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In the recession of the mid-1970s, coupon distribution jumped 54%, and in the early 1980s recession couponing shot up 88%. So isn't it logical that coupon distribution should be on the upswing, given the current double whammy of economic turmoil and war?

Think again.

The estimated $5 billion coupon industry has turned surprisingly cautious. Industry watchers cite factors from growing retailer power to new accounting rules that make couponing less attractive on marketers' income statements as the reasons for the tempering this time around. The restrained outlook is unusual considering coupon booms accompanied past busts, including an increase-albeit it a comparatively small one-of 10.9% in the milder recession of the early 1990s, according to NuWorld Corp.'s NCH, a coupon processor.

"We have not assumed that clients or consumers will move toward promotional incentives or coupons, even though history would indicate it should happen," said Alan Schultz, chairman-CEO of Valassis, one of the country's largest coupon distributors. He added that Valassis' sales force has yet to see evidence of such a shift.

Valassis last month said it expects revenue to be down in the fourth quarter and flat or up only slightly in 2002, reflecting softness both in coupons and other programs. Valassis plans to cut weekly newspaper insert drops to 43 in 2002 from 44 this year and projects rival News Corp.'s News America will cut to 44 from 47. A spokeswoman for News America said she was unaware of cutbacks.

Valassis' Mr. Schultz said he expects at least some of the decreased co-op FSI activity to be offset by custom inserts by such major marketers as Procter & Gamble Co. and Kraft Foods, which began using them this year.

Catalina Marketing Corp., which distributes supermarket Checkout Coupons, sees weakness in that core business this year continuing into next. The company said growth in market research and custom newsletters distributed with prescriptions should help offset those declines to produce sales growth of 4% to 7% this quarter and a more aggressive 20% to 25% next quarter.

No one is exactly sure why couponing is defying earlier economic patterns, although theories abound. The turn may simply be too soon to call, since many companies are still setting next year's marketing budgets, according to Michael Bechtol, president of Catalina, though he said he's seen no signs of a coupon surge yet.

Wallace Marx, whose firm Wallace Marx Associates, Edina, Minn., tracks distribution of FSI and some in-store coupons, does see signs of a upturn, with distribution growing 2.3% in the third quarter. But distribution is still down year to date.

Consumers probably are hankering for bargains in a soft economy, but many package-goods marketers have been trying for years to control the coupon habit.

P&G, later joined by competitors, experimented with killing couponing entirely in a 1997 test in upstate New York until a state anti-trust suit forced them to relent. Former P&G Chairman-CEO Durk Jager, who spearheaded P&G's value pricing philosophy and efforts to rein in couponing in the 1990s, said he still dislikes coupons for a variety of reasons. "They encourage switching/promiscuity, and thus over time can reduce brand loyalty," he said in an e-mail to Ad Age. "They commoditize categories, since the value of the deal gets greater prominence than the brand itself. They irritate non-coupon users."

The sheer volume of coupon distribution suggests the medium still delivers. But Mr. Jager contends that coupons are extremely inefficient, costing as much as $50 to move a case of goods that may cost only $25 and generate only $10-$12 in gross profit. "Point-of-sale coupons, in my view, are among the least efficient vehicles," he said. "There is no product message, [so] why not just cut the price and stop wasting paper, time and handling costs?"

P&G still uses Checkout Coupons such as ones offering free boxes of Cascade Power Tabs last month to consumers who bought rival Reckitt-Benckiser's Electrasol Tabs. A spokeswoman said that's one of many tools used to generate consumer trial.

But coupons have other powerful enemies, too. Retailers criticize them as wasteful and say they urge manufacturers to spend on retail promotions instead.

"There's an increased understanding of the importance of in-store [marketing]," said Ken Harris, partner with the consulting firm Cannondale Associates, Evanston, Ill., adding that retailer loyalty cards and other programs may be attracting some dollars that once went to coupons. Growth in in-store efforts means price-conscious consumers can find deals in this downturn without clipping coupons.

Rules from the Financial Accounting Standards Board that took effect this year make couponing-and trade promotion-less attractive on income statements (AA, Aug. 13). Such costs must now be deducted from revenue rather than reported as marketing costs. Couponing, which is more discretionary than trade spending, may be the biggest loser.

"The change certainly makes manufacturers think twice about how they're spending," Mr. Harris said. "Coupons may be a casualty of that to some degree, because even if [manufacturers are] not getting much for their trade money, they feel like they're getting more than if they're dropping a coupon."

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