Coupons suffered a steep decline after years of misuse by traders, but new tactics have allowed brand owners to redress the balance. Now, tailor-made coupons and greater use of technology have given new life to those little pieces of paper.

Incentives that give a discount on well-known brands have long been a staple of sales promotions and motivational programmes. Rewarding purchase through a money-off coupon can help to establish buying patterns. Giving a voucher to staff who meet targets can be just as effective in building loyalty.

Yet couponing, at least, has been in a steep decline. In 1994, the value of coupons in circulation was 1.6bn, compared with almost 3bn in 1993 and 5.4bn in 1992. This cutback was not just the result of reduced marketing budgets; it was as much the consequence of years of misredemption.

In this particular corner of the manufacturer/retailer battleground, the good intentions of fmcg companies in driving sales, trial and store traffic had long been undermined by traders accepting coupons against other brands or any product, even if they did not stock it.

Now that the last of the multiples has finally been brought to heel, there are signs of renewed interest in coupons. Certainly, the strategic argument for them is still strong. “Everyone wins,” says Louise Wall, managing director of Option One. “Coupons encourage people to buy, win the manufacturer shelf-space and keep retailers happy.”

She notes that sampling exercises can be given an extra dimension by the addition of the “bounce-back” element of a coupon. “The consumer is more likely to respond to the brand via a coupon and sample,” she says. This is clear from the growing share of in-store distribution, which in 1993 accounted for one in five coupons in circulation.

This underlying attraction to consumers is what keeps coupons an active part of the marketing mix. Despite the dramatic shifts in other areas sparked by technology, the piece of paper providing a discount still gets consumers through the door. “If you are rich, you like to save money; if you are poor, you have to – the appeal is across a broad spectrum,” says Matthew Hooper, managing director of Interfocus.

But who really benefits from that purchase has been the subject of heated debate. The real damage done to the reputation of coupons has been from malredemption – manufacturers have not seen their expenditure on redeemed coupons reflected in an uplift in sales. The unspoken truth is that retailers have been happy to pocket the cash from manufacturers, because the latter have been afraid to argue, lest they lose out in listings or facings.

New tactics have allowed brand owners to redress the balance. Tailor-made coupons that can only be redeemed at outlets stocking that line have been the most obvious example. If a customer tries to use a coupon in a shop that is not listed, the trader will have to make a decision about whether that individual will feel alienated if the coupon is refused, or whether the manufacturer will pay up anyway.

This method is being supported by greater use of technology at coupon redemption houses. Janet Poshtar, director of sales and marketing for NCH Promotional Services, says her company now provides monthly payment lists which show retailers that have made claims for payment for redeemed coupons.

“You can go into key accounts, for example the top multiples, and you can tell them how much you have spent on them. You may realise that you have all your eggs in one basket. If every coupon is going through three retailers, what happens if that relationship goes bad?” she asks.

Generic coupons that are redeemable anywhere have been a useful tool for fmcg companies in counteracting own-label sales. “They allow manufacturers to hit a price point which is competitive to own-label, without being seen to compromise their pricing policy in-store,” says Hooper. “It is in their interest to produce a number of coupons and put them into the market to erode the price, as against reducing the price.”

The advantage of this pricing strategy is that it can be done discreetly, by targeting coupons to specific retailers’ catchment areas. It also separates the discounting from the brand support, such as advertising. Research suggests that consumers see coupons used in this way as a nice bonus, without expecting a long-term price reduction.

With the growing sophistication of targeting systems, coupons delivered through the door can now be aligned closely to support distribution, especially for brands which do not have national listing. “Where the National Shoppers’ Survey or Chorus can now be used is to identify distribution by where people shop, as against where they live,” says Nick Wells, managing director of Circular Distributors.

“It is not good enough to target the catchment of a store based on drive-time or radii, you have to look at and overlay questionnaires on shoppers. If your product is only available in Tesco or Asda, for example, you are less likely to send people into the wrong store, hence you will get lower misredemption,” says Wells.

