Retail coupons can be more effective than discounts

LONDON - Electronic distribution and tighter purse strings are reviving coupon use.

Money-off coupons are shaking off their dowdy Green Shield Stamp-image and experiencing a renaissance. As they adapt to the economic downturn, marketers across various sectors are recognising coupons' effectiveness at retaining and attracting customers, without fatally damaging their brand. 

Coupon specialists have reported a significant rise in their circulation and redemption in the past six months. Almost a third of consumers are more actively seeking out promotions than a year ago, according to research conducted by promotional solutions company Valassis. Of these, 75% cited the rise in the cost of food and general living as the reason for doing so. Oliver Felstead, European manager of Couponstar, says: 'FMCG brands started using coupons about five years, but they are now on the agenda of all the major retailers, too.'

Over the past year, retailers have discounted heavily in an attempt to woo cash-strapped consumers. For those that don't have value built into their brand proposition, though, in many cases this has resulted in seriously depleted profit margins and a slight air of desperation, which could have a long-term effect on brand image.

It is because of this that coupon distribution can provide a more subtle way of incentivising shoppers, without damaging the brand or cutting margins across the board.

'It's inconsistent to have a premium product sold at a lower price point and it makes consumers question its value,' says Felstead. 'Vouchers can be presented in different ways to explain the discount. To existing customers you can say, "it's a reward" and to new customers, "it's an introductory offer".'

Verdict Research's consulting director, Neil Saunders, echoes this sentiment. 'Heavy discounting by a premium retailer such as Waitrose wouldn't fit with the brand, but vouchers can be used more strategically,' he says. 'For example, Waitrose Food Illustrated magazine features recipes alongside money-off vouchers for the ingredients, which makes them appeal to the Waitrose "foodie" crowd.'

Morrisons, which has just recorded its best Christmas sales to date, ran a particularly effective in-store voucher scheme in the run-up to Christmas. As rival supermarkets worried about diminishing consumer loyalty, Morrisons locked in its customers with a money-off voucher, which they received only after spending £40 in-store for three consecutive weeks.

Coupon use is nothing new in hard times. Valassis reported a 60% increase in coupon distribution during the last recession in 1991, compared with the previous year. However, this is the first UK recession since the internet revolution and voucher distribution methods have become far more diverse.

Over Christmas many retailers circulated viral emails with discount vouchers. This was particularly prevalent among brands that rely on consumers' discretionary spend, such as dining outlets, clothing stores and takeaway coffee outlets. In December, Asda even set up a permanent voucher page on its website.

The demographic make-up of those consumers who use email most frequently means that electronic distribution spreads coupons to a new, younger and more professional audience, far removed from the downmarket image of traditional coupons. The latter relied on a simple strategy and had low redemption rates, but retailers are using their modern counterparts in a more sophisticated way by including customer data gathered from loyalty schemes so they can be better targeted. 'Loyalty cards aren't about loyalty, but capturing customer data,' says Saunders. 'Tesco is the most advanced here. It will look for lapsed shoppers and send them vouchers based on what they're interested in.'


Tighter targeting

Sainsbury's is piloting a scheme, through Catalina Marketing, that offers shoppers targeted vouchers with their receipts at the till, based on information gathered from their Nectar cards and recent transactions.  'Companies can use limited funds far more efficiently with targeted vouchers. There's no point offering people money off cans of dog food if they don't own a pet,' says Catalina Marketing's managing director, Argee Walls.

However, coupon distribution needs to be carefully controlled. Cautionary tales within the industry tell of retailers left with red faces and empty pockets. In 2007 a Gap voucher was illegally manipulated to offer 60% off rather than 30% and then widely circulated online. 

In the US, meanwhile, Starbucks distributed a poorly worded voucher offering a free tea 'per customer, per visit', which recipients took to mean a free drink on every visit.

Felstead therefore sounds a warning. 'Vouchers can be over-redeemed, especially online where they can be printed more than once, and for every voucher redeemed the company has to pay a handling fee and offset the cost of the discount,' he says.

As the recession deepens and marketing budgets are slashed, retailers need to find the most efficient way to communicate with consumers. The simple coupon may seem at odds with the flashy image of the ad world, but it could prove to be one of the most effective weapons in the marketing armoury.


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