CPGmatters: How are illegal “coupon trains” hurting CPG brands?

Discussion
Dec 05, 2007

By John Karolefski

Through a special arrangement, what follows is an excerpt of a current article from CPGmatters, a monthly e-zine, presented here for discussion.

More consumers are hopping on the “coupon train,” an increasingly popular way for them to share coupons distributed in different parts of the country. The problem is that such a practice hurts brands and is illegal.

According to coupon executives, the practice of consumers mailing coupons to other consumers in a share group around the country violates manufacturer redemption policies since coupons are “void if transferred.” What’s more, retailers may be denied payment from manufacturers if they redeem these coupons.

“They are, at least, technically illegal,” said Matthew Tilley, director of marketing for CMS, a provider of promotion management solutions for CPG manufacturers. “At the most basic level, coupon trains represent unethical behavior. And taken to a logical conclusion, these trains are a systematic abuse of a consumer-friendly method of promoting and marketing.”

Here’s how the scheme works: A person posts a “train” on a coupon website, such as Families.com, Mommysaver.com or Hotcouponworld.com. That person is the “conductor” and others sign up as “riders.” When the “train” has enough passengers, it “leaves the station.” This means the conductor mails a package of coupons to the first rider, then to the second, and so on. Along the way, expired coupons are tossed.

Ron Fischer, president of Redemption Processing Representatives (RPR), recently viewed a CBS broadcast in Philadelphia touting coupon trains as a creative way to save money.

“The manufacturers generally know that transferring coupons happens between mother and daughter or friends at a low level, but this is really setting up and establishing a business,” he said. “It basically destroys a manufacturer’s analysis of coupons. If it were a direct mail coupon sent to somebody in New York and now it’s appearing somewhere else, the manufacturer is not getting the right information back. This also puts the retailers at risk. They could be redeeming the coupons in good faith, but then not get reimbursed for their efforts because the coupons were not distributed in their area.”

Bud Miller, the executive director of Coupon Information Corporation (CIC), the industry watchdog group, warned that consumers could get caught sharing counterfeit coupons.

“At minimum, it’s a potential civil issue which means consumers are at risk of litigation. At worst, there could be some criminal after-effects if somebody’s (sharing) counterfeit or stolen coupons,” he said.

Discussion Questions: Should practices such as “coupon trains” be a serious concern for retailers and vendors? Should the retail industry be aggressively policing such practices?

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19 Comments on "CPGmatters: How are illegal “coupon trains” hurting CPG brands?"


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Dave Allen
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Dave Allen
13 years 6 months ago

I agree with Mark. This is a tempest in a teapot. Just changing the printing specifics on the coupons could stop this in its tracks. The companies are more worried about bad press than anything else, and no one wants to be the first, or the “only” one to take this on.

Ed Dennis
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Ed Dennis
13 years 6 months ago

Another tempest in a teapot! Coupons have been sold and traded for decades. Before the internet there were actual newspaper advertisements for coupons. Manufacturers whine about everything and the fact is that nothing will stop the whining except actually meeting their sales and profit objectives. If the truth be told, I would bet that this entire discussion was prompted by some sales or marketing guy trying to make an excuse for not meeting objectives.

Any manufacturer with any sense controls coupon expense with fuse dates. Nothing can be redeemed after the expiration date so costs are fixed at a period in time. With regard to consumers, if you don’t want them to trade/sell/give coupons to others, then don’t issue the coupon. One of the basic principles of sane management practice is to avoid trying to control the uncontrollable.

Carlos Arámbula
Guest
13 years 6 months ago

A recent Nielsen Global Survey found that nearly 78% of respondents trusted recommendations from other consumers. That’s 15 percentage points higher than the second-most credible source, newspapers. In other words, a coupon train will encourage trail, repeat business, and even build brand loyalty.

Yes, restrictions can be put on the coupon to geographically limit the redemption and I’m sure a legal team can design many other enforceable rules. But the first company that attempts to enforce the rules will suffer damage beyond repair.

The folks engaged in the coupon train are the consumer mavens. These are the consumers that will dictate opinion and generate trends. Instead of figuring out how to enforce policy, simply design a better system and find a way to harness the potential of the coupon trains–I can think of several right away.