Manufacturers are also tyeing more conditions to coupons than previously. “Coupons now have other elements, such as a prize draw or a competition,” says Wall, “so consumers are more likely to use it on your product, rather than on the competition.”

This does not just apply to consumers – the trade is also being asked to meet more conditions. According to NCH, 72 per cent of coupons in 1994 carried an expiry date of less than six months, 14 per cent showed six to 12 months, six per cent allowed more than a year and eight per cent had no expiry date.

But Poshtar adds: “What tends to happen is that, even though manufacturers print an expiry date, they have to decide if they want to accept coupons after that date.” The Institute of Sales Promotion recommends allowing six months for claims by retailers after the date of expiry. This is principally to allow for smaller traders who may save coupons until they have a volume they believe is worth sending in.

But the most significant boost to the use of coupons will come with the widespread adoption of barcode technology. A major initiative is under discussion by the sales promotion committee of the Food & Drink Federation which could resolve once and for all the question of misredemption. In essence, it would match a barcode on the coupon to the barcode used for that product by a retailer.

There are technical issues to be resolved. But these are less complex than the real sticking point – who should pay. Retailers have already made significant investment in electronic point of sale and may feel promotionally oriented technology is not worth pursuing. Manufacturers believe it is, but they may not want to bear the cost of a system.

Just as strategic issues and technological possibilities are leading to a more considered and effective use of the coupon, they are also changing the use of its big brother, the voucher. Within motivational schemes, especially, rewarding participants with significant sums has an established role in sustaining loyalty and sales efforts. The voucher has remained viable because it is like giving people cash.

But as Graham Povey, marketing and operations director of Capital Incentives, notes: “It’s an evolutionary process. It may start in a small way, with a one-store voucher.” Retailer vouchers have tended to dominate this market because the brand awareness of a chain like Marks & Spencer, for example, brings its own weight to an incentive scheme.

“With a salesforce you are giving them a limited choice, you may just offer an M&S voucher. For a few years that is fine, but you can only buy so much from one shop. Then you might add Thomas Cook or a restaurant to the range. Then there is nowhere else to go after that except the Capital Bond,” he says.

Povey believes the company’s Capital Bond has found a market because it is not restricted to a single redemption point. It can be redeemed at 80 retailers with 20,000 outlets between them. It may also address the concern some marketers have that the brand of the reward may be too influential.

“It’s critical the chosen technique should lend credibility to the brand, and that it is subtle enough so as not to overwhelm either product or corporate identity,” agrees Martin Alden, corporate vouchers scheme manager at Kingfisher.

He believes that retailer vouchers need not be seen as too dominating of the promoter’s brand if they are properly integrated into the offer. They may also bring benefits because “the issuing/redeeming voucher retailer is more likely to subsidise the cost by offering volume discount”, he adds.

But there are other issues that are forcing change on the voucher market. Paper bonds which have a cash value bring with them security problems, as well as cashflow concerns. They may also limit the motivational impact if the target market does not tend to use vouchers or coupons.

“They can be rather inconvenient, and for major purchases most people now use a credit or debit card,” says Povey. His company has responded by launching the Capital Card, which can be used at any Visa outlet. Promoters give participants a card, which has a credit limit of zero. As points are gained during a scheme, the card account is credited, providing a positive balance which can be used to make purchases.

“Clients don’t have to buy huge stocks of vouchers and store them. We operate call-off and payment as needed, so administration is very simple. Clients have nothing to do but telephone us with the amount to credit,” he says.

As long as pricing and rewards play a part in sales promotions, there will be a place for the coupon and the voucher. But there is no longer much room for loose financial instruments which do not bring a sales uplift in return for the investment in their use.

Targeting and technology are helping to make these tools as precise as any other marketing activity. This means that clients and agencies can harness their motivational power with more confidence. As Hooper says: “Free is still the strongest word.”


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