March 13, 2015
Retailers get the couponing bug
Coupons have low redemption rates. They contribute to diminished brand equity and accelerate the price race to the bottom. These are common complaints about the use of coupons. But there is something else coupons do — drive sales. That’s the analysis of retailers based on new Kantar Media research, which found increased participation in Free Standing Digital Inserts (FSI) and digital coupons on retailer websites.
According to Kantar, retailers selling consumer packaged goods increased their involvement in FSI promotion pages 11.8 percent last year versus 2013. Digital coupon events on merchants’ websites increased even more, 16.5 percent in 2014 versus the previous year. Kantar also found that retailer feature ad pages increased 4.2 percent for the same period even as advertising expenditures dipped 2.8 percent.
"These trends indicate retailer and manufacturer marketing dollars are increasingly being directed toward programs that communicate specific and easy-to-understand value to the shopper," said Dan Kitrell, vice president of Marx Account Solutions at Kantar Media, in a statement.
"Although retailer advertising provides continuity and builds equity with shoppers, retailer FSI coupon events effectively reach shoppers in the home when they are writing shopping lists and planning shopping trips, while digital coupons distributed on a retailer’s website provide relevant incentives to shoppers who are likely planning a trip to that retailer," said Mr.Kitrell. "Retailer feature ads frequently make the value of the combined offers easier for the shopper to understand by ‘showing the math’ including regular price, feature price, and net price paid after the coupon savings are applied."
Walmart, Kroger and CVS stood out among food, drug and mass retailers for increases in FSI and digital coupon activity in 2014.
Walmart’s FSI participation was up 15.7 percent and digital coupon events increased 18.4 percent in 2014. Kroger was up 10.2 percent for FSIs and 29.1 percent for digital coupons. CVS’s FSI activity was up 47.2 percent while digital coupons increased 23.8 percent.
Manufacturers stand to benefit by greater coordination of event timing with retailers, according to Mr. Kitrell.
"Timing becomes even more important if the retailer decreases total activity for the year," said Mr. Kitrell. "By identifying key weeks and key categories at key retailers, manufacturers can improve their program effectiveness during critical selling seasons, new product introductions, and other key initiatives throughout the year."
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Discussion Questions
How effective do you think increased participation in FSI and digital coupon programs have been in helping retailers drive sales? What are the relative pros and cons of increased sales promotional activity by retailers and their CPG brand suppliers?
Poll
Customers loyal to the coupon are not to be confused with those who are loyal to the brand.
Coupons are a trap. We all know that. While this is about grocery stores, I’ve written many reasons why coupons are bad for other retailers here.
There are plenty of cheap people out there if you want them to define you. Service them well and hold their attention if that is who you crave.
Many retailers are settling for crumbs when they can have the whole feast if they just get out of the coupons as “rats to the cheese” mentality and nurture those who will shop with them regardless of the pittance discount.
Having FSIs delivered to you also has the advantage that you didn’t have to seek out the information—it came to you. Opening up the paper and having the FSIs from a variety of retailers makes it a lot easier to review what is on sale versus having to visit multiple websites.
While FSIs may not drive brand loyalty, they do impact the purchase decision made by a number of customers for not only locations but items. They fulfill a necessary role for both retailer and manufacturers.
On a side note they help support newspapers, whose revenue trouble would be even greater without them. I should admit my bias in favor of having newspapers survive in this digital age.
I’m normally in the front row of the choir (singing off-key of course) when it comes to discounting damaging equity. But when it comes to targeted digital couponing I am starting to sing a different tune. As brick-and-mortar becomes integrated with the online efforts of retailers, coupon delivery on the basis of shopper profile reinforces continuity of the omni-channel marketing effort required.
Couponing ceases to be a random plea for consideration or a bribe to offset inferior quality or value. It can be part of the “we know you and want to help you meet your needs” glue that cements the retailer relationship with shoppers. It can actually be strategic.
It’s interesting to see the amount of FSI/couponing activity increasing, even as retailers and manufacturers know that redemption rates have not been great historically. The reason has a lot to do with the perspective of the retailer or manufacturer. It’s certainly appealing to look at any increase in sales as a good outcome so even a low redemption rate could be interpreted as a good outcome compared to what would happen without the coupons. Another way to look at the increase in couponing is to take a cost-driven perspective: The advent of digital has dramatically reduced the cost of sending coupons to customers, so why not send more coupons?
