What Happened To The Coupon Clippers? Essay, Research Paper

I. Introduction

Coupons have been a major component of manufacturer and retail trade promotion of products on the shelves of America’s grocery stores for most of the past three decades. From 1970 to 1985 the number of coupons distributed increased from 16 billion to 200 billion, at a compound annual growth rate (“CAGR”) of over 17 percent. However, from 1985 to 1992 the CAGR for coupons dropped to under 7 percent, and in 1993 and through half of 1994 the CAGR for coupons was negative, at -3 percent. Manufacturers have made a major investment in coupons as a promotional vehicle for their products. How have consumers reacted to this investment?

Consumers have reacted by clipping virtually the same number of coupons every year, regardless of how many coupons the manufacturers throw at them. During the period 1985 to 1993 the consumer redemption rates for coupons dropped virtually every year, from 3.25 percent in 1985 to 2.28 percent in 1993. Over the same period the real number of coupons being redeemed has remained static around 7 billion each year. With the flood of coupons on the market why aren’t consumers clipping like they used to? Have the traditional channels for delivering coupons been flooded to the point where consumers just can’t take any more?

Throughout this stagnation period the average face value of coupons has been increasing nearly twice the rate of inflation from 30.4 cents in 1983 to 59.5 cents in 1993. In the past three or four years manufacturers begun to shorten the duration of coupons, to increase their ability to evaluate the performance of coupon programs. Even with a shorter coupon life, there are many more dollars on the table to attract consumers, but they aren’t coming. What are consumers looking for that manufacturers and the trade are not offering?

The traditional method for delivering coupons is direct to the consumer via Free Standing Inserts (“FSI”), Direct Mail, Newspapers, Magazines, In-Store, and On-Pack coupons. Of all of these channels, FSI’s dominate distribution, controlling nearly 83 percent of all coupons. Movement away from FSI’s to alternative delivery channels has been slow and puzzling given the nearly decade long stagnation in consumer redemption of coupons. What are manufacturers and the retail trade doing to stimulate consumer interest in the future?

II. TRADITIONAL COUPON DELIVERY

Typically, FSI’s are the large inserts in the Sunday newspaper, and are the primary method used to get coupons into the hands of consumers. There are many problems with using FSI’s with today’s consumer. Consumers have less time to scan the growing numbers of coupons in FSI’s, they have less time to organize and collate the coupons when making out grocery lists and less time to redeem the coupons while in the checkout line. With more working women, there are fewer women in the traditional family role at home; these women were traditionally the heaviest users of coupons. The United States has not seen a severe economic down turn in the past decade or more, which reduces consumer coupon redemption now, but also will impact the way today’s children, tomorrow’s consumers, use coupons.

FSI’s do not target the specific demographics for the type of consumer a manufacturer wants to reach with its coupons. Research has shown the manufacturer is rewarding current users of its products, and not attracting new users or even new trials of the manufacturers products. The same problems which plague FSI’s also apply to a lesser degree to Direct Mail and In-Ad coupons. There is no way to reach only consumers who have never used a particular product or brand. All the while fewer and fewer consumers are clipping coupons.

Point-of-Purchase (“POP”) coupons, like the dispensers on store shelves, are much more attractive to consumers. POP coupons provide an immediate gratification for consumers and can stimulate consumer impulse buying. The same pitfall of rewarding consumers who already use a product is unavoidable with this type of distribution. Likewise with On-Pack coupons, the manufacturer is most likely rewarding consumers who already use its products. Recognizing these difficulties, many manufacturers and retailers have shifted their promotional strategy to cater to what cost conscious consumers want. Lower prices.

Promotional strategy has shifted in some areas by taking the focus off the occasional discount offered by coupons and going with an Every Day Low Price (“EDLP”) strategy. Using this strategy consumers are assured of getting the lowest price, and there is no need for the consumer to bother with coupon clipping at all. An EDLP approach creates tremendous price competition between manufacturers, making it costly to take market share from the competition using coupons, when margins are already razor thin. Moving in on the name brand manufacturers is an increasingly stronger competitor, Private Label. Private label are retailer house branded products.

