Thorny Issues Cloud Future of Digital and FSI Promotions
By John Karolefski
Redemption of digital coupons is expected to increase this year as CPG marketers ramp up distribution and more consumers become familiar with the promotion. Coupon experts remain cautious due to concerns over fragmentation of the digital landscape, lack of sufficient scale and the possibility of fraud.
All of this activity will play out in the context of overall coupon distribution dominated by FSIs, which have their own set of issues to contend with.
Against this backdrop, however, digital coupon usage is exploding with paperless volume doubling every year since 2008, says Inmar, which predicts 898% compound annual growth between 2011 and 2015 based on its forecast of distribution.
“Compared to traditional paper coupons, which are holding flat to slightly up versus last year, digital offers are quickly moving from an interesting trend to high shopper interest. Inmar expects the current growth rates to be sustained and even accelerate as more shoppers discover and use paperless promotions,” says Devora Rogers, Senior Director of Retail Marketing Insights for Inmar.
Rogers tempers her optimism due to what she calls a “fragmentation of the digital landscape.” It’s a challenge for CPGs to spend their digital promotion budgets at the same scale as traditional media buys like newspapers FSIs for three reasons:
- Unique retail point-of-sale configurations (hardware, software, scanners, etc.)
- Myriad of loyalty programs and digital delivery vehicles
- Differing strategies across retailers.
Charles Brown, Vice President of Marketing at NCH Marketing Services, says many CPG marketers are integrating digital coupons into their media mix to optimize their audience reach, where possible.
“But while more paperless coupons are being carried on loyalty cards and on mobile devices, their scale is currently limited. Retailer-specific coupons are dependent upon unique POS system enablement and changing consumer behavior,” he
According to NCH’s measurements, print-at-home coupons are now nearly 6% of all coupons redeemed in the U.S. and paperless vehicles combined have reached a little more than 1%. In comparison, FSIs are more than 50%. Most of the remaining redemption volume comes primarily from coupons distributed with the product, in-store or in other print media formats such as direct mail.
Partners in Loyalty Marketing, a Chicago-based consultancy, believes online will continue to be an attractive option as marketers continue to look for cheaper ways to distribute coupons. Online also features an attractive demographic profile and offers tracking via distribution, clicks, and prints.
“That is not to say online coupons do not have their challenges,” cautions Michael Schiff, managing partner of PILM. “One of the biggest is scale. They account for only a small portion of distribution and redemption. Fraud is also a big concern for manufacturers. They cannot control where their offers get re-posted and re-tweeted, which sometimes leads to the retailers being defensive and not accepting digital offers.”
Other coupon experts acknowledge the potential of digital offers, but are quick to point out the dominance of FSIs. While
Jill Catalano, president of Super-Couponing, sees mobile couponing growing in 2013, she doesn’t see FSIs going away anytime soon – nor does she want to see that happen as the consumers she advises on her web site and in workshops continue to embrace them. Curtis Tingle, SVP Strategic Demand & Development for Valassis, predicts that marketers will continue to look for ways to tie shopper marketing strategies to their coupon tactics with retail dedicated FSI pages.
In 2013, Marx Kantar Media expects integrated consumer promotion tactics to evolve while maintaining focus on delivering advertising impact, retailer alignment, and purchase incentives.
“FSI coupons will continue to dominate the landscape based on their ability to reach millions of households on a specific day and engage shoppers when they are creating shopping lists and planning shopping trips,” says Dan Kitrell, Vice President, Account Solutions. “Brand marketers will manage their financial liability by continuing to decrease face values and shorten expiration periods. Cross-platform promotions will better utilize the benefits of each available distribution method.”
For example, he says FSI coupons may deliver advertising impact while directing shoppers to a network, brand, or retailer website to receive the purchase incentive. This increases shopper engagement while limiting financial liability for that specific coupon offer.
“Brand alignment with key retailers within FSI promotion events and digital offers distributed on retailer websites will combine brand equity and retailer loyalty to drive shopping trips and increase sales,” he says. “FSI coupon events will continue to serve as the flagship for the foreseeable future, but will increasingly be supported as part of integrated programs designed to reach more shoppers with more relevant offers during key decision points along their paths-to-purchase.”
Such enthusiasm for FSIs needs to be tempered with the reality that the industry still relies on a manual, fraud-prone environment for the handling of paper coupons in the store. The retailer manages the clearing and validation of paper coupons at the POS. To insure complete validation, the retailer incurs labor and other associated costs for store-level accounting, or leaves open the possibility for paper coupons to be redeemed improperly.
“Today’s process requires the cashier to become the ‘coupon police’ to control and stop coupon fraud in the lane,” observes Jon Robertson of Intelligent Clearing Network (ICN). “In today’s process, there is no POS redemption reporting for paper coupons to verify post-redemption what products were actually purchased. That put the retailers and manufacturers without access to accurate information to resolve any billing differences.
Unfortunately, paper coupon processing is still plagued with virtually all the same problems once associated with manual control of check-cashing,” says Robertson, whose software-as-a-service (SaaS) company electronically validates and clears paper and digital coupons and other incentives in real time at the point-of-sale.
Taking the broad view of the coupon landscape, Ron Fischer, president of Redemption Processing Representatives (RPR), makes the following observations about digital and paper coupons:
- Both use Recommended Voluntary Guidelines, which leaves room for exceptions and the age-old problem of enforcement
- Digital processing is using the Manufacturer. Handling Fee rate which was set in 1985.
- Major agents and retail clearinghouses are set up to support digital processing; however, the flow from the retailer will vary depending on the digital platforms and vendors they are using.
- Since it’s generally the major retailers that are implementing digital programs, this could reduce the store coupons they issue.
- Digital coupons generally require loyalty cards and POS systems; it will take time for independents to implement this type of promotion.
- Manufacturers’ paper coupon is a true consumer promotion as they control the distribution and redemption. Digital coupons require the active support from their trading partners.
Brown of NCH Marketing Services says a blend of print and digital media is required to reach all coupon users. “Based on what we’ve seen during some recent unusual times, it’s a struggle for CPG marketers to maintain the right balance in their coupon marketing to support a return to new product introductions, while also continuing to meet consumers’ expectations for value on well-established brands. The confusing macro-economic environment and evolving capabilities of coupon media has made it all the more difficult. So, some trial and error should be expected. Perseverance and a big-picture perspective will help,” he advises.