Ben Sprecher

Coupon Redemption at All Time High

July 22, 2010

FROM RETAILWIRE:
Consumers are looking to save money wherever they can and they're clipping coupons at a furious pace, according to NCH Marketing Services (a division of Valassis). Will coupons continue to grow as part of the advertising/promotional mix for brand marketers and retailers?      [more...]

As the Great Recession plays itself out, untargeted coupons (including both traditional FSIs as well as the "mass-selected" offers that shoppers can access electronically over email, the web, or on their mobile device) will continue to be a crutch that many marketers lean on to prop up sales volume numbers, at the expense of longer-term margins and perceived brand value.

The problem with these untargeted coupons is that their effects on individual shopper behavior are extremely difficult to measure, and there is huge adverse selection bias; that is to say, the most likely shoppers to use a coupon are the shoppers who would have bought anyway or those who are so brand-disloyal that they will buy whatever's cheapest at the time. In the first case, you undercut your margins by subsidizing existing customers, and in the latter you make an unprofitable sale to a shopper who is unlikely to buy again.

Behaviorally targeted coupons have the potential to be far more valuable to marketers in the long run, because discounts can be customized to different shoppers. Loyal but low-volume customers can get discounts on multiple-unit purchases, while non-buyers can get higher-value offers to induce trial. Then (assuming the marketing vendor allows it), you can track the long-term change in shopper behavior of each group, so you can make each subsequent promotion more effective than the last.

Pundits have been predicting the imminent demise of FSIs for decades, and I'll try not to make that same mistake. Instead, I'd say that the marketing mix will continue to evolve to reflect the much better measurability and ROI that behaviorally-targeted offers represent.