AOL to Launch Online Coupon System

Media Giant's Paperless Shortcuts Service Will Address Fraud, Convenience Issues

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BATAVIA, Ohio ( -- Time Warner is joining rival News Corp. in the coupon-distribution business as its AOL unit launches the first entry into online couponing by a major media player.
AOL hopes to solve some of the problems that have limited online coupon distributors to less than 1% market share.
AOL hopes to solve some of the problems that have limited online coupon distributors to less than 1% market share.

AOL Shortcuts, which is set for a fall launch, aims for a bigger slice of what Michael Lawless, director of brand marketing for the AOL unit, calls "$300 billion in unregulated currency."

That's the amount that marketers, mostly package-goods brands and restaurant operators, distribute annually in cents-off offers, mainly through glossy newspaper inserts. News Corp.'s SmartSource and Valassis dominate the business. A handful of online coupon distributors have never managed a 1% market share collectively.

Change agent
AOL is out to change that in a way that overcomes the convenience problems for consumers and fraud concerns for marketers that have kept online couponing a minor player, Mr. Lawless said in an interview at the National Association of Chain Drug Stores convention in Boston on June 24.

AOL's idea is to tie its online coupon system entirely to electronic redemption at checkout, either by linking to existing retailer loyalty-card programs or to new online redemption systems for key retailers that don't have frequent-shopper cards, such as Wal-Mart Stores, Target, Walgreens and Publix.

The plan is to use banner ads, other online displays, and marketers' websites and e-mail programs to attract consumers to the coupon offers. When consumers click on the offers, they are loaded into an account and redeemed automatically when the product is purchased.

Eliminates cumbersome process
Unlike most online couponing programs, AOL Shortcuts doesn't require consumers to download and print coupons for paper redemption at stores, a process that could be considered as cumbersome -- if not more so -- as clipping paper coupons from newspaper inserts.

Several retailers, he said, have noted the green aspect of the system, which could eliminate tons of paper used in coupon inserts, along with the energy and labor costs involved in transporting and sorting coupons at clearinghouses.

Mr. Lawless said the AOL system also would be nearly fraud-proof. Coupon fraud has dogged marketers for years and has become a particularly hot topic this year. Executives at the nation's largest coupon clearinghouse, International Outsourcing Services, were indicted by a federal grand jury in March for an alleged nine-year, $250 million fraud against package-goods marketers. IOS and its executives have denied all charges, which the company said "stem from a long-standing industry dispute."

Negotiating deals
AOL Shortcuts is close to concluding deals with "two major retailers" Mr. Lawless declined to name and several package-goods marketers, he said. A demonstration site for the program shows offers from marketers such as Procter & Gamble Co., Kraft, Kimberly-Clark and SC Johnson, but Mr. Lawless said those marketers haven't signed on yet.

AOL faces huge obstacles in making such a system work but, unlike the other players in online couponing, has the financial muscle to pull it off, said industry consultant David Diamond, a former executive with Catalina Marketing.

The first hurdle is making the system work with dozens of information systems at major retailers. AOL likely would have to pay retailers to reprogram their systems, Mr. Diamond said.

Attractive to marketers
The promise of the AOL plan, he said, is that it overcomes consumer objections to online couponing, which could make it attractive to marketers. It could even draw in younger consumers who largely ignore newspapers and paper coupons now, he said. "The purpose of [digital media] is to make the process easier and better, and at this point, online couponing is neither easier nor better."

AOL's move is the latest in stepped-up efforts in the past year or so by major web portals and search engines, including Google, Yahoo and MSN, to step up their business with a package-goods industry that has lagged most other industries in digital-media spending.

Like AOL at the NACDS show, Google made its first formal trade-show effort to reach out to the industry in May at the Food Marketing Institute Show in Chicago.
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