Sunday, February 14, 1999

Coupons not keeping up brisk clip

Makers wonder whether cents-off coupons still make sense

The Cincinnati Enquirer

        Some marketers have been predicting the end of manufacturers' discount coupons since Procter & Gamble Co. pulled them in upstate New York in 1995.

        True, overall coupon distribution has been in decline in the past few years, according to NCH NuWorld Marketing, the largest coupon clearinghouse in the United States.

        But reports of the coupon's demise have been greatly exaggerated, experts say.

        “Consumers love coupons,” Charles Brown, NCH NuWorld vice president, said, pointing to a recent NCH study for support.

        The study showed that 81 percent of American consumers use coupons for grocery shopping. It also revealed that 62 percent of shoppers use coupons to plan their shopping lists, and 64 percent use coupons to choose the brands they buy — both trends that were up in the past year.

        “You have 81 percent of American consumers reporting that they use coupons, and that trend is very stable,” Mr. Brown said. “Although there have been experiments, such as the P&G experiment to discontinue their use, marketers have discovered that consumers use coupons to choose brands and that without the coupon as an incentive to buy the brand, sales can be damaged.”

        Such thinking might have been a factor in P&G's decision to bring coupons back to the Buffalo/Rochester area of New York about 15 months after the company stopped distributing them there.

        But the company also was under pressure from consumers and the New York attorney general's office, which filed a lawsuit accusing P&G of getting other product makers to cooperate in reducing or eliminating coupons, violating antitrust law.

        P&G and 10 other companies agreed to settle the lawsuit in March by paying $4.2 million to New York consumers in the form of coupons worth $2.50 off any grocery purchase, except tobacco or liquor.

        P&G admitted no wrongdoing in the settlement. “As far as we're concerned, it was a test, and we found out what we wanted to know,” Simon Denegri, a P&G spokesman, said recently.

        P&G declined to provide data on the number of coupons it now distributes to promote its extensive lineup of consumer products, including Folger's coffee, Tide laundry detergent, Crest toothpaste and Pampers diapers.

        The company said such information is proprietary.

        But data provided by the New York-based Promotion Insights, which tracks coupon-distribution and redemption rates nationally and by city, illustrates the biggest complaint from manufacturers about coupons — that the low redemption rate makes the cost of getting them to consumers a waste of money.

        Last year, for example, three companies — General Mills, Kellogg's and Quaker Oats — distributed almost 245 million coupons in Cincinnati to promote 44 cereal brands, according to Promotion Insights. The coupons represented 10 percent of all cereal coupons distributed nationally last year, the company said.

        By brand, General Mills' distributed 27.8 million money-off coupons for Cheerios, followed by Kellogg's Rice Krispies at 14.5 million and Kellogg's Corn Flakes at 12.9 million.

        At a cost of about $7 a thousand to distribute coupons through free-standing inserts in Sunday newspapers — by far, the most common way product coupons are distributed — the cereal makers spent about $5.5 million just to promote cereal in Cincinnati.

        But consumers redeemed only about 2 percent of the coupons distributed.

        Bob Wanke, president of Promotion Insights, said part of the reason for such low coupon-redemption rates is the largely untargeted method by which most coupons are delivered to consumers — as inserts in newspapers or magazines.

        But advances in technology — such as barcoding coupons so that information about their redemption can be electronically recorded and added to databases — have allowed marketers to better target the consumers most likely to use their coupons.

        Mr. Wanke said his company is preparing to introduce a product later this month that will enable product managers to chart the distribution and redemption information of their coupons as well as those of their competitors.

        Mr. Wanke predicts that the BrandData coupon information-gathering system and other similar products will become essential tools for brand managers in the near future.

        “By giving category sales and brand managers the ability to track which coupons are actually moving items off the shelf and helping them to understand why some coupons work and why some do not, we are helping coupons evolve into precision marketing instruments rather than the shotgun approach which has been used in the past,” Mr. Wanke said.

        That shotgun approach resulted in 249 billion coupons being circulated by packaged-goods marketers to U.S. consumers in 1998, according to the NCH clearinghouse. Of those coupons, only about 4.8 billion were redeemed.

        But the number of coupons distributed was about even with the 1997 figure, and the number redeemed was down only 2 percent from the previous year — the lowest decline in the past five years, NCH said.

        The stable trend in coupon distribution and redemption after several years of decline is “indicative of a significant return” to coupon marketing, NCH said.

        So why do manufacturers seem to be embracing coupons once again?

        NCH's Mr. Brown said high penetration and consumption rates still make coupons a great promotional vehicle, despite their cost.

        And more and more companies are focusing on the total cost of units sold, instead of the rate of coupon redemption. If a company increases the volume of products that it sells, it can offset the cost of unredeemed coupons, while at the same time boosting its bottom line, Mr. Brown said.


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