The Undefeated

Apparently, it’s the decline without the fall, depending, of course, on who in the coupon business you’re talking to. Although total coupon expenditures for 1997 remained virtually unchanged from the year before, ticking up slightly to $6.24 billion, total coupon distribution dropped by 10 percent, to 276 billion, according to NCH NuWorld Marketing, the Lincolnshire, IL, coupon clearinghouse.

Executives at another large clearinghouse, Winston-Salem, NC-based CMS, Inc, concurred, noting that manufacturers are shifting funds into other consumer promotion programs such as frequent shopper cards and electronic coupon systems.

“Although we are experiencing a shift away from traditional paper-based coupons, growth in direct consumer incentives is still expanding today in phenomenal directions through electronically driven promotions,” says CMS president Mike Marino.

Package goods companies spend about 30 percent of their total marketing funds on coupons, and 80 percent of them are distributed via free-standing inserts. FSIs accounted for 92 percent of all coupons distributed last year, according to CMS marketing services manager Robin House. (NCH Nuworld quotes a lower FSI share – 80.5 percent – with all others accounting for 19.5.)

The total redemption rate slipped from 1.9 percent in ’96 to 1.7 percent last year, says CMS. That added up to 4.7 billion coupons redeemed – compared to 5.3 billion the previous year – due in large part to a 48 percent decline in in-ad coupon volume, CMS says. Consumers saved $2.9 billion shopping with coupons last year, but that was a drop of some $600 million from the year before.

Less mass Sheer numbers of FSI coupons are shrinking due to better, more specialized consumer targeting. “Manufacturers and retailers are simply doing less total mass marketing,” says NCH NuWorld vp marketing Charles Brown.

To Wally Marx of Wallace Marx & Associates, a Minneapolis firm that tracks the coupon industry, the value of coupons was never better. “Their overall numbers areshrinking, sure, but they’ve never been worth more,” he says.

One trend that bears watching, according to Brown, is the sharp rise in retailer fees. Manufacturers pay 8 cents per redeemed coupon to retailers, but retailers can charge back for postage, invoicing, and other administrative costs. These charges nearly doubled last year. Because the total volume of redeemed coupons is going down – not uncommon in a healthy economy – retailers are cashing in fewer 8-cent fees and are recouping their lost revenue by boosting chargeback fees.

But though fewer FSIs were distributed last year, redemption wasn’t hurt in all categories. Consumers redeemed 1.2 billion health and beauty care coupons in ’97, some 14 percent more than they did the previous year. The boost was due to increased coupon face values from HBC manufacturers, plus longer-duration offers, according to NCH NuWorld.

It was a different story for grocery product manufacturers. The 3.7 billion grocery product coupons redeemed last year represented a decline of 13 percent. Nearly every coupon vehicle in the grocery category did not redeem as well as the year before, due to a drop in average face value from 52 cents to 49 cents coupled with a robust economy.

In 1997’s fourth quarter, however, grocery coupons staged a comeback. “There was a huge explosion to push sales,” Brown says, adding that it was a defensive move by brand managers who saw targeted coupon efforts missing sales objective marks, and pointing to the control that marketers have over coupon performance.

In-store electronic checkout, electronic shelf, and handout coupons made new inroads into traditional coupons in ’97. Their distribution increased by 16 percent, giving them an 8.3 percent share, compared to 6.7 percent in 1996. “We see every chance for further growth there,” Brown says.

Growth tremors But FSI distribution climbed in the fourth quarter after declining in the first three – the first increase in five years, according to Dominick Porco, president of New York-based NewsAmerica Marketing.

The vibrations of new activity are also being felt at News America’s Livonia, MI-based competitor, Valassis Communications. In fact, Alan Schultz, coo of the other FSI superpower, says he believes a complete FSI turnaround is underway. “It has been the fashion to bash FSIs, to treat them as stale, old, out of fashion. But there’s a comeback in the making.”

Schultz confirms there was a downturn for most of last year, with both revenues and units falling. But during the fourth quarter of last year and continuing through the first quarter of ’98, he says Valassis has seen a 5.8-percent increase in revenue and 10.8-percent rise in pages. “People are again saying that coupons are a good deal,” says Lynn Liddle, Valassis vp for corporate communications and investor relations.

To improve levels of redemption, coupon companies are trying to win marketers over to longer redemption cycles. According to both Valassis and CMS, shorter expiration periods may be a key factor in redemption decline. NCH NuWorld, too, conducted a study that showed coupons with short life spans had lower redemption rates. “The shorter life span is likely to bring in the old users first and the new users later,” says Brown. That’s not a great way to gain trial and incremental sales.

Nine out of 10 coupons distributed in 1996 had redemption periods of less than five months. HBC marketers increased their average cycle to 3.3 months, according to NCH, while grocery offers remained shorter at 3.0 months. But Shultz sees a movement afoot to lengthen the duration of offers.

Mailboxes, etc. Cooperative coupon mailers decreased activity, according to Wally Marx. Largo, FL-based Cox Direct’s core Carol Wright product, a cooperative coupon envelope mailed 10 times annually to more than 25 million households, was down in overall numbers, Marx says.

Cox and other co-op mailers such as Madison Direct Marketing are turning to niche marketing to try to restimulate growth. Cox recently introduced Just Delivered for parents of newborns and See themGrow for parents with babies 5-18 months old. Cox also formed a new partnership with The Senior Network Inc. to further develop Cox’s coupon link to the 50-to-64 segment.

Better targeting allowed Cox to trim ’97 coupon distribution 35 percent to 3.2 billion. If results for brands improve with significantly lower mailing costs – as Cox promises – the bottom lines of co-op mailers will beef up significantly.

Val-Pak, a St. Petersburg, FL-based, direct mail house and sister company of Cox, has 120,000 specific advertisers, almost all of them small businesses like local restaurants, dry cleaners, and lawn services. The total number of coupons distributed by Val-Pak in 1997 rose to 11 billion from 9.5 billion in 1996, according to Val-Pak vp of marketing Carol Pilon. Redemption levels for Val-Pak are virtually untrackable, since most offers are made good on the spot by the local Mom & Pop advertisers.

Pilon says the company’s revenues shot up by 25 percent last year, and she predicts a distribution increase to 12 billion coupons in 1998.

In the meantime, the Internet glimmers on the coupon horizon, full of unrealized promise. “We’re still something of a speck on the coupon landscape,” says David Diamond, executive vp for St. Petersburg, FL-based Catalina Marketing Corp, which runs Supermarkets Online. Primary coupon clippers “are not PC hackers,” Marx says. Many do not have a computer nor do they have the time to “sit down and log on and bring a web site up and go through the whole thing.” The chief users of today’s coupons are “a hard-copy generation” who like to page quickly through the FSIs and pull things off the shelf. They look askance at computers: “If they can’t see it, they don’t really believe it,” Marx says.

* Coupon distribution dropped 10 percent, mainly due to increased targeting.

* FSI coupon distribution declined in first three quarters of 1997, but picked up in the fourth quarter.

* FSIs accounted for 92 percent of all coupons distributed.

* The coupon redemption rate slipped to 1.7 percent last year from 1.9 percent in 1996. HBC coupon redemption, however, increased by 14 percent.

* In-store coupons made inroads, increasing their market share to 8.3 percent from 6.7 percent in ’96.

* Direct mailings of coupons for packaged goods were down overall, while non-packaged goods coupon mailings went up.

* Internet couponing has yet to move beyond the test phase for big packaged goods companies.