Not Your Mother’s COUPON

Posted on by Chief Marketer Staff

There are three kinds of customers: new ones, loyal ones, and prospective ones. Coupons – especially the ones housed in colorful free-standing inserts found in Sunday newspapers – have historically been key in attracting the last kind, the prospect. The coupon presented consumers with a high-value offer and gave them a leisurely window in which to redeem it. By offering significant savings on a first purchase, coupons reduced the risk to consumers of trying something new. Trial was supposed to result in conversion and repeat purchases.

But the strategies of old have been challenged by new marketing means and methods. GerberBaby Foods is using a targeted coupon to create a loyalty program. CVS, the drug giant, is using purchase data to create its own reward-oriented customer programs. FSI distributor Valassis Communications has developed a cutting-edge technology, Aztec, to better target direct mail offers from packaged goods manufacturers. Web couponers are finding that their convenience factor holds a big appeal for consumers. Even the old reliable FSI is getting fine-tuned.

The technology mountain has come to couponing. Data-mining and one-to-one marketing strategies abound. And everything is being made customer-specific.

Coupon industry executives know their marketing basics. They know that clients come to them for enticements to win new users, but they’re also aware that those same clients are struggling to keep the repeat customers that translate into lower servicing costs, increased revenues, word-of-mouth referrals, and a willingness to pay a price premium.

They know that if you could calculate profit margins on a per-customer basis, the repeat customer would always prove to be the most valuable. They also know that loyalty programs are a means of differentiating a business’s most valuable customers from its less valuable ones, and that the way to build brand loyalty is to tailor a product to the customer’s individual specifications.

That is why, by the mid-1990s, coupon marketing techniques started getting a dramatic upgrade. In fact, targeted couponing tactics and the growth of loyalty programs have become the two hottest trends in the industry today, according to experts. The old coupon is being used in new ways, and the industry it drives is undergoing a major marketing transformation.

>From bonnets to mortarboards Fremont, MI-based Gerber Baby Foods hit on a winning combination of those two trends when it came up with a coupon reward promotion for loyal customers.

Through an electronic system developed by St. Petersburg, FL-based Catalina Marketing Corp., consumers who purchased 16 or more Gerber products automatically received a gamepiece coupon carrying a unique PIN number and an 800 phone number. Customers called the phone number, punched in the PIN number, and received points for entry into a sweepstakes giving away a $250,000 college scholarship. Shoppers earned more points with each subsequent purchase.

Entrants, who were required to submit the ages of their children, were offered appropriate discounts and deals on Gerber products. “We wanted to provide a reward that would be both relevant and motivating,” says Mack Jenks, director of consumer promotions.

To track the program, Gerber set a baseline of purchasing behavior prior to the sweeps. “We measured during the promo to see which units tracked up,” says Jenks. “We looked at the number of transactions taking place, triggered on a weekly basis, and then did our analysis on volume increases spurred by the program.”

One college scholarship has been awarded, with another shortly to come. The promo picked up a PMA Reggie Award for its creativity as well. Gerber is already working on the next generation.

Such data-driven programs have changed coupon marketing strategies beyond all recognition. The industry “has moved from a shotgun to a laser approach,” says Max Robinson, marketing relationship manager for drugstore giant CVS Corp. of Woonsocket, RI.

Toothpaste confidential Two years ago, CVS chose Denver, CO-based Prime Response to set up and manage a coupon program whose goal is loyalty to the retailer. Where most coupon offers “try to attract new buyers, ours is reward-oriented,” Robinson says.

Suppliers that want to take part in the program will have to dance to CVS’s tune. Robinson says that while “some conversion tactics can be tested” through the program, CVS requires vendors “to allocate the same number of coupons for loyal brand users.”

Prime Response’s system allows CVS “to set up, test, and control” purchase data and use it in creative ways, Robinson says. In the area of analgesics, for instance, the system lets the chain segment out heavy and regular buyers of Tylenol and compare them with buyers of painkillers who tend to switch brands. By turning transactional data into in-house analysis, CVS can fashion an offer likely to turn occasional Tylenol purchasers into repeat buyers.

Vital to this process is pulling transaction-level data at the store and moving it to CVS’s mainframe computer where it can be “cleansed,” says Robinson. “We have reached a new level of detail,” he says.

CVS offers are based on household purchase history tracked through customer loyalty cards, a system much like Catalina’s, which uses purchasing data from frequent shopper cards and boasts the largest point-of-purchase database in the country.

CVS’s database is no slouch, either, already containing over 300,000 names and expected to grow even bigger. The program is still in the pilot stage, with a two-year old version in Albany, NY, and two newer ones being tested in Baltimore, MD, and Greensboro, NC. A full-scale rollout to CVS’s 4,100 stores is expected next year.

One-to-one marketing guru Don Peppers once noted that a customer who purchases frequently is doing so based more on need than on value, and that convenience is a big factor in influencing customer behavior. One avenue being crowded by marketers looking to add convenience to their cents-off offers is the Internet.

Longs Drug Stores Corp. of Walnut Creek, CA, recently partnered with San Francisco-based Planet U, a leading provider of Web-based consumer promotions, to provide Longs’ customers with Internet “U-pons.”

Already used by such supermarket chains as The Kroger Co., Ukrop’s, and Dick’s Supermarkets, U-pons have generated redemption rates of more than 20 percent on a variety of nationally branded products from top consumer packaged goods manufacturers. (The redemption rate for traditional coupons reaches two percent at best, according to Winston-Salem, NC-based coupon clearinghouse CMS, Inc.)

