Coupons: Wing Clipping

The recession was supposed to be a boon to coupon spending.

Faced with reduced consumer consumption, marketers would return to the tried-and-true coupon as a sure-fire way to lift sales; likewise, belt-tightening consumers would increase usage to help make ends meet.

The recession was coming at a fortuitous time, too, since coupon spending had dipped slightly in 2000 — a decline rationalized as the by-product of massive consolidations (Kraft Foods and Nabisco, General Mills and Pillsbury) among consumer packaged goods companies.

But things didn’t exactly play out that way. Marketer spending dropped 6.1 percent to $6.5 billion, according to PROMO estimates based on industry sources. Total coupon distribution fell 3.5 percent to 239 billion, which represents the largest drop in five years, according to NCH Marketing Services, Lincolnshire, IL. (Winston-Salem, NC-based CMS, Inc. estimated the drop at 2.1 percent to 333 billion.)

On the consumer side, unit redemption fell a whopping 11 percent to four billion as dollar redemption sank 17 percent to $3 billion, according to NCH. (CMS puts the unit slide at 11.3 percent to 3.9 billion.) The redemption rate slipped again, from 1.8 percent in 2000 to 1.7 percent.

Meanwhile, the average face value of offers slipped for the first time ever, from 79 cents in 2000 to 74 cents in 2001, and 25 percent of offers required the purchase of two or more products.

It seems clear that the status of coupons as a key component in the marketing plan has declined, as results from 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.

The most noteworthy example came last fall, when Cincinnati-based Procter & Gamble canceled all coupons for its Luvs diaper brand after finding that only one percent of the 500 million coupons it had distributed through FSIs and direct mail in a year were redeemed. When shoppers complained, the company posted an explanation on the Luvs Web site asking, “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 has since agreed to deliver coupons to consumers who register to receive them.)

As redemption rates fall, costs go up. Retailers have been trying to tack on additional handling fees (such as a surcharge for processing hard-to-scan coupons) to the traditional eight-cents-per-unit charge. “The pot isn’t growing for manufacturers, so they’re shifting marketing dollars around,” says Charles Brown, NCH’s vp-marketing.

Staying Positive

Part of the problem has been that this economic downturn is anything but typical — it wasn’t even officially declared a recession until late last fall — and did not spark across-the-board consumer spending declines as past recessions have.

Some people still aren’t convinced things are all that bad. “As of this date, redemption data on coupons dropped in the fourth quarter is still coming in,” says Lorraine Gallaher, director of marketing at CMS, which saw distribution jump 29 percent in the second half of the year. (The typical increase is only nine percent.)

There’s no doubt that coupons are still an effective method of increasing sales, inducing trial, and generating repeat purchase. And sometimes, all a brand really needs is a quick lift.

But many companies are now wisely playing the integration game when it comes to the coupon schedule, employing the tactic as an effective component — but not the sole focus — of campaigns.

They’re also getting more creative with distribution and with the offers themselves. Glenview, IL-based Kraft Foods, for instance, ran a Meltaway and Play effort in January that featured coupons — not for Kraft products, but a rent one-get one free night at partner Blockbuster, Inc.’s stores.

SNAPSHOT

• Spending dropped 6.1 percent.
• Total redemption slipped 11 percent, while redemption rates fell to 1.7 percent.
• Average face value fell for the first time ever.