P&G SCRAPS FSI COUPONS IN NEW TEST: HOUSTON EFFORT FOLLOWS END OF ZERO-COUPONS IN N.Y.

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Even as it ended its controversial zero-coupon test in upstate New York, Procter & Gamble Co. had already started a similar test in Houston.

The Texas test does not involve the complete elimination of couponing but is said by executives familiar with the program to eliminate free-standing inserts while relying mostly on coupons distributed in stores.

P&G normally accounts for anywhere between 3% to 5% of all coupon activity at a given retailer. But during the Houston test, P&G is expected to account for only about 0.5% of couponing at a given retailer.

The experiment began quietly in late March. Participating retailers include Kroger Co., Gerland's Food Fair, H.E. Butt Grocery Co. and Randalls Food Markets.

A P&G spokeswoman would only say that coupon elimination is not currently being tested anywhere in the U.S.

'VARIATIONS' IN MARKETING

"We have no ongoing elimination tests anywhere," she said. "We have coupons everywhere, including Houston. P&G has marketing plans and variations in marketing plans in tests all the time, all over the country."

Houston was chosen, according to executives familiar with P&G's program, because like upstate New York, it's a market rife with double and triple coupons that retailers are anxious to reduce because of costs. Unemployment rates are also lower than in upstate New York.

In Houston, P&G is said to be using Catalina Marketing, used in the New York state test, and possibly other in-store coupon distributors because the redemption rates are much higher. Catalina's in-store coupons redeem at an average rate of 10%, said an executive familiar with the P&G plan, vs. about 1.6% for newspaper coupons.

'FLAT' BUSINESS IN N.Y.

After P&G announced the conclusion of its Buffalo, Syracuse and Rochester test April 11, it said that across all classes of trade its total business was "about flat" compared to the year before the test.

Burt Flickinger, managing director at consultancy Reach Marketing, said volume was flat despite extensive retail cooperation.

"It's rare to get such significant support from retailers, particularly in a market where the two leading retailers have such high shares," he said, referring to Wegmans Food Markets and Ahold USA's Tops Markets. "[The retailers'] volume is growing at a significant rate, and for Procter's volume not to increase at a similar rate is somewhat concerning."

Inside P&G, some executives believe the test ultimately proved nothing more than how institutionalized coupons have become, even though low redemption rates make the system wasteful.

Marketers spend an estimated $6.5 billion a year on coupons worth $180 billion. But consumers redeem only $3.5 billion of those coupons.

But with top P&G executives such as President Durk Jager still staunchly opposed to the system's inefficiencies, the company is unlikely to give up on its quest.

"We will take the learnings from the New York test and see how we can apply them to national marketing plans," the P&G spokeswoman said. "We got the learnings we need and have to figure out how to incorporate them in the national plan."

P&G also must figure out how to incorporate those findings without arousing the ire it did in upstate New York, where a "save our coupons" movement caught the attention of the state attorney general's office, which under U.S. Attorney

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