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BrainTrust Query: Is the paper coupon really the problem?

April 21, 2008

By Bill Bittner, President, BWH Consulting

"There is nothing less efficient than doing that which is completely unnecessary as efficiently as possible." This, one of my favorite quotes, came to mind as I recently thought through the whole coupon redemption process and the many efforts to eliminate the paper coupon.

A friend of mine uses an online bank. Until a year ago, paper check deposits were still a problem and required her to visit an ATM. Last year, her bank began accepting check deposits that she scans on her computer. When the deposit appears in her account, she tears up the original check and she is done. Not even a trip to the ATM.

This started me thinking about the whole coupon redemption process. I don't think anyone will argue that paper coupons are not still the most efficient way to reach a large portion of the FMCG consumers. The question is, must we eliminate the paper coupon in order to get back office efficiency?

I don't think so...

I believe we can continue to use the paper coupon to reach consumers. What we need to do is set a standard for POS systems so they properly validate and associate coupons with the items purchased. Today, POS systems validate coupons against family codes, which define a manufacturer's categorization of their promoted items. Even with the new Reduced Space Symbology (aka GS1 DataBar), there is no standard that requires the retailer POS software to associate the coupon redemption with the transaction that triggered it.

As much as retailers have hated dealing with PCI for credit card transaction processing, there needs to be a similar initiative for the processing of coupons. The initiative would define how to validate the many types of complicated promotions such as BOGO and cross merchandising coupons (buy A and get B). The goal would be to associate a coupon with the Transaction Log line items that it affects. By associating coupons with the individual line items, the retailer could tell the manufacturer the who (the consumer's zip code or frequent shopper ID), what (the item), where (the store), and when (time and date) of the coupon redemption. To encourage retailers to upgrade their POS systems, manufacturers could offer higher redemption amounts for the additional attributes. Once the information is captured in the transaction logs, automatic summarization and reporting can be done by the back office systems.

Discussion Questions: What is your position on the need to eliminate the paper coupon? Can we streamline the back office operations while still giving the consumer paper?
[Author's Comment]
There are two pieces missing from this coupon scenario that make it different than the check deposit transaction. First, coupons are not serialized so the same coupon may be used to drive many discounts. Unless there is an in-store audit to confirm the physical coupon count, the manufacturer will continue to suspect the retailer is coupon stuffing. Secondly, without the scan of the paper coupon, there is no way to even prove the coupon was presented. Retailers might present discounted transactions without ever receiving any coupon at all.

Ultimately, the DataBar will allow manufacturers to put serial numbers on coupons. This will catch the coupon stuffer if they try to use a serial number that is a duplicate of another retailer's. In the meantime, the expense associated with coupon processing can be significantly reduced. It is still vulnerable to fraud, but I think the risks are worth the savings. Now that more consumers are using coupons and manufacturers are trying harder to influence their decisions, it is about time we streamlined the processing.

Discussion Questions:

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Instant Poll:

Should retailers put their efforts into streamlining the paper coupon process or concentrate on eliminating paper coupons all together?


I'm not sure that many manufacturers would find the point-of-sale transaction coupon redemption data useful enough to pay extra for it on a continuing basis. Any manufacturer could buy that data today, on a sampling basis. By raising the redemption payment universally, the brands might raise their costs considerably.

Mark Lilien, Consultant, Retail Technology Group

Retail today is in this funky in-between stage with coupons, with issues that weren't viable concerns 15 years ago and won't likely be major concerns in 15 years. Today, however, it's an issue.

A rapidly growing segment of younger consumers have no interest in paper coupons and would quite willingly move today to electronic coupons that would either exist on their cellphones (transmitted to POS either through scanning a screen-displayed barcode or beaming the data) or done through the Web.

