Coupons: Recession Poof!

It was supposed to be heady times for the coupon.

With the U.S. economy stuck in a recession, retailer sales stalling, and consumers looking to pinch pennies wherever they could, coupon spending was supposed to rise in 2001 — just as it had in past recessions (April 2001 PROMO).

Didn’t happen. Manufacturers and retailers alike lost faith, consumers found offers to be less attractive, and the recession acted like no other before it (the gross domestic product dropped in only one fiscal quarter). That produced one of the largest drops in coupon distribution ever.

So much for history.

Total coupon distribution dropped 3.5 percent to 239 billion units in 2001, according to NCH Marketing Services, Lincolnshire, IL, marking the largest decline in the last five years. Estimates from Winston-Salem, NC-based CMS, Inc. were slightly more optimistic, pegging the slide at 2.1 percent to 333 billion.

Redemption totals took a big hit as well, in part because the redemption rate fell from 1.8 percent to 1.7 percent, but primarily because there were fewer coupons in play to be redeemed. NCH says four billion coupons were redeemed in 2001 (when 25 percent of all coupons required the purchase of two or more items), down 11 percent from 4.5 billion in 2000; CMS puts the decline at 11.3 percent, with 3.9 billion being redeemed.

In fact, there was nothing “up” about the year at all: NCH says redemption dollars sank almost 17 percent to $3 billion and 27 percent fewer events (promotions involving coupons for certain dates or products) were held. Heck, even the average face value declined — for the first time ever — from 79 cents in 2000 to 74 cents in 2001.

Stop Making Cents

The coupon’s status just ain’t what it used to be, as PROMO’s annual joint survey with the Promotion Marketing Association attests: In 2000, 34.3 percent of brand marketers cited coupons as one of the three most important tactics in their marketing strategies. That number slipped to 21.6 percent in 2001 and just 13.6 percent in February. (For additional survey results, see the Annual Report of the U.S. Promotion Industry with this issue.)

For some manufacturers, the math just doesn’t add up any more, especially now that retailers are increasing the traditional eight-cent handling and distribution rate by tacking on such fees as invoice minimums and “hard-to-handle” costs (for coupons that can’t be scanned).

“You might be talking about just a couple pennies per coupon, but that adds up to millions of dollars,” says NCH vp-marketing Charles Brown. “The big manufacturers may not notice a difference, but small to medium-sized companies might be spending 20 cents per each coupon redeemed.”

Apparently, the big manufacturers have noticed as well. In fact, the biggest — Procter & Gamble — eliminated the tactic almost entirely for one brand. (And when P&G sneezes, the CPG industry usually starts downing cold tablets.)

Last fall, Cincinnati-based P&G dropped general coupon distribution for Luvs diapers in favor of straight price discounts in stores. When consumers reacted negatively to the move, the company came clean with the facts: More than 500 million coupons for the brand had been distributed through FSIs and direct mail during a 12-month period ended last fall — an average of 30,000 for every mother and baby in the U.S. Only five million were redeemed.

“If you think of all the money we wasted on paper, postage, and printing coupons in the past year, wouldn’t you rather see us offer a lower price every day?” P&G posited on its Web site.

Alas, P&G hasn’t left diaper buyers completely high and dry: Consumers can still receive Luvs coupons by registering to receive special offers.

Standing Off

That’s heartening news for many retailers, who have long considered coupons a threat to the bottom line. “Coupons and one-day sales are now seen for what they are: a means of educating consumers to wait for the lowest price,” says Tom Holliday, president of the Retail Advertising and Marketing Association, Mill Valley, CA. “A self-defeating proposition to be sure.”

(CMS would, of course, disagree. Its research suggests that stores offering double or triple coupons achieve as much as $11,000 more in average weekly sales than stores that don’t, with sales per square foot running about $9 higher than in stores without bonus coupons.)

But not everyone is ready to throw in the towel just yet. “It’s really too early to tell. A lot of the data in this industry lags real-time results,” says David Diamond, president of emerging markets at checkout coupon distributor Catalina Marketing, St. Petersburg, FL, whose revenues increased 2.8 percent to $313.1 million in the first nine months of fiscal 2002 (ended Dec. 31). The company has seen an upswing in recent orders and thinks revenue could be up as much as 20 percent in its fourth quarter.

“Things really changed post-Sept. 11,” adds CMS director of marketing Lorraine Gallaher. “Marketers who had been tentative with distributing coupons rallied.” CMS estimates that distribution jumped 29 percent in the second half of the year — when the recession became more reality than media speculation. In a normal year, that increase is only around nine percent.

If the coupon industry is foundering, then free-standing inserts are providing most of the ballast. FSIs accounted for 84 percent of all coupons distributed last year, up from 82 percent in 2000, as distribution dropped through both electronic channels and hand delivery, according to NCH.

The low cost and guaranteed pull of FSIs still appeal to spending-conscious marketers. And their arrival with the Sunday newspaper is still as anticipated in many U.S. households as the TV listings. “Promotion-responsive consumers are religious about using FSIs as a basis for planning their weekly shopping,” says Gallaher.

“FSIs aren’t sexy, but they do provide reach to more than 80 percent of households,” says Lynn Liddle, vp of p.r. and investor relations at Valassis, Livonia, MI, which saw revenues from FSIs drop 3.9 percent to $579.2 million in 2001 — due simply to fewer orders. (The company’s overall sales rose 1.5 percent to $849.5 million.)

But redemption rates are notoriously low, and now stand at 1.3 percent, according to NCH. On-pack coupons, though more expensive, redeem at an average rate of 19.3 percent or greater, notes Brown.

Spice of Life

Perhaps what the downturn really signals is a general need to provide greater variety — in distribution, in offers, even in the objectives of a coupon program. Look through the FSIs from Valassis or News America’s SmartSource these days and you’ll find sweepstakes, contests, even branding messages highlighted — in some cases with the coupon itself getting little real estate.

“Coupons used to be about trying to drive people to try something they normally wouldn’t,” says Paul Gordon, executive vp-marketing and sales for Largo, FL-based Cox Target Media, distributors of the Valpak mailer. “Today, they’re about trying to give people an incentive to use something that already fits their lifestyle.”

In extreme cases, it even entails taking some of the “cent” out of the incentive. That’s the idea behind Glenview, IL-based Kraft Foods’ food & family, a two-year-old program that now publishes in both FSI and magazine forms (the latter by Redwood Communications, Toronto). While food & family carries a number of coupons, the emphasis is on the content, which includes cooking information and a bevy of recipes.

It’s also why coupon distribution is incorporated into so many brand-building mobile tours, where it’s presented more as a value-added thank-you gift for visitors than a straight-forward purchase incentive (while providing a measurable way to test road-show ROI as well).

In March, AOL Time Warner magazine Cooking Light, Birmingham, AL, kicked off its 10th annual On the Move tour, which gives advertisers such as Dole, Smuckers, and Nestlé a chance to host informational kiosks that distribute samples and coupons (redeemable at the tour’s grocery-store stops). MarketSource Corp., Cranbury, NJ, handles.

And it’s a big reason why online couponing isn’t as active as it was two years ago. Online distribution rose slightly in 2001, accounting for about one percent of total distribution, according to NCH, as some distributors shut down and more brands opted to deliver from their own Web sites.

As part of its birthday party for the Whopper in March, Miami-based Burger King hand-delivered coupons for free burgers to New York City’s 55,000 police officers and firefighters. The tactic was designed to generate goodwill and bring awareness to the company’s new menu items. Whatever redemption comes from it will be an added bonus.

Now there’s a positive way to look at coupon redemption.