Courtney Wright
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Courtney Wright
13 years 6 months ago

I completely agree with Mark’s comment. There are very easy ways for manufacturers to resolve this issue, but in the meantime, is it really that serious of a problem? Are companies really losing that much money to coupon users? “Organized crime,” uh oh, someone call Homeland Security!

Li McClelland
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Li McClelland
13 years 6 months ago

Brands and coupon issuers surely must realize that “fun with coupons” is one of the main weapons they have to keep customers loyal as they watch more and more stores push private labels and generics. It looks petty and foolish for them to risk alienating their customers over “sharing” coupons as long as the coupons are not expired or counterfeit. Golly, I’ve been trading cat food coupons I don’t need to get dog food coupons I do use, from friends for years. Who knew it was a “no-no”?

Eliott Olson
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Eliott Olson
13 years 6 months ago

The consumer does not read the fine print. The consumer does not give a hoot about the CPM’s marketing records. The consumer doesn’t even know what the acronym CPM means. What do you mean you can’t transfer coupons? Retailers put coupon transfer stations in their stores years ago. Coupons work because they are simple to use and have value. Take away the simplicity or value and they will not work.

Tim Duthie
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Tim Duthie
13 years 6 months ago

Consumers are at risk of litigation?! C’mon. Are we really going to sue Mrs. Smith for saving $5 or Mrs. Jones for helping her? I guess Mrs. Smith could save hundreds or even thousands, but the brand damage will be greater than any “illegal” coupon redemption (Oh no! People are actually using my coupon). The suggestion regarding using barcodes and geographical restrictions is the best and safest way to go, but the consumer must be able to see the geographical restrictions and not have in hidden in microscopic text on the back.

Even if redemption in another area occurs, the current capability of POS systems makes it easy to eliminate those from any analysis based on the location of redemption versus area of distribution.

Give that I am not close to this issue, I can’t truly gauge the impact, but I think it sounds overblown.

Eric Dietrich
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Eric Dietrich
13 years 6 months ago

I agree with James Tenser’s comments there is both a potential benefit and detriment side to the practice.

In my years of retail marketing and knowing the general low coupon redemption rate to both distribution and sales, I don’t think this is a real threat, especially to the bad publicity that could be generated by any criminal enforcement.

I think the greatest threat lies in high value coupons, especially those which offer “free” where a consumer could effectively collect these. I can think of infant formulas where “free” coupons for one can are widely distributed by hospitals, doctors and special interest magazines. A ‘thrifty’ mother could gather enough coupons to save $500-$1,000. The coupon is designed for trial, but leaves abuse open. Coupons of this type may benefit from scanning technology or a switch to rebate promotion if fraud is deemed serious.

Phillip T. Straniero
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Phillip T. Straniero
13 years 6 months ago

It seems to me that every type of consumer or trade price incentive program has small loopholes that enable “slippage” that no one wants to be responsible to manage.

If I am a retailer, I’m going to accept any coupon that scans and supports the purchase of the proper UPC. There is no way I am going to slow down my checkout process or pay my employees to read each and every coupon offer…if the manufacturer can manage “out of area” coupons using scan bar codes then we’re talking a different story.

On the other hand as a manufacturer I would expect my clearing house to challenge “illegal coupon businesses” on my behalf. I think this is a service the clearinghouses should offer as it would protect their long-term interests as well as that of their customers. Perhaps the assistance of the FBI or US Postal Service might be required to gain a prompt “cease and desist” consent.

Ryan Mathews
Guest
13 years 6 months ago

Any coupon fraud is serious. How much energy should be put against the problem depends on how widespread the practice becomes.

clint lazenby
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clint lazenby
13 years 6 months ago

It seems to me this is one of the classic corporate errors…that the universe revolves around the company/brand. This is no different than past arguments about digital downloading of music and now video, this is what your consumer wants to do. As we have read in this very forum, you must embrace the consumer and give them a stake in the value proposition.

Bottom line–companies/brands must understand and serve the consumer and then create the win/win. If you fight them, you ultimately lose.

Paula Rosenblum
Guest
13 years 6 months ago

Why are coupon trains bad, but viral “friends and family” discounts good? I’ve received 4 F&F discount coupons via email already this holiday season, and as far as I know, retailers are pleased with the results.

