In-Store Media Systems believes the lure of instant cash will make the Coupon Exchange kiosk popular. PAPER COUPONS LOSING LURE IN HIGH-TECH STORE

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Paper coupons, one of the most widely used promotional tools of all time, may be an endangered species.

Encroaching on their territory are high-tech electronic coupons, targeted and tailored to suit each shopper's buying habits.

Using interactive touch-screen videos, instant-print discounts, rebates and offers to try new brands, electronic coupons are growing quickly in the nation's supermarkets.

While electronic coupons are only a fraction of the total number of 325 billion coupons distributed annually, marketers are closely watching their evolution as they examine future promotion strategies.

"Electronic marketing and couponing is becoming a very important new area to to watch, and it's increasingly important to test these methods," says Jeff McElnea, president-ceo of Paramus, N.J.-based promotion agency Einson Freeman.

The dilemma for marketers is that no one knows exactly how long it will take for electronic coupons to take hold in supermarkets, or for consumers to let go of entrenched paper coupon-clipping habits.

Industry observers say it could be five to 10 more years before paper coupons disappear.

Still, electronic couponing is viewed as a novelty among marketers.

Marketers have yet to determine the brand-building benefits or return on investment of the more expensive electronic couponing systems.

But then, FSIs may not be helping build brands either.

Analysts contend that avid coupon-clippers merely use FSI coupons on brands they would have purchased anyway.

Electronic coupon marketers use that fact as a powerful argument. They say their targeted coupons build brand share by recruiting new audiences for untried products, and that they offer consumer incentives to try line extensions, rival brands and participate in cross-promotions.

Despite the flaws, FSIs are not going to yield share easily to electronic coupons.

"FSI coupons are not the most efficient way of couponing, but they're still a wonderful, inexpensive way to combine advertising with promotion while driving sales volume. FSIs are not going away," says Mr. McElnea.

An estimated total of 8 billion coupons are expected to be redeemed this year, and fewer than 1 million will be electronic.

However, redemption rates for electronic coupons are significantly higher.

In the most recent survey of consumer coupon-redemption trends, Nielsen Media Research reported 2.1% of all coupons issued in 1992 were redeemed by consumers; the same survey said 9.8% of all electronic coupons are redeemed.

Indeed, while the coupon industry overall is flat, electronic couponing grew 50% in 1993, according to Dun & Bradstreet Corp.'s NCH Promotional Services. Its yearend survey of couponing trends notes that electronic couponing still represents only 1% of overall couponing activity.

Electronic couponing systems offered by Catalina Marketing Corp. and Advanced Promotion Technologies are getting the most attention right now-and are penetrating supermarkets faster than other systems.

Catalina, with nearly 8,000 supermarkets participating in its point-of-sale consumer-customized Checkout Coupon system, says participation by major marketers is growing fast.

All major marketers including Procter & Gamble Co., Kellogg Co. and Kraft General Foods have been involved in Catalina's tests of Checkout Coupon, but neither the companies nor Catalina would disclose results of specific promotions.

Like APT's Vision Value Network coupon system, Catalina's Checkout Coupon is designed to offer rapid, targeted promotions for marketers trying to woo new brand users or boost sales volume, and at the same time offer retailers tie-in opportunities.

Checkout Coupon's computers allow manufacturers to change and update their promotions and coupon prices within 24 hours.

Prices for manufacturers subscribing to Catalina's services vary widely, depending on the size and scope of the promotion, says Catalina's VP-Marketing Steve Elson.

Catalina is still testing a new service-Checkout Direct-that gives customers instant customized letters from manufacturers at the checkout point, including coupons, product descriptions, contests and details of retailer tie-in programs.

After an 18-month test, Checkout Direct is rolling out nationally now and is currently installed in 850 stores in various supermarket chains.

APT's Vision Value Network, now installed in 125 supermarkets in various chains, is somewhat more complex, offering actual video screen promotional ads at checkout. The system also displays instant-savings coupons electronically and prints them at the customer's request.

Major marketers participate in APT's tests, but marketers' results haven't been reported publicly; Vision Value Network will be rolled out nationally this year with several hundred more stores added to its system, the company says.

Unique features of Vision Value Network include credit and debit card payment options and a frequent shopping program giving customers points toward free gifts. The system also lets consumers request more information about products through its touch-interactive 8.5-inch by 4.5-inch screens.

Interestingly, Vision Value Network can coexist with Catalina's Checkout Coupon system within a store, says Debbie Coller, VP at APT.

"Ours is a fully integrated system giving manufacturers a variety of ways of offering promotions and tracking the results of those offers," she says.

Electronic redemption of paper-based coupons, such as Catalina's Electronic Clearing Services, is another growth area.

Entrepreneurs also sense growth in electronic coupons. One example is In-Store Media Systems, which this year plans to roll out Coupon Exchange, a network of kiosks installed in supermarkets promising to pay consumers cash for using coupons.

"Consumers get rewarded instantly with cash, and manufacturers get rewarded by moving products, cutting costs by not involving third parties or retailers in the transaction," says In-Store President Everett Schultze. He expects to have 400 kiosks installed in supermarkets across the nation by June.

While skeptics believe Mr. Schultze's system is too complex for consumers, he believes Coupon Exchange is as well-timed as his successful cash-for-cans supermarket venture in the early 1980s offering consumers pennies in exchange for cans.

"People love to get value, and they'll be happy to turn in worthless coupons to get a new batch of coupons that could give them cash. The fact is that people can't resist a good deal," he says.

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