Private Label has steadily increased its reputation by improving quality, while almost always providing the lowest prices. Some private label names have been so successful, examples are President’s Choice, Sam’s Choice and Heritage House, that they have nearly the appeal and familiarity of the regular name brand items. The private label brands continue to provide consumers with very low prices, an additional incentive for consumers to skip the time consuming coupon clipping process. If manufactures are going to compete for market share with private label, as well as other name brands, they must find ways to target new users for their products. In order to do this manufacturers and retailers need to know who uses coupons and how to identify coupon users who don’t use their products.

III. WHO USES COUPONS

Consumers are not all alike. Coupon users can be divided into four broad categories: the cost conscious always user; part-time, sometime users; rarely use; and, never use. The key to capitalizing on these groups is to recognize how they will change as we enter the 21st century.

The cost conscious coupon clipper is more likely than not between the ages of 25 and 34, or over 65. These coupon clippers have incomes less than $50,000 per year and the majority of them are females. Geographically they are concentrated in the Midwest, with the lowest concentration in the West. These consumers are usually employed part-time or are retired, and are married with children at home.

The part-time coupon clipper is similar to the cost conscious clipper in age with larger numbers between 55 and 64. These clippers are more often unemployed and have children at home. Of particular concern to manufacturers and retailers are the consumers who rarely or never use coupons. Who are they, and why aren’t they attracted to using coupons?

Those who rarely use coupons are of no particular age, and have incomes over $50,000 per year. They are single and live out West. These people don’t use coupons, because they don’t think they need to use them. On the other hand those who never use coupons are between 18 and 24 years old, earning less than $25,000 per year. They have full or part-time employment and are usually non-white. This group may benefit from using coupons, but they still aren’t, possibly because they are out of the reach of the traditional distribution mechanism. In these two groups are millions of potential consumers for a manufacturers products, if manufacturers promotions can reach them.

These groups are evolving in such a way that the rarely and never redeem categories are growing, as the cost conscious and part-time groups remains the same or shrink. The younger consumers are not as accessible through FSI’s as older consumers. In order to reach these consumers, a more high-tech approach might appeal to them; this must be tempered by an understanding of the consumers need to maintain a sense of privacy. Other demographic changes which have a strong impact on the use of coupons is the continued high consumer confidence in the economy, people don’t feel the pressure to save every penny now. Another significant change for manufacturers to consider is that people are waiting longer to get married and start families. They are not faced with the pressure to care for anyone but themselves, consequently they do not develop the habit of using coupons at an earlier age.

To combat the changing market for consumer attention manufacturers and the retail trade have begun to implement some programs which could show the way of the future in couponing and promotion in general.

IV. DEVELOPMENTS FOR THE FUTURE

Several grocery retailers have implemented strategies that use some of their high-tech information gathering capabilities to give the retailers and the manufacturers an edge in identifying new customers and changing how those customers buy their groceries. Most notable among these is the Roundy’s Micro Marketing program using the Pick ‘N Save Advantage Plus and Roundy’s Saver’s Club card.

The Roundy’s program is similar to American Stores, Inc.’s Jewel unit Preferred Customer Card. The Preferred Customer Card allows a consumer to receive the discounted price as advertised by presenting their card at the time of purchase, no coupons are needed. Roundy’s has taken this idea and gone a step further to allow manufacturers to target reduced prices on potential new users for their products, especially consumers using competing products.

Each time a consumer makes a purchase in a Roundy’s or Pick ‘N Save store the data regarding each item purchased is added to the customer database. Manufacturers can sign-up to receive this consumer information for a fee. Roundy’s will then run reports giving this information to the manufacturer, exclusive of names and addresses. The manufacturer can then use this information to target their marketing efforts in a variety of ways.

