Coupons Are Hot, but Are They a Bargain for Brands?

What a difference a couple of decades have made for coupons. Once marketing's redheaded stepchild, they're now more than ever in the public limelight and are arguably the hottest property in digital media -- even fueling a pre-IPO valuation for Groupon that 's roughly half the size of media giant News Corp. But at the end of the day, are they helping brands? Coupons got a decidedly bad name in the 1990s. After packaged-goods marketers got hooked on them to keep volume moving during the recession early in the decade, they had trouble kicking the habit as the economy recovered. Consumers came to expect the deals, eroding profit margins and heightening price and deal sensitivity. So marketers, led by Procter & Gamble Co., looked to drain the swamp of coupons and trade deals they'd created by pushing everyday low pricing -- a concept that was also driving Walmart toward rapid national expansion. Some leading packaged-goods marketers, including P&G, Kraft and General Mills, went as far as testing life without coupons altogether in upstate New York, until a state antitrust lawsuit forced them to end the test and reimburse area consumers with lots of coupons. That was then. This is now: A massive recession, weak recovery and transcendence of digital and social media have turned coupons into a hot commodity among enthusiasts. Though Nielsen's Inmar Coupon Report for 2011 shows redemption declining over the last decade, Valassis Communications' NCH unit said that distribution and redemption both reached record levels in 2010. It found more than 78.3% of consumers said they've used coupons regularly last year, up 14.7 points from pre-recession levels. Much of that seems to be driven by the more evangelistic coupon "enthusiasts." Google Insights for Search shows searches for "coupon" or "coupons" recently indexed at more than double pre-recession levels from 2006. After steady growth between late 2007 and 2009, search growth for coupons leveled in 2010, only to reach a new peak in the first half of 2011 as rising gas prices and a slowing economy appeared to rekindle interest in deals. Meanwhile, even as Kantar data shows inserts are down, Groupon's rapid growth has helped dispel doubts that couponing can survive the decline of the Sunday newspaper or print media broadly. And its rapid growth outside the U.S. has helped make couponing, which had been a disproportionately American institution, a more global phenomenon. "When there's a recession, focusing on building brand equity is a luxury that becomes unaffordable, because you've got to protect your base, and there's no better way to protect your base than couponing,"said David Diamond, a marketing consultant and veteran of Catalina Marketing, operator of the Checkout Coupon system. Not everyone is convinced. "I continue to believe that the conceptual basis of couponing is bad for equity," said former P&G Chairman-CEO Durk Jager in an email. Mr. Jager, who in his days as a senior executive there led the charge to reduce reliance on couponing and trade deals, refers to coupons as "wasteful" because they didn't pay for their expense and led to reduced consumer loyalty. Various forms of "get one free" coupons do at least get consumers to try products, something he said cents-off coupons rarely did, but all forms, "show a short-term boost. However, coupons are easy to do, and too many use them under whatever excuse." He acknowledged, though, that his own efforts to eliminate coupons never prevailed. Most marketers, he said, "never understood the conceptual basis why coupons undermine loyalty and brand equity" -- basically that they don't produce enough long-term sales to pay for the short-term investment. All that said, coupons do appear to produce at least some repeat sales, more so than temporary price reductions at the retail shelf. A 2000 study by Promotion Decisions based on an analysis of shopper-card data found that in the long run, advertising tended to produce twice the initial bump in sales it created, while trade promotion had little long-term multiplier effect. Couponing fell somewhere in between, indicating it generates more repeat purchases than trade promotion but less than advertising. Far from abandoning coupons, P&G a decade ago made them the centerpiece of a corporate-branding effort, pooling most of the company's coupons into its monthly P&G BrandSaver circular distributed by Valassis' Redplum unit and buttressed by online deals via such sites as PGbrandsaver.com and PGeverydaysolutions.com. "Our outlook is the same as it has been historically" on coupons, a P&G spokesman said. "They provide an opportunity for P&G brands to build consumer awareness and trial, as well as a platform to tell our value story." The old notion that coupons only appeal to highly deal-driven consumers and not to "best customers" is falling fast. Todd Morris, exec VP-marketing of Catalina, said its research shows that more than 70% of shoppers will redeem at least one Checkout Coupon annually and "the greatest concentration is with most valuable customers with the biggest baskets." Another factor auguring growth for couponing is a rapid shift of industry and consumer attention toward digital offers, often more targeted ones. Catalina's digital offers may have less than 10% the distribution of newspaper coupons, but the company has 10 times the redemption rate, at 6%, Catalina's Mr. Morris said.

Coupons Are Hot, but Are They a Bargain for Brands?

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