CPGmatters: Counterfeit Surge Could Tip Redemption Imbalance to Larger Chains

Feb 08, 2010

By Al Heller

Through a special arrangement,
presented here for discussion is a summary of a current article from
the monthly e-zine, CPGmatters.

Two different worlds in
coupon redemption widen the competitive imbalance between larger and smaller
retailers – and add to the ongoing fiscal pressures on CPG manufacturers.

On one hand, large retailers
have the muscle to be paid within 15 days and gain leeway with payers on
questionable coupons submitted. They also have the nerve to take invoice
deductions off of CPG supplier invoices if agents don’t pay them quickly

On the other hand, independents
and smaller chains get relatively shabby treatment even if they are ethical
and comply with payer requirements. One example: it takes 30 days for them
to either be paid on redeemed coupons, or at least notified of a discrepancy
that prevents such payment. Then the real fun of proving legitimacy begins.
That could draw out over months or years because the reason for refusal
to pay isn’t called out, so it requires investigation before an appropriate
challenge can get underway.

Similarly, CPG suppliers
are hurt by unannounced invoice deductions taken by large retailers that
are supposed to equate to the value of coupons redeemed that remain unpaid.
Retailers that do this don’t often articulate the reason, which leaves
the CPG challenged to identify it as a coupon deduction. The CPG then has
to go to the retailer’s portal, look up the debit memo number and find the
retailer’s ‘support’ of the deduction. However, that only gives the dollar
amount and invoices involved, not the reason, such as counterfeit or otherwise
illegitimate coupons. The CPG then has to investigate within its own systems
or the payment agent’s system.

So explains Ron Fischer,
president and founder, RPR Redemption Processing Representatives, which
recently settled a claim on behalf of a retailer that began in 2006. That
time stretch is unusual, but it signifies the cash flow impact such disputes
could have on smaller store operators, or conversely on CPGs.

A sudden rise in counterfeit
coupons could tip industry imbalances even further in favor of larger chains,
suggests Mr. Fischer, because the unregulated industry operates largely
on voluntary guidelines. Trading partners that don’t want to take losses
will pick on whomever they can. That would mean smaller retailers and smaller
CPG manufacturers that lack the resources and the will to fight back.

The non-profit Coupon
Information Corporation (CIC), Alexandria, Va., posted images on its website
(www.cents-off.com) of approximately 100 new counterfeit coupons in January
2010. This compares with an average of six per month throughout 2009, observed
Mr. Fischer.

“Some manufacturers will
pay a retailer if counterfeits are in small quantity because they realize
stores accept them in good faith and there aren’t any instant cashier-level
alerts that exist today,” he explained. “RPR (www.rpr-coupons.com) issues
e-mail alerts to member retailers with images of counterfeits. But the
problem is getting the notification down to floor supervisors and cashiers
to keep them from accepting coupons that look good to the naked eye.”

Discussion Questions:
Do you see possible industry-wide solutions to issues surrounding
coupon redemption? Do you agree that it is tougher for smaller stores
versus larger ones? What particular problems have you seen on the vendor side?

Please practice The RetailWire Golden Rule when submitting your comments.

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10 Comments on "CPGmatters: Counterfeit Surge Could Tip Redemption Imbalance to Larger Chains"

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John Boccuzzi, Jr.
John Boccuzzi, Jr.
11 years 2 months ago

There are several issues around coupon redemption and settlement between the retailer and the CPG manufacturer.

1) Counterfeit coupons
2) Redemption of a retailer specific coupon at another retailer–Walmart for example
3) Discrepancies between the retailer and the manufacturer
4) Payment timeline.

All of these issues help support a move towards electronic coupons. This solves all the issues above.

1) You can’t counterfeit an electronic coupon
2) Consumers can’t enter one retail outlet, pull a coupon and use it at Walmart for example (this is done more times than you think)
3&4) because the coupons are electronic the audit of redemption and payment to the retailer is easier and faster.

2010 is going to be a big year for coupons. Finding programs that use electronic systems for redemption will be beneficial for the retailer, CPG Manufacturer and most important the consumer.

Gene Detroyer
11 years 2 months ago
Traditional coupon use has declined steadily since 1992, though there has been an uptick since the economy collapsed. But, couponing as we know it historically is on its way out. Dealing with pieces of paper is costly and archaic. As couponing moves to electronic alternatives, the entire issue of dealing with counterfeiting will die. However, the move to electronic price reductions will give those retailers who are progressive an upper hand versus those who are not or can not be. Fortunately, it has been the history of grocery retailing that independents and smaller chains have been the more progressive segment of the industry. The challenge for the CPG companies is to be sure to make their electronic couponing (another name for a very expensive way to reduce the price) efficient. The payout for the CPG company comes not on the coupon in the FSI standing alone, but on the merchandising that accompanies the coupon drop. There is a perceived mass to that coupon drop that may be hard to duplicate when all couponing goes electronic.
Ben Sprecher
Ben Sprecher
11 years 2 months ago
This is a major headache for retailers and CPG manufacturers alike. Without a centralized, up-to-date database of every valid manufacturer coupon, and without each and every retailer integrating that database into their POS system for real-time validation, there is simply no way for the average retailer to prevent coupon fraud at the checkout. And as the article correctly points out, when there is fraud, the weaker party in the chain-brand relationship is typically the one left holding the bag. At it’s core, the problem is structural: there are many people with an incentive to cheat, it’s not that hard to do, and there’s virtually no transparency to allow for effective prevention or detection. Dishonest shoppers can save money by counterfeiting coupons (and simplistic UPC schemes mean that coupon bar codes are easy to manipulate or forge outright), corrupt cashiers can skim cash from the till by replacing cash with coupons, and unscrupulous chains can boost revenue by padding coupon submissions to the brands with bulk-cut coupons bought on the black market. And by its very… Read more »
Thaddeus Cowan Thompson
Thaddeus Cowan Thompson
11 years 2 months ago