However, the best approach is to look at two other factors. First it’s important to consider the customer perception that is created by couponing efforts. If coupons are still only delivering low redemption rates, then it indicates the vast majority of coupons are not sufficiently appealing to customers. There’s a significant hidden cost in this low redemption rate outcome: Retailers are sending a clear message to their customers that they don’t know what is important to customers, they don’t care about sending their customers relevant coupons, they’re not sufficiently capable to determine what is relevant to customers or some combination of all three. Retailers wouldn’t send a message to their customers stating that they don’t care about them so why send customers irrelevant coupons that in effect do the same thing?
Secondly, retailers and manufacturers do not have an infinite amount of marketing dollars at their disposal so it is incumbent on them to make the best possible use of every marketing dollar. Sending coupons with redemption rates of low single digits does not tell of efficient marketing spend, even if the cost of digital coupons is low. We routinely see response rates of up to 80 percent, incremental sales of up to 4 percent and ROIs of up to 150 percent with personalized marketing campaigns. These sorts of results are possible with a customer-centric approach to marketing. It’s probably not the coupons themselves that are not specifically effective, it is probably the analytics (or lack thereof) that are used to design coupon campaigns that are the cause of the low redemption rates. Increased activity should only occur if the outcomes are also improving. I hope that is what is driving the increased couponing activity and not other factors.
We need to delineate between traditional hard copy paper FSIs and digital FSIs. The article doesn’t dive deeply into that. I like to separate the discussion into traditional FSIs and Digital Discount Offers (DDO), as this article describes “Free Standing Digital Inserts.” Paper FSIs have most always returned very low redemption, however, that doesn’t mean they don’t drive sales, as the article suggests. There is still value in paper coupons, and although the move is obviously toward digital, paper coupons still make up a significant portion of overall coupon redemption. Furthermore, DDOs now represent the fastest-growing area of coupon offers, and that is a U.S.-centric culture, by the way. This is not necessarily the trend in every global market.
As long as consumers are looking for value, brands will continue to offer discount promotions. That is what the marketplace responds to, and I don’t think that is going away anytime soon. There are definitely pros and cons to this strategy, however, the bottom line is that it’s a crowded marketplace out there, and brands need to continue to gain awareness.
The yardstick with coupons isn’t just sales but rather incremental sales. Detractors say coupons cannibalize, while the promoters say they allow smart segmentation (“fencing”). This report tells us about tactical usage, not cannibalization. But we can infer coupons are working.
- Increasing spend. The 12 percent increase in FSI events and 17 percent increase in digital coupons are votes of confidence. In particular, Walmart has overcome EDLP-centricity and has embraced coupons beyond all rivals. In 2014 it increased its lead in “share of voice” with FSIs and digital coupon events.
- Increasing control. Digital coupons allow retailers to shut off campaigns that cannibalize. FSIs increasingly direct shoppers to websites to get incentives, providing similar benefits.
The Great Recession, combined with new digital delivery, has created habits that persist today and tomorrow. Call them Millennials, digital natives or whatever you want. There is a new generation of value-conscious and digital adopter shoppers joining the old guard of couponers.
Coupons are not a long term strategy. Retailers should stop chasing the bargain hunters and focus more on customer retention, e.g., via a loyalty program of some sort. Today’s consumers are so savvy, keeping them loyal to your shop or brand is hard without showing them some loyalty in return—i.e., rewarding their continued support.
Retailers that frequently do coupons basically teach their customers that they never have to buy at full price—they will just wait for the next sale or offer.
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Customers loyal to the coupon are not to be confused with those who are loyal to the brand.
Coupons are a trap. We all know that. While this is about grocery stores, I’ve written many reasons why coupons are bad for other retailers here.
There are plenty of cheap people out there if you want them to define you. Service them well and hold their attention if that is who you crave.
Many retailers are settling for crumbs when they can have the whole feast if they just get out of the coupons as “rats to the cheese” mentality and nurture those who will shop with them regardless of the pittance discount.
Having FSIs delivered to you also has the advantage that you didn’t have to seek out the information—it came to you. Opening up the paper and having the FSIs from a variety of retailers makes it a lot easier to review what is on sale versus having to visit multiple websites.