The manufacturer can target a group as large as all households using their club card, or as small as those purchasing a particular item UPC. Targeting can also be done by commodity group, brand group, purchasing habits or any other variable the manufacturer believes important for finding new trials of its products. Because of the ability to target based on item UPC, for the first time manufacturers can do what traditional coupon distribution channels could not. Target only consumers purchasing competing products, this almost eliminates the possibility of rewarding people already buying the manufacturers products.

Delivery of the discounts can be done through in-store kiosks, register receipt messages, or messages sent directly to the home. Consumers will not need to present paper coupons in order to redeem the discounts, they will receive the discount electronically, simply by purchasing the eligible item and using their club card. Manufacturers can limit redemption to a particular time period, total dollar amount, or total number of consumers. This gives manufacturers greater control over the cost of each offer.

V. WHAT DOES THIS MEAN FOR CONSUMERS?

The success or failure of the alternatives to traditional coupons depends on consumer willingness to participate in the program, and the cost to the manufacturer to participate at the retail level.

It seems that consumers who clip coupons will always clip coupons, however these consumers are not necessarily the ones the manufacturers want to reach. The cost conscious, always and part-time users of coupons will be sure to sign up for their club cards. Manufacturers can count on still reaching these consumers with their promotions. It is likely that manufacturers will be able to reach these consumers at a cost much lower than what the typical FSI costs. But, does this technology address the rarely and never users of coupons?

Those who rarely or never use coupons are not likely to take the time to use an in-store kiosk, or scan the additional junk mail that arrives at their door, or to even take a look at the register receipt. These consumers have not expressed an interest in couponing before, and although the redemption method is much easier with the card, it does not address the problem of communicating the promotional offer in the first instance. Although this does not bode well for reaching these consumers, overall the future of this technology as a sales promotion device does look bright for both consumers and manufacturers.

VI. THE FUTURE

In the future consumers will not have to contend with the mass of coupons in the Sunday FSI’s. Retailers are broadening their promotional mix to address those consumers who do not, and probably never will, clip coupons. At the same time those who use coupons will still receive their promotional offers via new targeting and channeling methods, which will continue to appeal to their willingness to switch brands for a bargain. As the technology of target marketing progresses, less and less reliance will be placed on FSI’s in the channeling of promotional discounts to consumers. The promotional mix will be targeted differently between those who always or sometimes used coupons, and those who rarely or never used coupons.

To appeal to the consumers who always or sometimes used coupons, manufacturers will turn increasingly to the use of data gathering techniques like the Roundy’s Saver’s Club Card, or the Jewel Preferred Customer Card. By specifically identifying these cost conscious consumers, manufacturers will greatly reduce the cost of getting the promotion to the consumer, and can be confident they are reaching consumers who have not used their product before. While at the same time the consumer is still having their desire for a bargain and their willingness to switch brands stimulated.

These high-tech methods are lost on the consumer who is not interested in bargain hunting. These consumers will not even be receptive to the communication about the promotion. To appeal to these consumers manufacturers will continue to include the in-store POP, on-shelf and on-pack coupons in their promotional mix. This type of channel appeals to these consumers because they are susceptible to impulse buying and the coupon instantly rewards the impulse. Manufacturers will control the use of these tools to limit the rewarding of current customers.

Retailers can be expected to continue to pressure manufacturers for more and larger EDLP programs in order to compete with other retailers. This will reward all of the consumers shopping in those stores. Although the consumer will be very pleased with this strategy, it becomes even more important for manufacturers to control the distribution and redemption cost of coupons. A continuing threat to manufacturers will be the growth of Private Label. Consumers are continuing to move toward these products as the quality of the products improves and the prices stay down. However, the electronic solutions offer the manufacturer the first real opportunity to control their costs.

Consumers in the future will not have to expend the time and effort required to clip coupons today. Consumer behavior will remain unchanged, most will still take a bargain when it is placed in front of them, but the manufacturers and retailers have finally begun the development and implementation of new appeals to give the consumer what that have always wanted, the easiest bargain available.

Bibliography

Nielsen Market Research

Nielsen Clearing House

Roundy’s, Inc.

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