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Finding the redemption sweet spot: Top 10 myths about coupons debunked

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The overall decline in coupon redemption rates in the U.S. and Canada raises a question as old as coupons themselves: What prompts a consumer to redeem?

The answer in today’s marketplace suggests that coupon face value alone isn’t enough. Most consumers need time in addition to value—more time than an increasing number of brand marketers are giving them.

Of the two factors, value and time, value in recent years has been stable or increasing, while the trend has been to cut expiration lengths. In most cases, a shorter expiration length reduces redemption far more than any corresponding increase in value can make up.

In fact, an ICOM Information & Communications analysis of coupon redemption drivers, based on results from a 20-year database built in the course of designing more than 6,000 direct mail programs targeting 28 million North American households, shows there is an “optimal value-expiration sweet spot” for most target groups.

The sweet spot is a combination of value relative to retail price, and expiration length, which yields maximum redemption. Particularly in the case of attracting new brand users, there is no significant benefit, redemptionwise, to exceeding the optimal face value or extending the expiration date.

For example, the sweet spot for a food and beverage coupon targeting competitive product users is as follows: 26 percent to 50 percent coupon value with a 12-month expiration period.

The key findings from ICOM’s database analysis indicate that much of the conventional wisdom about couponing strategy is wrong. Many false notions do not acknowledge that the redemption of targeted coupons is now less immediate, due to today’s busier lifestyles, more dual incomes and expanded home inventories. Here are the top 10 myths about coupon redemption:

Myth No. 1: Short-term expirations drive immediate sales. Fact: Consumers need more time. A short expiry often cuts redemption far more than any increase in value can make up.

Myth No. 2: Higher value always equals higher redemption. Fact: Value alone isn’t enough. Maximum redemption comes from an optimal value-expiration sweet spot.

Myth No. 3: Store brand users aren’t worth pursuing with target coupon offers. Fact: As store brands upgrade their quality, fewer store brand consumers will be pricecentric and more will be quality- and feature-conscious. They’ll often redeem targeted offers at rates as high as other competitive users.

Myth No. 4: Targeting the most loyal users of a competitor’s product yields the best return on a coupon program. Fact: Light to moderately loyal competitive users are more likely to try a new product and will do so on a lower-value coupon offer.

Myth No. 5: The presence of a sample is a requisite for driving high redemption rates. Fact: There are other factors much more likely to drive redemption rates. Some of those include expiration, value, current versus competitive user and frequent versus infrequent coupon user.

Myth No. 6: The current users of a product don’t need long expirations to get them to redeem a coupon offer. Fact: Even for current users, to gain more than two-thirds of potential redemptions, offers must be six months at minimum and in the 10-to-12 month range for personal care categories such as skin and beauty products.

Myth No. 7: Coupon clutter is pervasive in all delivery strategies. Fact: Escalated volume is not a factor in targeted coupons mailed directly to homes. In fact, targeted promotion redemption rates are up in this sector for household products and pet products.

Myth No. 8: Coupon offers on frequently purchased items are redeemed quickly, so an expiration of less than six months will do. Fact: Targeted offers with expirations shorter than six months in general have only half as many redemptions as longer term offers.

Myth No. 9: Current and competitive product users need the same coupon value to be motivated. Fact: In any product sector, current users typically require much less offer value to drive them to purchase. Sectors vary, but it often takes 40 percent less value to move a current user than a competitive user.

Myth No. 10: Americans and Canadians share the same coupon redemption behavior. Fact: There are shared traits, but the difference in absolute redemption rate is substantial. Americans receive 10 times more mail than Canadians, and are less likely to respond to offers. Canadians favor contemplation over quick action and require longer expiration terms. The net result: the decline in overall coupon redemption rates is steeper in the U.S.

North American marketers searching for a strategy that enables them to cut through the clutter created by their competitors’ proliferation of offers should adopt the following best practices.

  • Be patient. Try longer expiration, some of the highest incremental lift will come from competitive users.
  • Target smarter. Optimize the face value of offers. Design promotional programs to fit specific business objectives.
  • Find incremental consumers. Rewarding current consumers with plenty of mass distributed offers is a short-term move. Brands are built by taking share away from competitors or by bringing new users into an emerging product category.
  • Be realistic. Consumers have busy lives. They shop in multiple channels, some of which don’t like to accept coupons. Give them some time to get around to trying your product.

Peter Meyers is VP- marketing at ICOM Information & Communications (www.i-com.com), Toronto, a provider of targeted marketing services. Peter can be reached at meyers@i-com.com.

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