FSIs build on niche

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Package goods and other marketers may not like to boast about their use of free-standing inserts, but they are a staple of their newspaper ad buys.

The grocery products couponing business posted a healthy growth of about 7.2% distribution increase last year, according to data from NCH NuWorld Marketing.

That translated to a boost for newspapers as 208 billion of the 256 billion coupons distributed in 1999 were distributed by FSIs in dailies. At the same time, the two biggest FSI companies, Valassis Communications and News America Marketing, are looking at ways to expand their print and online offerings. The companies share about $1.2 billion in billings, according to NCH.

"That 1999 increase [in coupons] was the first we have seen in five years," says Charles K. Brown, VP-marketing for NCH. "The increase in share of coupons being distributed via the FSIs could be due to the value [marketers] get out of the advertising and the ability of FSIs to drive sales. If I couple that statistic with trends I see in marketers using full-page rather than a half-page format, it would be a strong indicator . . . they see the advertising value."


Household cleaners, cereal, condiments, medications and prepared foods were the top five categories for overall coupon distribution in '99. Categories showing the most growth in overall coupon distribution last year were frozen prepared foods, prepared foods, cosmetics, packaged meats, dough products and dental hygiene aids, according to the NCH ranking.

FSIs have seen growth because they appeal to consumers as an advertising vehicle as well as a promotional vehicle, says Michael Russell, equity analyst at Morgan Stanley Dean Witter & Co.

"FSIs are much more in line with the rate of inflation, compared with [annual] increases of 5% to 6% for other media. Growth prospects are pretty solid going forward, but you would expect FSIs to slow as they catch up with the costs of other media," Mr. Russell says. "Consumers don't just want a [Procter & Gamble Co.] savings coupon, they want their savings aggregated. That's what FSIs are: They are aggregators of audiences and advertisers."


Alan Schultz, chairman-CEO of Valassis, says FSIs traditionally have been valued as "a promotion vehicle, a coupon vehicle that didn't convey product attributes. [Now] we are seeing customers being more creative with their FSIs and starting to synergize them with TV and radio."

Advertisers such as General Mills' Colombo yogurt, Hershey's chocolate syrup, Gillette Co.'s White Rain shampoo, Welch's JuiceMakers, Nestle USA's Taster's Choice, Laboratories Garnier and Tricon Global Restaurant's Taco Bell are just some of the advertisers that have used full-page ads in Valassis inserts. Denny's restaurants, Kellogg Co.'s assorted cereals, Kraft Foods' Polly-O and P&G's Folger's ran page ads in News America's SmartSource FSIs.

Mr. Schultz says advertisers use these full-page formats to better convey product attributes and build brand awareness.

"We are starting to see more coordination between advertising and promotions at the two different agencies. There is a convergence taking place among the leading-edge, forward-thinking companies that is very healthy for our business," he says.

For example, in SmartSource, Denny's offered three coupons for a Kellogg's branded entree and touted a promotion featuring Nascar series driver Terry Labonte.


Reach of distribution continues to be a selling factor for advertisers buying FSI space, says Dominick Porco, president of News America.

"There are very few mass vehicles left that can reach 114 million unduplicated readers, and reach them all in one weekend," Mr. Porco says. "Our SmartSource brand FSIs go to 60 million households, with 114 million readers.

He says his company has attracted new categories of advertisers, including dot-coms, pharmaceutical companies and casinos.

Traditional grocery continues to hold strong, says NCH's Mr. Brown. FSIs represented 80.5% of all grocery-category coupons distributed last year, up from 79.9% in 1998, he says. In the health & beauty aids category, 83% of all coupons were FSIs, up from 82.3% in 1998.

Redemption rates for FSIs during 1999 were 1.5% for grocery, and 0.8% for h&ba -- "essentially unchanged from the previous year," he adds.

Critics of FSIs typically cite these low-low redemption rates as indicators that the medium goes largely ignored by consumers, but Mr. Schultz disagrees.

"Clients intentionally hold down redemption rates as a cost control," he observes, noting that the expiration date of the coupon and the level of discount will affect consumers' responses. He also cites anecdotal evidence that suggests dramatically higher redemption rates for some categories, and reports that at least one major supermarket chain blames FSI drops for some of its out-of-stock problems.


However, even as Messrs. Schultz and Porco promote the affordability, reach and impact of FSIs, both are actively pursuing online coupon programs.

Valassis offers "The Net's Best," which provides Internet and e-commerce companies with print and online advertising solutions. Mr. Schultz says this new venture could generate $20 million in revenue during 2000.

In addition, Valassis announced in February it had completed the initial testing of its Internet coupon program, Save.com, in Texas and North Carolina, and is scheduling a national rollout by the end of the second quarter.

"We saw the test as an opportunity to conduct an experiment for Valassis, to have added content for our online site and to offer another level of value for our readers," says Jim McClure, VP-director of display advertising at McClatchy Newspapers' Raleigh (N.C.) News & Observer.

"For us, the advantage of getting involved with an online coupon program is that we want to continue to be a place where readers will turn to as a source of information. Coupons are information. Anything we can do to drive eyeballs to our site makes sense."

Mr. Schultz says the online service motivates clients that have been slow to move their advertising to the Internet.

"We are coming to them with a system that allows consumers to print out a coupon, go to a store and redeem it. This is an example of us listening to our customers," he says.


Essentially, a Save.com page is added to a network of Internet sites, allowing consumers to select coupons from any of the locations they visit once they have downloaded the free coupon software. More than 130 national brands took part in the testing, including General Mills Corp., Tricom's Pizza Hut and Kimberly-Clark Corp.

During the test, 27,000 consumers completed registration and 62% of those downloaded software. The average click rate was 30%, meaning that 30% of all coupons viewed were selected, a Valassis spokeswoman says.

She says although the redemption rate on these coupons was high, the size of the sample group was too small to be used as a basis for projecting likely redemption rates for a larger audience.

In mid-April, News America announced the creation of SmartSource iGroup, which is responsible for the company's new portfolio of e-commerce-targeted products for marketers and retailers to reach consumers at home and in the store.

Mr. Porco says the new venture will have a Web-based FSI-type component.


Mr. McClure, who says FSIs are an important part of the News & Observer's revenue picture, is confident the print product is not going away.

"Those of us in the business world have to be careful and remember that not everyone has access to, or is interested in, using a computer," says Mr. McClure. "You could have all the coupons in the world online, and some people are never going to use them."

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