Longs considers convenience one of the big lures for its program. “It allows promotional savings on national brands, but it also spares Longs’ customers the hassles of coupon clipping. It can all be done on your PC,” says spokesman Clay Selland.

FSI 2000? If the FSI has appeared at times to wither in the great targeted marketing race, it is far from ever dropping out. According to CMS Inc., the FSI still dominates the coupon mix, with 278 billion distributed (up one percent from the year before), and 4.7 billion redeemed last year. No other method of couponing is as cost-effective. If reaching huge quantities of people in a cost-efficient way is the goal, then nothing surpasses the FSI.

Lynn Liddle, vp-corporate communications and investor relations for Valassis Communications, Inc. of Livonia, MI, contends that the FSI aims at all three kinds of customer: the new, the loyal and the prospective. “We’re working to build all three platforms,” she says.

Despite the high redemption rates of targeted, electronic forms of coupons, they only reach consumers who are plugged in. One-to-one marketing can be effective, but it is also “very expensive,” says Liddle. By contrast, FSIs retain the advantage of being an inexpensive mass advertising medium. “Marketers have to rely on the ability to reach people in mass quantities at an efficient price,” she says. If you look at it from a CPM standpoint, an FSI costs “only $7 per thousand.”

Valassis is paying heed to the one-to-one future of marketing. “It’s an opportunity everyone has seen,” says Liddle. The company is experimenting with its own bit of data innovation, an information-rich, two-dimensional bar code technology dubbed Aztec.

Aztec is predominantly a direct-mail device used by packaged goods manufacturers to deliver customized offers. The Aztec bar code is smaller and holds more information than a standard bar code. It can include the customer’s name, address, demographics, age, gender, even the distance he lives from a given store. It may even include the amount of their last purchase.

When coupons coded to individuals are redeemed and scanned, marketers can employ data instantly to learn what appeals to them – what offers they did and didn’t respond to, according to Valassis spokesperson Sue Gornowicz.

For example, if the MedMax company sends out a coupon for a LifeScan One Touch Fast-Take Blood Glucose Meter worth $5, and the customer responds, MedMax may next try an offer of lesser value, perhaps dropping the face value of the coupon to only $3.

What makes Aztec more functional than the usual linear bar code is that it involves one-stop data retrieval, according to Liddle. Usually the data on the linear code is stored at several widely dispersed database sites. Compiling it can take as long as six weeks, allowing for little time to modify or alter an offer. With Aztec, retrieval is possible “in real time,” Liddle says, which means offers can be changed to appeal to individual customers with the next mailing.

Aztec technology can be used in a mass format like the FSI, but it would carry much less information – the offer data, expiration date, and perhaps the newspaper that delivered it.

“Aztec is really most effective for direct-mail programs, ” Gornowicz says.

Make no mistake – the well-worn coupon is still coming of age.

Co-op mailers like Largo, FL-based Cox Direct are using data-targeting to make their products more effective.

According to marketing manager Hollis Perrin, Cox’s Carol Wright direct marketing vehicle now mails coupons for discounted entertainment, airfares, movie tickets, and car rentals to high-occasion households, thanks to a carefully constructed database. “It’s direct-response material, but it has a coupon,” says Perrin.

After conferring with retailers and consumer packaged goods manufacturers and obtaining their data, Cox set out to target 20 million “promotionally responsive households,” says Perrin. The company tried to broaden the spectrum of offers so “there’s something for everybody in the family,” including financial services, membership clubs, telecommunications, pharmaceutical, retail, and restaurant.

“We’re after upscale families, which is why we also have offers for groceries, eyewear, toys (Perrin says Kids R Us ranks with Party City among Cox’s biggest advertisers), and the aforementioned entertainment specials.

Cox mailed out 11.6 billion envelopes in 1996. “We mail 20 million households 10 times a year, and four times a year we mail 28 million,” says Perrin.

Other co-op couponers are delivering targeted mailings by tagging along inside major brands’ envelopes. Saddle River, NJ-based Supermarket of Saving’s Ride-A-Long program targets two groups: young families and adults over 50, says company president Larry Tucker.

Ride-Along was created to give smaller advertisers opportunities to “ride the coattail” of a big brand name like Sears. Advertisers get the benefit of “implied endorsement” by the major brand as well as defrayed costs. For instance, advertisers can secure a spot with Oklahoma City-based insurance carrier Globe Life, which mails personalized letters to consumers approaching their 50th birthday.

They could then hop into a program for Washington, DC-based American Association of Retired Persons that sends membership offers to people who have just turned 50. The mailing’s envelope displays graphics for a special offer of bifocals from Sears Optical, and contains direct-response materials from a number of other advertisers.

Madison Direct Marketing Ltd, Greenwich, CT, adds an account-specific overlay to its targeted co-op mailings. In monthly mailers to young families with children up to three years old, says market manager Chris Frye, Madison adds a “trade dimension” that directs consumers to specific retailers such as A&P or Kroger depending on their zip codes.

Clients can determine whether coupon-pack recipients get Kroger or A&P offers, depending on which retailer a current account-specific program is running with, for instance.

“You reap the benefit of a multi-advertising environment without the costs,” Frye says. The data necessary to execute the program has long been available, she says. It’sjust that marketers are growing much smarter in how to use it.

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