David Livingston
Guest
13 years 6 months ago

I agree with Mark. Manufacturers should back off and be happy someone is buying their product with a coupon, regardless of the location. Seems to me just printing where the coupon is valid and proper scanning technology would solve the problem.

Max Goldberg
Guest
13 years 6 months ago

Welcome to the 21st century! As the music industry has learned, consumers are going to be in charge of making decisions on when and where they want “content,” in this instance, coupons. The Internet and other new technologies make yesterday’s impossible, possible. Rather than fighting it (because it’s not going to go away), CPG marketers need to embrace the technology and find better ways to reach consumers.

Bill Kennedy
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Bill Kennedy
13 years 6 months ago

This is the equivalent of “Do not remove this tag” on a mattress.

Does any brand really expect a consumer to take this seriously? So I give my grandmother my newspaper with coupon inserts in it, it is illegal for her to redeem them? There is no difference. It is still transferred.

Brands should be happy that consumers are using the coupons to buy their brands and not their competitors or their generic equivalent. And if they push this, consumers will bite back. Using terms like “illegal” to describe this is overkill and will turn customers off.

I seriously doubt if this practice that really still represents a small % of the population harms brands.

James Tenser
Guest
13 years 6 months ago
A fascinating example of consumer ingenuity at work. Assuming they are not polluted by counterfeiting, trading genuine coupons in this manner might have both detrimental and beneficial consequences for retailers and brands. On the down side, brands may experience elevated redemption rates and redemption patterns that defy normal kinds of post-event analysis. Some retailers may feel pressured to accept coupons they cannot lawfully redeem. On the up side, the coupon trains may widen coupon distribution and spread awareness of offers beyond the geographic reach paid for by the brand. They reach a highly involved kind of shopper and could stimulate unexpected product trial. Coupon issuers should think carefully before prosecuting shoppers who trade coupons in this manner, as this may trigger a kind of consumer backlash. Labeling coupon trains as criminal seems like overkill, in my opinion, and could be out of proportion with the actual economic damage it causes. If absolute control is needed, it would be better to use scan technology built into the coupon redemption system to make out-of-geography coupons non-redeemable at… Read more »
Mark Lilien
Guest
13 years 6 months ago

Coupon trains could be curbed by printing geographical restrictions on the coupons and using bar code technology to enforce those restrictions. A coupon could read “Void outside California” or “For California shoppers only.”

The real question: does coupon trading really hurt all brands? Many brands want market share increases everywhere, and can’t afford to advertise that much, so the additional coupon redemption only helps them. And how many brands want to be known for their hostile restrictions? If coupon trading crime is sweeping the country, should the FBI drop its other priorities? And if shoppers trade coupons on the internet, since it’s “criminal” and it’s “organized” does this mean they’re members of “organized crime”?

Julie Parrish
Guest
Julie Parrish
13 years 6 months ago
As the owner of Hotcouponworld, one of the sites mentioned in the article, my business partner and I are more than a little disturbed by the notion that coupon trains, and coupon trading in general, somehow harm manufacturers. In fact, to our knowledge, we have yet to see a federal statute that would govern this, so I also struggle with the term “illegal.” Let me tell it from our perspective. We help connect people with brands. In fact, we are the loudest advocate of brand purchasing and consumption. We explain to our members that buying brands is a better way to go over generics. Coupon traders/train riders are actually doing manufacturers a favor in buzzing their brands for them. If you go to our site and do a search for “Pillsbury,” there have been 1000 forum threads in the last month where Pillsbury was discussed for the purpose of a sale, storing/stocking, or a recipe use. That’s 1000 times that Pillsbury didn’t pay for that level of advertising, and it was all generated by a… Read more »
Rajesh Pillai
Guest
Rajesh Pillai
12 years 8 months ago

In my opinion, coupon trains are definitely going to hamper the business strategy of the manufacturer. The huge amount spent on BI and other corporate strategies would hardly be substantiated without reliable information coming from strategic locations.

Yes, the branding does occur which is what every manufacturer aims for, bottom line. However, saleability of a product would be difficult to determine. I would think that displaying information on the validity of the coupon would be an effective solution to a certain extent, but not an ultimate solution.

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