponing efforts. Putting a peel-off coupon on the front page of your local paper is just inviting fraud. There is a cost of doing business and if fraud/theft can be quantified and to a certain extent minimized, then these behaviors will continue.
Attempts to limit the use of coupons by several manufacturers about a decade ago resulted in lawsuits and was finally abandoned. When coupons are used, there will be people who try to “game” the system. This has been and will continue to be an issue as long as coupons offer the opportunity of substantial savings.
It is clearly evident the manufacturer coupon system is flawed and broken. The manufacturer is completely disconnected from the retail-consumer experience as they print these quasi-currency notes called coupons and this needs to be called out.
Hey, Ryan. Thirty years ago? I remember this discussion 40-years ago. Back in ’74 or so I was Sales Promotion Manager for Hefty. One of our department’s responsibilities was coupons. Ugh! Here is what I learned and no one has convinced me otherwise.
Coupon promotion as a price reduction vehicle, even with no fraud is a ridiculous marketing tool. It is inefficient. What a convoluted way for a marketer to cut their price 50 cents. And, it largely rewards those consumers who would buy the product anyway.
There are only two reasons to run coupon promotions. Reason one is if the marketer is going for trial; in that case, make it a big value coupon and figure all of the redeemers have never used the product. If your product is good, the fraud side doesn’t matter, because the ultimate ROI will be very high based on repeat purchases. (Of course, if your product isn’t so good, it will just drive you out of business quicker.)
The other reason is to generate trade support. In that case, one puts the total cost of the promotion (including the coupon delivery and redemption) into a package that is measured against the promotional sales, the displays, the retailer advertising support and price reductions on the shelf. The amount of product that is moved with the retailer support almost makes the cost of the couponing irrelevant.
Anyone who is spending a lot time looking at coupons as a single significant tool doesn’t know how retailers work or how consumers behave.
Unfortunately we have become a world where, when a better product is created, the bad guys find a way to make money from it. Now we have the IRS involved with so many people finding out when they file their tax return, someone else already did it and received your check.
I’ve got to ask what role retailers play in coupon fraud today. Without besmirching the reputations of all supermarket retailers, I’ve some experience with store owners who participated in it. In the late 70s while with Fleming Foods in Philadelphia, two of my New Jersey store owners were imprisoned for the offense. They were caught in a sting operation for “Breen” – a nonexistent laundry product with coupons printed in Sunday newspaper Free Standing Inserts (FSIs). Turns out that the store owners were paying an employee of the Philadelphia Inquirer to dump pallets of FSIs in a vacant lot. The owners then retrieved the pallets and took them to a gang-clipping setup in the basement of their store. Once the coupons were clipped, they tumbled them in clothes dryers to make them look “handled.” That worked until they submitted Breen coupons to the clearing house.
Another example of supermarket retailer coupon fraud were the ubiquitous (at one time) “coupon exchange tables” in stores. Customers would bring in coupons they didn’t intend to use, dump them on the table, and sort through the table’s other coupons for those they wanted. Every so often, the retailer would take a bunch of coupons from the table and redeem them.
Today’s sophisticated manufacturer coupon monitoring — matching individual store inventories against the historical rate at which coupons are redeemed there — tamped down those practices. But, over the years and through various means, some stores have succeeded in bumping the upward boundaries of expected coupon usage for their locations to create a “new normal” redemption rate. They then fraudulently take advantage of this higher redemption ceiling.
While not really a coupon — but a similar kind of offering — manufacturer allowances per-item-sold are commonly abused by supermarkets. This is a situation where, in exchange for a spot in the store’s ad with a “sale” price, the manufacturer promises to cover the cost of the discount for every item sold during the sale. The retailer’s store records are supposed to provide the “proof” of the number of items sold in this way. It’s amazing how frequently the stores’ “reports” show that nearly 100% of the total inventory was successfully sold on sale. Wouldn’t it be great if all ads worked so well?
Look to customers for fraud, but don’t overlook the retailers.
Even in this digital society, paper coupons still retain an intrinsic value just by holding them in your hand. Shoppers still love them, even though redemption rates have always been low. It’s just a necessary evil that lingers in our world.