That Web approach could have some significant advantages, in that it could potentially interact with the chain's CRM database. In short, the coupons could be selected on a Web site and stored on a server and then the customer's loyalty card would automatically have it. (Or a loyalty card could be replaced by a payment method. Anything to identify the customer.) That could have the most convenience for the customer while providing the most data back to the retailer.

But that's only attractive to one growing segment. There are many established (older?) consumers who love paper coupons and are not comfortable with the Web or mobile. They also might object more to the information-sharing privacy concerns.

I'd argue this nets out as a transition, with paper being required for at least several more years. But the more compelling electronic options should be offered to all.

Evan Schuman, Editor, StorefrontBacktalk.com

I think that electronic coupons, potentially involving the cell phone are a great idea for breathing life into a very traditional form of marketing.

Having said that, I'm not sure that it totally replaces paper coupons. First, the demographics of coupon clippers might be a bit in conflict with the demos of technology natives. Secondly, there is brand-building value to the messaging on a coupon. Third, making the coupon more immediate and automatically redeemed might actually transform the shopping process itself.

I'm not against transformation, but we need to be mindful that different shoppers will have preferences for a certain shopping process per se. Some will want to stay "old school"!

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Joel Rubinson, President, Rubinson Partners, Inc.

Coupons are notoriously ineffective and fraud prone...so why have they survived? I suspect the answer is that they serve more subtle purposes...or at least people think they do. We really don't need a more efficient way to reduce price (and margin) but coupons won't go away until we find a cheaper way to advertise.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

My bias is evident from the name of my company... I have to disagree with Ryan; some types of coupons may be inefficient, but they are not notoriously ineffective. Low FSI redemption rates distract the industry from what continues to be a very effective marketing tactic, with measurable, positive ROI. As my company and others have proven, the paper coupon has transitioned nicely to the online world, and can be made far more efficient. Marketers can also derive far more benefits by combining the detailed analytics made possible by a serialized, trackable code with the straightforward incentive promotion tactic of a coupon.

That said, the point of sale transaction is indeed a major point of focus for our industry. No small number of well-thought-out electronic clearing and digital coupon schemes have foundered on the rocky shores of retailer investment in more sophisticated point-of-sale systems and database integration. Despite the availability of family code information on every coupon, not all retailers are scanning and validating coupons against purchases, for example. The even higher level of integration necessary for digital coupons or electronic clearing is even less likely in the short term.

In the longer term, though, there is enough benefit for everyone to work this out, and I expect we will. The paper coupon is not likely to go away, simply because it is a near-universal carrier for a manufacturer's direct-to-consumer promotion. A paper coupon may turn into a simple means to transmit a unique code to a consumer and from there into a back-end clearing system, but it is inexpensive, consumer-friendly, and well understood. Loyalty card and other trade programs have their place in a manufacturer's promotion strategy, and mobile and wireless may play a role as the technology matures and retailers upgrade POS systems. But the paper coupon has a long life ahead of it.

Jeff Weitzman, CMO, Buysight, Inc.

We're still decades away from being able to take paper coupons out of people's hands. My children, as tech savvy as they are, still like cutting out their intended purchases from the weekend circulars and are particularly excited about clipping a coupon and presenting it to a store clerk.

Coupons are here to stay. As an industry we need to improve our technology to live with them.

Dan Desmarais, President, Cantactix Solutions Inc.

It all sounds great in theory, but what happens when the clerk at a retail store overrides the scanner and accepts the coupon? Retailers have little incentive to upset consumers by not accepting coupons that don't match perfectly with what's in their carts.

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Max Goldberg, President, Max Goldberg & Associates

The paper coupon when properly managed is a very effective marketing tool. The primary problem with the process is the fact that retailers try every way they can to abuse the coupon. Retailers have been known to buy coupons from clippers and submit thousands of fraudulent coupons for redemption. They threaten vendors with loss of promotional time and shelf space if they don't pay up.

