News Analysis: Short-term gain, long-term pain

Stores seeking to drive footfall by emailing out discount vouchers could suffer over time, writes Gemma Charles.

Discount vouchers from high-street retailers have been flying into consumers' email inboxes at an unprecedented rate in the run-up to Christmas.

From Gap to Borders, retailers have been trying to tempt consumers into spending by offering discounts in the region of 20% and urging the recipient to pass on the voucher virally.

Some of the promotions comprise a code that can be used to redeem the voucher for online shopping, while others - the ones that have generated more interest - have to be used in-store.

This month Thresher attracted a wealth of media attention when it appeared to have fallen victim to consumers' appetite to share a bargain; the off-licence chain distributed a 40% discount voucher for friends and family, which ended up being circulated to a far wider audience than the retailer had anticipated. While there is no public figure on how many people have redeemed the voucher, it is believed to have been downloaded about 1m times.

However, industry observers are split as to whether the initiative was a mistake on the part of Thresher or a deliberate ploy to drum up interest and leave consumers feeling they were privy to an exclusive offer.

Roger Whiteside, Thresher's chief executive, says that while the company did not expect such a response, the offer was 'an outstanding success', with sales rising by up to 60% in some areas.

'It's a way of having a sale without having a sale,' says Nick Adderley, director of retail consultancy Addviser. 'A lot of retailers don't want to be seen by the City to be dropping prices before Christmas as it is not regarded as a good sign.'

All the predictions are that this Christmas will be dominated by consumers doing more shopping online. Online retail trade body IMRG believes that £7bn will flow from the bank accounts of UK consumers into the coffers of online retailers over the festive season, a hike of 40% on last year.

In light of this, it is imperative for high-street retailers - particularly those selling products that need to be felt or smelt - to drive in-store footfall.

'Online shoppers are more focused on what they want to buy and less inclined to have a broader basket spend,' says Adderley. 'If someone walks into a shop, they can be sold a wider range of goods.'

The coupon frenzy is also being fuelled by what has been a poor year for retail, meaning that businesses are desperate for a good Christmas, according to Richard Hyman, managing director of Verdict Consulting.

'There are very few retail models that are structured so that intensive promotions pre-Christmas are attractive and desirable. There are a lot of retailers out there that entered December in a nervous, anxious state,' he adds.

Hyman is not enamoured of the flurry of activity. In the long term, he believes that retailers using digital vouchers could hurt their brand integrity by devaluing their price positioning. The only aspect the technique has in its favour is that it is inexpensive.

But if Thresher's claims of increased footfall and positive margins are true, viral promotions could soon become a key part of the marketing mix. According to a British Retail Consortium spokesman, anecdotal evidence suggests voucher activity has been working well, substantially boosting the number of customers in stores.

'You target a group of customers you know are more likely to be interested. They will then forward it to someone they know is interested in the offer, so it comes with a personal endorsement you don't get with conventional advertising,' he says.

In terms of traditional coupon promotions employing mass targeting, a 2% redemption rate can be considered a good result. Email campaigns, though, can attract rates of up to 51%, according to Oliver Felstead, European general manager of Couponstar, which creates digital voucher campaigns for FMCG businesses such as PepsiCo and Nestle Purina.

However, he argues that marketers have missed a trick with the current crop of voucher drives, as they tend not to involve any data capture and have an uncontrolled circulation, which could lead to over-subscription.

Some observers also argue that online vouchering is a merely a novelty. James Roper, chief executive of membership body Interactive Retail in Media Group, predicts a short life span for the promotions, which he describes as 'hostile' toward consumers.

'We are all plagued with spam; now it is becoming popular with the corporate brigade,' he says.

Likewise Helen Dickinson, head of retail at KPMG, predicts that as consumers get used to seeing the vouchers, they will delete them as they do with spam. She questions whether in the rush to send out vouchers, marketers have properly integrated these campaigns into existing activity and warns that throwing this method into the mix 'risks complicating things'.

This year, at least, it seems retailers are sufficiently worried about their prospects this Christmas to embrace vouchers for their short-term sales potential, regardless of the long-term damage they may cause.

CASE STUDY - TESCO

The UK's biggest retailer has sparked a promotional price war this Christmas. Using data gleaned from its Clubcard scheme, it is sending consumers who usually do their main Christmas shop elsewhere a £5 gift card and a voucher offering an £18 discount if they spend £70 or more. Asda has branded the tactic 'aggressive', while industry observers warn Tesco could end up losing money as a result of the drive. The initiative comes as the Competition Commission is conducting an inquiry into the big supermarkets' pricing behaviour and whether competition is being distorted.

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