While FSIs may not drive brand loyalty, they do impact the purchase decision made by a number of customers for not only locations but items. They fulfill a necessary role for both retailer and manufacturers.
On a side note they help support newspapers, whose revenue trouble would be even greater without them. I should admit my bias in favor of having newspapers survive in this digital age.
I’m normally in the front row of the choir (singing off-key of course) when it comes to discounting damaging equity. But when it comes to targeted digital couponing I am starting to sing a different tune. As brick-and-mortar becomes integrated with the online efforts of retailers, coupon delivery on the basis of shopper profile reinforces continuity of the omni-channel marketing effort required.
Couponing ceases to be a random plea for consideration or a bribe to offset inferior quality or value. It can be part of the “we know you and want to help you meet your needs” glue that cements the retailer relationship with shoppers. It can actually be strategic.
It’s interesting to see the amount of FSI/couponing activity increasing, even as retailers and manufacturers know that redemption rates have not been great historically. The reason has a lot to do with the perspective of the retailer or manufacturer. It’s certainly appealing to look at any increase in sales as a good outcome so even a low redemption rate could be interpreted as a good outcome compared to what would happen without the coupons. Another way to look at the increase in couponing is to take a cost-driven perspective: The advent of digital has dramatically reduced the cost of sending coupons to customers, so why not send more coupons?
However, the best approach is to look at two other factors. First it’s important to consider the customer perception that is created by couponing efforts. If coupons are still only delivering low redemption rates, then it indicates the vast majority of coupons are not sufficiently appealing to customers. There’s a significant hidden cost in this low redemption rate outcome: Retailers are sending a clear message to their customers that they don’t know what is important to customers, they don’t care about sending their customers relevant coupons, they’re not sufficiently capable to determine what is relevant to customers or some combination of all three. Retailers wouldn’t send a message to their customers stating that they don’t care about them so why send customers irrelevant coupons that in effect do the same thing?
Secondly, retailers and manufacturers do not have an infinite amount of marketing dollars at their disposal so it is incumbent on them to make the best possible use of every marketing dollar. Sending coupons with redemption rates of low single digits does not tell of efficient marketing spend, even if the cost of digital coupons is low. We routinely see response rates of up to 80 percent, incremental sales of up to 4 percent and ROIs of up to 150 percent with personalized marketing campaigns. These sorts of results are possible with a customer-centric approach to marketing. It’s probably not the coupons themselves that are not specifically effective, it is probably the analytics (or lack thereof) that are used to design coupon campaigns that are the cause of the low redemption rates. Increased activity should only occur if the outcomes are also improving. I hope that is what is driving the increased couponing activity and not other factors.
We need to delineate between traditional hard copy paper FSIs and digital FSIs. The article doesn’t dive deeply into that. I like to separate the discussion into traditional FSIs and Digital Discount Offers (DDO), as this article describes “Free Standing Digital Inserts.” Paper FSIs have most always returned very low redemption, however, that doesn’t mean they don’t drive sales, as the article suggests. There is still value in paper coupons, and although the move is obviously toward digital, paper coupons still make up a significant portion of overall coupon redemption. Furthermore, DDOs now represent the fastest-growing area of coupon offers, and that is a U.S.-centric culture, by the way. This is not necessarily the trend in every global market.
As long as consumers are looking for value, brands will continue to offer discount promotions. That is what the marketplace responds to, and I don’t think that is going away anytime soon. There are definitely pros and cons to this strategy, however, the bottom line is that it’s a crowded marketplace out there, and brands need to continue to gain awareness.
The yardstick with coupons isn’t just sales but rather incremental sales. Detractors say coupons cannibalize, while the promoters say they allow smart segmentation (“fencing”). This report tells us about tactical usage, not cannibalization. But we can infer coupons are working.
The Great Recession, combined with new digital delivery, has created habits that persist today and tomorrow. Call them Millennials, digital natives or whatever you want. There is a new generation of value-conscious and digital adopter shoppers joining the old guard of couponers.
Coupons are not a long term strategy. Retailers should stop chasing the bargain hunters and focus more on customer retention, e.g., via a loyalty program of some sort. Today’s consumers are so savvy, keeping them loyal to your shop or brand is hard without showing them some loyalty in return—i.e., rewarding their continued support.
Retailers that frequently do coupons basically teach their customers that they never have to buy at full price—they will just wait for the next sale or offer.