I think the primary problem with coupons is that there is not a major penalty for attempting to defraud the system. If every retail CEO knew he would spend 5 years in prison if his company was caught attempting coupon fraud, that would go a long way towards solving any coupon problems that exist.

Coupons are effective, necessary, marketing tools. They have a stronger marketing justification than any affinity card.

Ed Dennis, president, Dennis Enterprises

Just as call centers remained open when Internet ordering became common, so too will there be dual paper and non-paper systems for awhile. Determining what response is desired from which consumers and what technology can be used to make that happen will dictate the appropriate solution.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

I would like to see better training at the register for how to accept coupons. As an avid coupon user and owner of one of the largest grocery coupon user communities on the web, the basic problem for redemption lies at the cash register. The coupon doesn't scan (even when it matches the items in the cart) and the cashier needs to be walked through the process.

It stops the line, it ticks off other customers who don't understand why anyone would use a $.25 coupon for anything, and then the manager gets involved and lots of time is wasted for that savings.

It harms the brand who made a good faith effort that the coupon in the Sunday paper would make it through the process and that all parties involved would be satisfied. Instead, it's a hassle for the shopper and the store. Even worse is when the store doesn't understand their own offers and how they align with the manufacturers coupons. So training at the cash register would be a very economical fix, even before upgrading technology. Technology is only as good as the people who use it.

As to consumers going the tech direction, I find that those who are coupon users are not quite ready (if ever) to give up their scissors. For my own shopping, I don't want coupons on my phone...I just want my phone to ring. I love the printable technology, I love offers associated with my club cards (although that's not where I want my Smart Source coupons), but my phone...I wouldn't do it. So I think there needs to be a good balance for those who don't want that technology and those who do.

Julie Parrish, Web Publisher, Coupon Girls, LLC

Coupons are all about wasted effort. Many traditional marketers require me to purchase the newspaper, keep scissors handy to cut them off the sheet, deploy a mechanism to organize and transport coupons, and cull them periodically to avoid the dirty look you can get when the sales clerk notices that they have expired. Rather than doing this work, don't you want me to buy your product? Reduce the price, or provide me with an instant paper coupon in the shelf. The first manufacturer who saves me the aggravation (and the regret when I know I have a coupon but cannot put my hands on it) wins!

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Cathy Hotka, Principal, Cathy Hotka & Associates

Cellphone Coupons seem cool in theory, but is a disaster waiting to happen. Where's the benefit? It's already tough enough for CPGs to determine what's a valid redemption relative to proof of purchase. Can you imagine the staff required to determine this without the paper? The world isn't ready for the "honor system" yet. When manufacturers are provided with a list containing the coupon barcode, purchased product barcode, and T-Log transaction number, then this might have a shot at working, but that's time and money for the stores to provide.

Also, when they upgrade POS systems to transfer data to the POS rather than key in the barcodes, this might have a chance of working. Handing a cellphone to a clerk to key in 20+ barcodes is not an option. It might work in some retail for high ticket products, but not in grocery.

I'm a real fan of paperless coupons but it needs the appropriate data for manufacturers to feel more secure that they're not being scammed. It also needs to reduce store labor. I don't see the ROI for cellphone coupons yet for stores or manufacturers. Just because you can, doesn't always mean you should.

Douglas Robinson, VP Technology, PromoDriver Inc. / OPD3D

The activity of cutting out coupons, and the potential of making the process entirely technology-based is at the heart of everything that goes on in retail today. On the one hand, you have the touchy-feely side of stores; personally handing those slips of paper that you and your family took painstaking time to search out, cut, save and transport in a special place, just so you save a few pennies. This is something a few generations have become connected to. On the other side, technologists can make it quicker, slicker, more efficient, taking so much of the human part out of the process.

I'm not up on many of the options offered previously in this blog, which I am sure have advantages, but I go back to the same question I have asked previously, "Tell me again why you (the store) don't want personal contact with the customer?"

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Jerry Gelsomino, Principal, FutureBest

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