So, the answer is yes, all constituents in the consumer ecosystem are underestimating the cost of “uncollected” coupon expense. When I was a grocery manager in the 1980s, we had thousands of dollars every month in uncollected/fraudulent coupon expense show up on our individual store’s P&L.
How’s this for a suggestion: Eliminate digital coupons completely and only utilize paper coupons with individual QR codes for every coupon printed. UGH!! Tedious, I realize, however, we have got to stop the bleeding.
Thoughts?
Coupons can have many beneficial effects for manufacturers and retailers if promotions are properly designed (many design principles from the ’70s and ’80s have been forgotten by the industry). No one know how much fraud is out there, so estimates may be exaggerated. If a customer purchases two large size instead of two small size a coupon is valid for, would many complain about this misredemption? Malredemption is a bigger concern. Some case studies suggest it could be big, but with good design and controls, these costs should minimal compared with the benefits.
Coupon fraud is not new. I worked on coupon misredemption for a CPG company in the mid ’60s. In reality, retailers only care when it is their coupons, otherwise it is manufacturers’ problem. Even when retailers are confronted with accepting illegal coupons, most times the manufacturer does not dock them, only asks them not to repeat the practice. We have the solutions in technology and it’s time we really apply them.
A half-billion — aka: 500 million — dollars is less than $2 per capita; of course not everyone uses coupons, but even if spread over users, it’s probably not much more. Anyone who thinks they can find a cost-effective way to improve things with these low-thresholds is welcome to try.
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Wait a minute … with all the stories on coupons, now we find out half a BILLION is fraud? How does that play into the “everyone is using coupons more and more?”
What steps should the industry use? Stop leaning on the crutch of coupons and create brands that can stand on their own legs without slotting fees and gimmicks.
This story could — in large part — have been written five, ten, fifteen, twenty or thirty years ago and I guess that’s the point. And, by the way, the question isn’t whether or not retailers underestimate coupon fraud, it’s why manufacturers haven’t been more effective in putting teeth into the zero tolerance toward fraud practices so many of them put in place several decades ago.
The best way to prevent coupon fraud — really prevent it as opposed to thinking you are preventing it — is to stop issuing coupons. Over the years coupon abusers have proved remarkably flexible in their ability to adapt to new anti-fraud technologies and practices.
As for return fraud, one could become more draconian in one’s returns policies, but that’s fodder for another question.
Invest in sharp LP staff to monitor behavior. Invest in better software solutions at POS and online processing systems to do likewise and prevent theft/ gaming. Be selective with your couponing efforts. Putting a peel-off coupon on the front page of your local paper is just inviting fraud. There is a cost of doing business and if fraud/theft can be quantified and to a certain extent minimized, then these behaviors will continue.
Attempts to limit the use of coupons by several manufacturers about a decade ago resulted in lawsuits and was finally abandoned. When coupons are used, there will be people who try to “game” the system. This has been and will continue to be an issue as long as coupons offer the opportunity of substantial savings.
It is clearly evident the manufacturer coupon system is flawed and broken. The manufacturer is completely disconnected from the retail-consumer experience as they print these quasi-currency notes called coupons and this needs to be called out.
Hey, Ryan. Thirty years ago? I remember this discussion 40-years ago. Back in ’74 or so I was Sales Promotion Manager for Hefty. One of our department’s responsibilities was coupons. Ugh! Here is what I learned and no one has convinced me otherwise.
Coupon promotion as a price reduction vehicle, even with no fraud is a ridiculous marketing tool. It is inefficient. What a convoluted way for a marketer to cut their price 50 cents. And, it largely rewards those consumers who would buy the product anyway.
There are only two reasons to run coupon promotions. Reason one is if the marketer is going for trial; in that case, make it a big value coupon and figure all of the redeemers have never used the product. If your product is good, the fraud side doesn’t matter, because the ultimate ROI will be very high based on repeat purchases. (Of course, if your product isn’t so good, it will just drive you out of business quicker.)
