COUPONS

Coupons are certificates with a stated value that consumers can redeem with retailers or manufacturers when they make appropriate purchases. They are offered mainly by retailers and manufacturers as sales promotion tools to accomplish specific sales and marketing goals. In the early 1990s coupon distribution rose to more than three billion annually in the United States. Consumers are attracted to coupons because they offer immediate value and savings. With the growth of coupon distribution, problems such as coupon clutter have resulted in falling redemption rates. Only an estimated 1.8 percent of all coupons distributed in the United States in 1993 were redeemed by consumers.

Like other sales promotion tools, coupons have their advantages as well as their problems. On the plus side, they have the advantage of passing along savings directly to consumers, as opposed to trade allowances given to retailers by producers. Consumers perceive coupons as a temporary special offer rather than a price reduction, so the withdrawal of coupons usually doesn't have an adverse effect on sales. Coupons create traffic for retailers, who can double or triple the value of manufacturers' coupons at their own expense to create even more store traffic.

The two main problems with using coupons as a sales promotion tool are coupon clutter and the question of whether coupons actually generate incremental business from new users. The increased quantity of distributed coupons has been paralleled by falling redemption rates. Excessive coupon distribution also increases the likelihood of fraud and misredemption. Coupons that are issued for established brands tend to be redeemed primarily by loyal users who would have purchased the product without a coupon.

MARKETING OBJECTIVES

Coupons may be issued to serve many different strategic marketing objectives. These include issuing coupons for trial and awareness; coupons appear to be fairly efficient at getting consumers to try new products by reducing the risk of trying something new. Coupons are also issued to convert trial users into regular customers, such as when a product sample includes a cents-off coupon. Coupons can be used to manipulate consumers into making larger purchases or buying a particular size, flavor, or form of a product.

Other objectives served by issuing coupons include building retail distribution and support, moving out-of-balance inventories, targeting different markets, cushioning price increases, and enhancing other promotional efforts with coupon add-ons. Coupons are frequently used by manufacturers because of competitive pressure. When used offensively against the competition, coupons are issued to get users of a competitive product to try a new brand. When used defensively, manufacturers provide coupons to current users to keep them from purchasing a competing brand.

COUPON DISTRIBUTION

There are five basic ways that coupons are distributed: direct mail, in-store or central location, print media, in-pack and on-pack, and through retailer advertising. Because of its targeted distribution, coupons sent by direct mail offer higher redemption rates than coupons distributed by print media—an estimated 4.3 percent in 1991. Freestanding inserts (FSIs) in newspapers accounted for approximately 77 percent of all coupon distribution in 1991 and as much as 88 percent by 1993. Since then FSI-distributed coupons have declined to 83.3 percent of all coupons in 1995 and 81.5 percent in 1996. Coupons distributed through FSIs were redeemed at a 2.4 percent rate in 1991 and 1.8 percent in 1993. Redemption rates fell to 1.7 percent in 1995 and 1.6 percent in 1996.

The issuance of computer-generated coupons at grocery checkout counters began in the mid-1990s. Point-of-sale electronic coupons became a reality largely through the efforts of a St. Petersburg, Florida-based company called Catalina Marketing Corp., which had installed electronic coupon printers at some 80,000 checkout counters in 8,400 supermarkets in the United States, Mexico, the United Kingdom, France, and Belgium by mid 1994. Through computerization and the use of bar codes, Catalina's printers can be programmed to issue specific coupons based on the products consumers have purchased.

The overall redemption rate for point-of-sale electronic coupons reached 9 percent in 1994. Together with on-shelf coupon machines, point-of-sale electronic coupons have accounted for a growing share of coupon distribution, rising from 5.3 percent of all coupons distributed in 1994 to 7.6 percent in 1996. The average redemption rate for in-store electronic coupons was 8.3 percent in 1996. Electronic coupons are often used in conjunction with customer loyalty and frequent-shopper programs.

CLIPLESS COUPONS AND INTERNET
COUPON WEB SITES

In-store kiosks and personalized shopping lists are two ways retailers are giving shoppers access to discounts through clipless coupons. In store kiosks, which are activated by the customer's frequent-shopper card, present a list of discounts on-screen for items the shopper normally buys. The selected discounts are then sent to the point-of-sale for reduction on the bill at checkout. Customers may also receive a printed shopping list from the kiosk as a reminder of what items are being discounted.

Personalized shopping lists are used as part of a frequent buyer or customer loyalty program. They are sent to customers via regular mail or e-mail. They contain offers based on each customer's individual purchasing preferences. The shopping list contains a bar code that can be scanned at the point-of-purchase to receive a discount. While some individual retailers offer coupons on their own Web sites, it is more common for consolidators to set up Internet coupon sites for several participating retailers. One program called ValuPage was started in 1997 by SuperMarkets Online, the Internet division of Catalina Marketing Corp. Other similar sites include the CoolSavings coupon web site of the Chicago-based Interactive Coupon Network and the Coupon-Pages. Consumers typically access these sites through the Internet, key in their zip code for a list of nearby participating stores, then print out bar-coded coupons. Other electronic coupons can be found at the Web sites of online newspapers.

Companies that issue coupons use them to make an offer to consumers. While the most common such offer is a cents-off coupon, there are many other types of offers that can be conveyed through couponing. For example, a free product may be given upon redemption of a coupon. Coupons may carry a "buy one, get one free" offer. Several coupons can be positioned together with different expiration dates to get consumers to make purchases over a length of time. Coupons may specify that more than one unit of a product must be purchased. Coupons known as "self destructs" are printed over each other in an overlap manner, so that one coupon is destroyed when the other is redeemed. Other varieties of coupons include personalized coupons that can be redeemed only at a specific store or location, crossruff coupons that offer one product to purchasers of another related product, and sweepstakes entry coupons.