INTERACTIVE MEDIA & MARKETNG;TRADING SCISSORS FOR MODEMS;THE SEARCH TO DETERMINE THE REDEEMING VALUE OF ONLINE COUPON DELIVERY

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Cyberspace, meet clip-and-save.

Several companies are experimenting with online couponing, a new marketing vehicle whose potential is as vast as the universe or, depending on who you talk to, more akin to a tree falling in the woods.

In theory, delivering coupons online is target marketing in its purest state, allowing marketers or retailers to reach only consumers who need their product or service. Based on previous electronic-coupon usage, marketers can track not only the demographic makeup of households, but also whether a consumer is a cat- or dog-lover, drives domestic or foreign or prefers chunky to creamy.

There are significant demographic drawbacks to merely posting coupons for peanut butter or dog food online, however. The average online consumer today is white, male and 39, not your basic coupon clipper-a woman, 25 to 54. Like the tree in the forest, there's no guarantee a coupon in cyberspace will make any noise.

"So far," said Steve Harmon, media analyst at Paul Kagan Associates, Carmel, Calif., "the match has not been made."

Working in favor of online couponing is the fact that America is a land of coupon opportunity. Last year alone, 310 billion coupons were distributed in the U.S., according to coupon processor NCH Promotional Services. Of those, 82.3% were delivered via free standing inserts.

But in the emerging cyber-age, clipping coupons out of Sunday newspapers seems clunky and rudimentary.

That could explain why leading couponers such as Val-Pak Direct Marketing Systems, several entrepreneurs and marketers themselves are exploring the new-media possibilities.

Coupon clutter is what inspired Craig Barnett, a South African venture capitalist, to found Coupons Online, a coupon-delivery system set to begin operating next January in the U.S.

The Princeton, N.J.-based company (http://couponsonline.com) will be the exclusive coupon provider for Prodigy and CompuServe (it's also going to be on America Online, but has not secured exclusivity), and it has a patent pending on technology that could minimize coupon fraud.

The potential for online coupon fraud is enormous. Left to their own devices, consumers-and, more significantly, dishonest retailers-could print out multiple copies of online coupons for redemption.

With Coupons Online, consumers get just one shot at printing out a coupon. Once they do, the coupon offer disappears from their screen. Marketers cannot prevent consumers or retailers from photocopying their coupons, but the technology allows them to track coupon abuse to the original source.

The selection of coupons will change each week and will include marketers from several categories, including package goods, fast food, toys, electronics, automotive, books and music. The company says it has verbal agreements from 18 of the top 25 package-goods marketers.

Each time a consumer signs on to Coupons Online, he or she must answer a few short demographic questions, which will change each week. Armed with that information, marketers can build detailed databases and tailor coupons to individual households.

"In its current form, target marketing works great for high-end items like cars, but it falls apart on a jar of mayonnaise," says Mark Braunstein, co-founder of Coupons Online.

Coupons Online's fees vary: Mass messages will cost $3 per 1,000 subscribers; household-specific coupons will cost $15 per 1,000 subscribers.

CouponNet, another online coupon service, has a prototype site on the World Wide Web (http://www.coupon.com) but is still in the planning stages.

"We're looking to support the retail channel," said Simon Higgs, president of Higgs America, a Los Angeles Internet consultancy. The company will charge national marketers a $2,500 set-up fee and $500 per month per coupon.

Traditional FSI companies are hesitant to commit to online couponing, though no one thinks clipping coupons from the newspaper will end.

Valassis Inserts is developing a Web site but has no immediate plans to offer coupons there.

"We've looked at all kinds of electronic coupon vehicles but haven't found one that we're comfortable getting behind in a big way," a spokeswoman said.

Others argue that most people don't consult their computers before going to the grocery store or shopping mall.

"If you can get a coupon through a store coupon machine," said a dubious Mr. Harmon of Kagan, "why would the consumer go through the next step of going online on their computer?"

But an exclusive Advertising Age survey by researcher Market Facts, Arlington Heights, Ill., indicates a good number of consumers-especially those who are already online-are interested in electronic couponing.

The survey of 1,000 adults over age 18, conducted by telephone May 19-21, found 27.8% of respondents said they would be very or somewhat interested in obtaining coupons through an online computer service. The interest level shoots up among the nearly 8% of people who already subscribe to an online service. In that group, 70% of respondents said they would be very or somewhat interested in online coupons. Margin of error is 3 percentage points.

The companies developing online coupon systems believe the shopping habits of Americans are poised for change.

"As the computer becomes more of a utility in the household, there will be more acceptance of electronic coupons," said Pete Burgess, senior VP at Val-Pak, based in Largo, Fla.

Since last July, Val-Pak has been testing online couponing with Access Atlanta, the joint venture between Prodigy and the Atlanta Journal and Constitution that claims 16,000 subscribers.

Access Atlanta's Coupon Corner has about 350 mostly local advertisers, two-thirds of which are Val-Pak clients.

Val-Pak has been offering the site free to clients, but that will change next month. Mr. Burgess said the company hasn't decided on a price, but that it's in the range of $50 on top of the traditional $600 mailing fee.

Val-Pak also maintains a Web site at http://www.valpak.com, where it offers company information. By summer, Val-Pak intends to offer coupons via the site.

Mr. Burgess said Val-Pak is considering a change in focus for Coupon Corner to better meet current online demographics.

"Rather than going to traditional advertisers, which skew to women, we may look at customers who are business-to-business marketers, or male, or computer-oriented."

Prodigy, however, is not concerned about demographics, since women comprise 42% of its subscriber base.

Pete Turner, Eastern regional sales manager for Prodigy, said the activity on the service's Couponing/Refunds bulletin board is one of the main reasons Prodigy is interested in working with Coupons Online.

"You would not believe the amount of activity in the section on couponing and rebates," he said. "It goes beyond common sense."

Unilever's Van Den Berg division also is enjoying a lot of activity at its Web site for Ragu pasta sauces, up since March 1 at http://www.eat.com.

"It's intended to be the first in cyberspace," said Alicia Rockmore, associate brand manager for Ragu. The site includes Italian-language lessons, a sweepstakes, recipes, product information and a coupon offer.

But Ragu's coupon cannot be printed out by the consumer. Instead, he or she must send an e-mail to Ragu indicating an interest in the coupon, which is sent not online, but by regular mail.

"I don't see [printing out coupons online at home] happening in the near future," Ms. Rockmore said. "There are too many issues in terms of security and how to have control over what gets printed out."

She added: "Once that does get established, we certainly would [do it] because it would save on our cost in terms of postage, printing and paper."

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