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Nowhere to Go But Up

Consolidation took its toll as coupon spending slid in 2000.

As the economy continues to stumble and marketing budgets tighten, coupons could emerge from the shadows.

While total spending in 2000 dropped 0.9 percent to $6.92 billion, industry experts feel the decline should be short-lived, and are calling for growth this year as the economic pinch sends marketers back to basic tactics that can guarantee sales lifts. The numbers are promo estimates based on average costs for distribution and redemption tracked by coupon clearinghouses.

Coupons are renowned for rising to the occasion when the economy turns bad. In the last recession of 1990-1991, redemption rates leapt to 2.53 percent from 2.08 percent in 1989, according to NCH NuWorld Marketing, Lincolnshire, IL. (Redemption rates then fell back near 2.0 percent as the economy improved in 1992.)

The growth isn’t generated so much by an influx of new clippers as it is from increased activity among committed users. “You don’t change consumer behavior,” says David Diamond, president of emerging markets at in-store coupon company Catalina Marketing, St. Petersburg, FL. “People are either coupon clippers or they aren’t.”

Manufacturers recognize the consumer demand in tough times and boost circulation as well. During the recession of 1974, a group of 75 CPGs expanded distribution by 53.7 percent, NCH reports. In the early 1980s, distribution among that group jumped a whopping 88.2 percent. It rose a more earthly 10.9 percent in ‘90-91, although that figure is still significantly higher than average, per NCH.

Shrinking Universe
One of the main reasons for the spending decline in 2000 was the fact that the ranks of those leading 75 CPGs have consolidated appreciably. In 2000 alone, Philip Morris acquired Nabisco, ConAgra bought International Home Products, General Mills scooped up Pillsbury, and Unilever grabbed Bestfoods, putting most of the CPG industry — and much of the coupon buying power — in a handful of corporate offices.

NCH estimates that coupon distribution declined three percent to 248 billion last year. The drop would have been greater had not some of the aforementioned CPGs stuck to their pre-consolidation coupon schedules. “A limited number of key clients had a big impact on couponing last year,” says NCH vp-marketing Charles Brown. In fact, distribution among four leading companies shot up 23 percent after the mergers, according to Brown.

Both NCH and the industry’s other research source, fulfillment house CMS, Winston-Salem, NC, found redemption rates to be less than awe-inspiring last year. NCH says the redemption rate was 1.8 percent, or 4.5 billion coupons, down 4.2 percent from 1999. However, coupon savings totaled $3.6 billion, about the same as the previous year, thanks to a 5.5 percent increase in average face value to 77 cents (which outpaced the U.S. cost of living increase).

CMS says usage fell a similar 4.3 percent to 4.4 billion coupons, down from 4.6 billion in 1999 for a 1.3 percent redemption rate. CMS puts face-value up 5.6 percent to 75 cents. The increase in face value, as well as lengthening durations on offers, indicates that CPGs are listening to what consumers have to say. “We’re seeing rising sophistication in couponing, in delivery and in the offer itself,” says Lorraine Gallaher, director of marketing at CMS. “In past years, the quality of FSIs seemed to drop a bit. Marketers were putting out less attractive deals, expiration dates were decreasing, and the face value was low. Consumers indicated that couponing was becoming more of a hassle than it was worth.”

One reason face values rose, however, is that multiple-purchase requirements were employed in 24 percent of all programs, up one percentage point from ’99, and marketers were looking for a way to make up for the additional burden that places on consumers.

FSIs continue to dominate, despite gains made in other distribution channels such as the Internet and in-store systems. FSIs accounted for 82.4 percent of all CPG coupons distributed in 2000, up from 81.3 percent in 1999, according to NCH. The remaining 17.6 percent was divided among hand-outs, in/on-pack, on-shelf, magazine ads, direct mail, and electronic delivery.

CMS finds alternate channels accounting for a wider distribution rate, with FSI share dropping from 80 percent in 1999 to 76 percent in 2000. CMS also contends that FSI redemption fell to 1.0 percent, whereas redemption rates increased for coupons delivered through direct mail, electronic shelf, in-store handouts, print ads, and frequent-shopper programs.

Internet coupon suppliers such as CoolSavings.com and StartSampling.com, both Chicago, are gaining ground. According to CMS, electronic methods (including checkout systems like those run by Catalina, in-store kiosks, shelf talkers, and Internet programs) accounted for 1.3 percent of total distribution, up from 1.2 percent in ‘99. Paperless coupons are cheaper to distribute and, since they often require motivated consumers to seek them out rather than passively receive them, provide higher redemption rates. In 2000, redemption rates for electronically delivered coupons was an impressive 8.7 percent, according to CMS.

Cherry on Top
As marketing tactics grow more sophisticated, coupons increasingly are no longer being viewed as a stand-alone tactic, but an integral component of a larger promotional campaign.

Hoffman Estates, IL-based Sears, Roebuck & Co. in February activated its exclusive sponsorship of PBS series (and Golden Books property) Between the Lions by offering coupons for $5 off purchases of $25 or more in kids’ apparel and footwear, and 40 percent off color portraits for consumers who donated books to the Sears Between the Lions Million Book March, a national cause-related campaign. Plano, TX-based Dr Pepper/Seven Up kicked off its sponsorship of the Grammys with a Sit On Your Can at the Grammys under-the-cap game that sweetens the offer with 55-cent on-pack coupons.

To back the opening of its new California Adventure Park in February, Walt Disney Co., Burbank, CA, teamed with Nestlé, Coca-Cola, and grocery chain Albertson’s, Inc., Dallas, on an in-store effort. Albertson’s circulars carried coupons from a variety of participating brands which, when redeemed, became entries into a sweepstakes awarding 50 family vacations to the park.

Demo Dilemma
Opinions on targeted programs vary widely. After moving away from mass distribution in favor of smaller campaigns directed at specific demographic groups, many marketers have returned to broader programs in the last two years, putting reach before efficiency. “Manufacturers were targeting as an experiment,” says NCH’s Brown. “But the increasing size of [face values] suggests that targeting doesn’t cut it.”

Still, targeting has changed the landscape somewhat. Direct-mail giant Cox Target Media, Key Largo, FL, last month shut down its 20-million-piece-per-month Carol Wright co-op mailer in large part because advertisers have been leaving in favor of smaller, more targeted programs.

The solution may be a happy middle ground where FSIs and direct-mail co-ops are employed for mass campaigns and alternative venues are used to hit specific groups.

In one of the more unique new solutions to come along this year, Los Angeles-based The Benites Group next month launches a program called LatinCoupon to reach Hispanic households, which typically receive only one coupon per every 20 distributed to the general population. The program will distribute 500,000 bound FSI packets: 120,000 through Friday editions of leading Hispanic newspapers such as La Opinion, 130,000 delivered directly to homes in Hispanic-heavy ZIP codes; and 250,000 handed out after Sunday mass at churches in Hispanic neighborhoods. Manufacturers will donate a percentage of each coupon redeemed to a local parish or community organization.