To help with the issues of acceptance and payment of coupons, last week we started to use a service from Scan Apps. This setup is a win for the stores because they get more of their money faster, and it is a win for the manufacturers because it should help reduce fraud. Labor should be reduced on both sides.

I do not see my customer base switching over to electronic coupons in mass any time soon, so it is my hope this free solution will help bridge the gap.

W. Frank Dell II
11 years 2 months ago

We have had a solution on the drawing board for years. Years ago we had mis-redemption where retailers redeemed more coupons than they bought merchandise. Today, technology is giving us counterfeit coupons. Why print money when you can print coupons?

The answer to this problem is to resolve it at the time the coupon is scanned during checkout. This was originally set up to expedite payment, not stop counterfeit coupon processing. If everyone input their coupons’ data, the retailer could extract the information for the products they sell daily. Through EDI, the manufacturer could pay the retailer weekly and eliminate the coupon process completely. This would save the manufacturers considerable money. To control mis-redemption, all they would need to do is include purchases for validation.

If this does not come about, expect wholesalers to begin handling their customer coupons. They can deduct just as fast as chains. To wait 30 days for payment today is simply unacceptable.

Cathy Hotka
11 years 2 months ago

The real story here is that customers loath coupons. Forcing adults to juggle hundreds of little scraps of paper is no way to engender loyalty. The first retailer that automatically activates available coupons, without paper, for their best customers will win BIG.

Paula Rosenblum
11 years 2 months ago

I remember working for a struggling shoe retailer. Someone raised concern about non or former employees taking advantage of employee discounts and there was some debate about whether or not IT should become involved.

One of my colleagues wryly suggested that given the state of our business, we should have had people standing on street corners offering employee discounts.

The point is that the brands should be happy their products are being chosen over private label alternatives, and give up a couple of margin points once in a while to be the purchase of choice. If you’ve ever done the math, you know that private label regular price is roughly equal to the price less coupon for branded product.

As Cathy pointed out, most consumers do hate them (coupons) and the brands have way bigger fish to fry at this point anyway.

Ralph Jacobson
11 years 2 months ago

I’ll go against a few of the comments here and say that consumers actually DO like coupons. In fact, they continue to redeem, albeit in low amounts compared to total distribution, paper coupons more than eCoupons. Mobile offers have not caught on in the mainstream, yet. We hear a lot about it being in the biz, however, the far majority of consumers still want to touch, hold, and handle a tangible discount mechanism.

I do agree that technology–specifically new POS systems–do exist to alleviate most of the challenges here. However, the “uncollected” coupon expense at the store level is still there, and that can be a huge amount across a big retail company. There is a human business process involved here, as well as technology integration.

M. Jericho Banks PhD
M. Jericho Banks PhD
11 years 2 months ago
Shades of the imminently confounding refund process for the failed Cash For Clunkers “program.” I’ve worked for the little guys at Fleming and SuperValu, and I’ve worked for the big guys at Kroger and Safeway. Al Heller knows from whence he speaks (or is it “speaketh?”). He knows what he’s talkin’ ’bout, Willis. Manufacturers drag the little guys as much as possible. At Charley Brothers (SuperValu) in Pittsburgh, our biggest fiscal sin was always paying our bills on time. I stopped that right away. Cash management. At Fleming in Philly, two of my N.J. store owners went to jail in an FBI sting regarding fraudulent coupon redemption. I know from whence I speaketh. (For those of you who remember, think “Breen.”) As a supplier offering a retailer (BI-LO in SC) a discount on actual retail movement, I was handed a bill claiming that 97% of all inventory moved at retail. Both sides cheat. Who knew? In many of my retail postings, retailers provided fold-out tables in their stores labeled “Coupon Exchange Center.” The idea was… Read more »
Shilpa Rao
11 years 2 months ago

Well I agree with Dr. Banks that electronic coupons are also easy to counterfeit unless a system to create a unique ID for each coupon in the booklet is instituted and tracked against a database of all coupons issued and redeemed. As far as paper coupons go, both retailers and manufacturers can look up to innovations in paper and print industry to find an alternative cheaper print/paper technology which is difficult to counterfeit and could be detected at the till by already existing hardware.


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