The other reason is to generate trade support. In that case, one puts the total cost of the promotion (including the coupon delivery and redemption) into a package that is measured against the promotional sales, the displays, the retailer advertising support and price reductions on the shelf. The amount of product that is moved with the retailer support almost makes the cost of the couponing irrelevant.
Anyone who is spending a lot time looking at coupons as a single significant tool doesn’t know how retailers work or how consumers behave.
Unfortunately we have become a world where, when a better product is created, the bad guys find a way to make money from it. Now we have the IRS involved with so many people finding out when they file their tax return, someone else already did it and received your check.
I’ve got to ask what role retailers play in coupon fraud today. Without besmirching the reputations of all supermarket retailers, I’ve some experience with store owners who participated in it. In the late 70s while with Fleming Foods in Philadelphia, two of my New Jersey store owners were imprisoned for the offense. They were caught in a sting operation for “Breen” – a nonexistent laundry product with coupons printed in Sunday newspaper Free Standing Inserts (FSIs). Turns out that the store owners were paying an employee of the Philadelphia Inquirer to dump pallets of FSIs in a vacant lot. The owners then retrieved the pallets and took them to a gang-clipping setup in the basement of their store. Once the coupons were clipped, they tumbled them in clothes dryers to make them look “handled.” That worked until they submitted Breen coupons to the clearing house.
Another example of supermarket retailer coupon fraud were the ubiquitous (at one time) “coupon exchange tables” in stores. Customers would bring in coupons they didn’t intend to use, dump them on the table, and sort through the table’s other coupons for those they wanted. Every so often, the retailer would take a bunch of coupons from the table and redeem them.
Today’s sophisticated manufacturer coupon monitoring — matching individual store inventories against the historical rate at which coupons are redeemed there — tamped down those practices. But, over the years and through various means, some stores have succeeded in bumping the upward boundaries of expected coupon usage for their locations to create a “new normal” redemption rate. They then fraudulently take advantage of this higher redemption ceiling.
While not really a coupon — but a similar kind of offering — manufacturer allowances per-item-sold are commonly abused by supermarkets. This is a situation where, in exchange for a spot in the store’s ad with a “sale” price, the manufacturer promises to cover the cost of the discount for every item sold during the sale. The retailer’s store records are supposed to provide the “proof” of the number of items sold in this way. It’s amazing how frequently the stores’ “reports” show that nearly 100% of the total inventory was successfully sold on sale. Wouldn’t it be great if all ads worked so well?
Look to customers for fraud, but don’t overlook the retailers.
Even in this digital society, paper coupons still retain an intrinsic value just by holding them in your hand. Shoppers still love them, even though redemption rates have always been low. It’s just a necessary evil that lingers in our world.
So, the answer is yes, all constituents in the consumer ecosystem are underestimating the cost of “uncollected” coupon expense. When I was a grocery manager in the 1980s, we had thousands of dollars every month in uncollected/fraudulent coupon expense show up on our individual store’s P&L.
How’s this for a suggestion: Eliminate digital coupons completely and only utilize paper coupons with individual QR codes for every coupon printed. UGH!! Tedious, I realize, however, we have got to stop the bleeding.
Thoughts?
Coupons can have many beneficial effects for manufacturers and retailers if promotions are properly designed (many design principles from the ’70s and ’80s have been forgotten by the industry). No one know how much fraud is out there, so estimates may be exaggerated. If a customer purchases two large size instead of two small size a coupon is valid for, would many complain about this misredemption? Malredemption is a bigger concern. Some case studies suggest it could be big, but with good design and controls, these costs should minimal compared with the benefits.
Coupon fraud is not new. I worked on coupon misredemption for a CPG company in the mid ’60s. In reality, retailers only care when it is their coupons, otherwise it is manufacturers’ problem. Even when retailers are confronted with accepting illegal coupons, most times the manufacturer does not dock them, only asks them not to repeat the practice. We have the solutions in technology and it’s time we really apply them.
A half-billion — aka: 500 million — dollars is less than $2 per capita; of course not everyone uses coupons, but even if spread over users, it’s probably not much more. Anyone who thinks they can find a cost-effective way to improve things with these low-thresholds is welcome to try.