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TARGETING PROMOTIONS TO IMPROVE SPENDING
Since 1995, 50 consumer packaged goods manufacturers have average 11% annual profit growth, with an average annual sales increase of less than 5%. The slow growth for manufacturer and retailers stocks are primarily due to acquisitions and mergers. To increase growth, marketers must increase their return on their investments. Retailers and manufacturers must develop a disciplined, coordinated and committed consumer oriented marketing process that achieves their return on investment goal. Grocers must combine primary and secondary data to define consumer targets creating a single source platform for target development. They must define the consumers purchase behavior.
Advances in data collection and integration allow marketers to plan, execute and evaluate marketing efforts on a targeted basis. Improving return on investment requires consumer product goods marketers to realign their consumer marketing mix allocation. They must allocate promotional spending according to the consumer's reaction to different targeted promotions, evaluate the effectiveness and analyze the volume and share increase was gained versus the investment made. This evaluation will then lead to new action plan for improving product and brand performance.
What online promotions are most effective?
Type of Promotion
Current Promotions
Most Effective
Coupons
64%
11%
Price Discounts
64%
11%
Free Merchandise
60%
31%
Sweepstakes
53%
20%
Free Shipping
36%
16%
External Point Programs
24%
2%
Referral programs
20%
0%
Gift Certificates
20%
2%
Internal Point programs
11%
0%
Contests
11%
4%
Rebates
7%
2%
Source: Forrester Research, Incorporated
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COUPONS INCREASE IN CANADA IN 2001
The number of coupons distributed by manufacturers and redeemed by consumers in Canada for the year 2001 was the largest increase sin more than 10 years. There were 2.67 billion coupons distributed in 2001, a 6% increase over 2000, while consumers redeemed 122 million coupons, a 9% increase from a year earlier. Consumers saved $128 million on products which is 7% more than consumers saved with coupons in 2000.
The value of coupons distributed increased to $1.25 due to the Health and Beauty Aid, Infant Care and Pet Food categories. The average value of coupons distributed increased by 17¢, which is 16% higher than a year earlier.
Couponing on Infant Care, Pet Foods and Household Care products accounted for 30% of all coupons distributed last year, up from 26% a year earlier. Growth in these categories offset declines in the food and personal care categories. Coupons on food products accounted for 40% of all coupons distributed, which is a decrease of 4 percent from 2000. Food product coupons, however, accounted for 55% of all coupons redeemed by consumers. On average, food product coupons had above average redemption rates even though their face values tend to be lower than in other categories. As a result, the average face value of coupons redeemed was lower than the value distributed. Coupons on personal care products accounted for 27% of coupons distributed, down from 30% a year earlier.
Free Standing Inserts (FSI’s) accounted for 55% of all coupons distributed in 2001, which is the same share as the previous year. FSI’s are newspaper inserts that contain coupon advertising and other consumer offers are delivered to more than 5 million homes approximately twice each month. The share of coupons distributed In-Store was 17 percent, a 1 percent from the 16 percent, a year earlier. In-Store couponing also accounted for more than 45% of all coupons redeemed. In/On Pack coupons also declined by 1 percentage point to 12% of all coupons distributed. This method accounted for 25% of all coupons redeemed by consumers. This occurred because Instantly Redeemable (On Pack) as well as In and On Pack Self coupons have higher redemption rates. The share of Direct Mail and Door-to-Door coupons distributed remained stable year-over-year, as did the proportion of coupons redeemed. The number of Magazine coupons distributed increased to its highest level since 1995.
Even with the launch of two Internet coupon distribution services, Internet couponing still accounted for less than 1% of all coupons distributed and redeemed last year.
These trends show that consumer-packaged-good marketers continue to be interested in effective and efficient methods to reach consumers with coupon offers that build brand sales.
COUPON TRENDS
2001
2000
1999
1998
1997
Quantity Distributed
2.67 Billion
2.52 Billion
2.50 Billion
2.70 Billion
3.0 Billion
Quantity Redeemed
122 Million
112 Million
115 Million
130 Million
130 Million
Consumer Savings
$128 Million
$120 Million
$115 Million
$112 Million
$104 Million
Average Face Value
$1.25
$1.08
$0.97
$0.83
$0.78
Average Valid Period
234 Days
270 Days
232 Days
253 Days
257 Days
COUPON DISTRIBUTION BY SHARE
Distribution Method
2001
2000
1999
1998
1997
Free-Standing Insert
55%
55%
52%
55%
54%
In-Store
16%
17%
17%
14%
11%
In-On Package
12%
13%
16%
13%
17%
Direct Mail
5%
5%
8%
9%
6%
Magazine
6%
5%
2%
3%
4%
Charity
2%
2%
2%
4%
5%
Other
4%
3%
3%
2%
3%
Source: Watts NCH Promotional Services
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GUIDELINES TO CONTROL COUPON FRAUD
We recommend that you use the following guidelines as one of the tools in controlling coupon fraud in your coupon redemption program:
Coupon Design
Your coupon design will impact the performance of your program.
The terms of the coupon offer should be clear and simple. Consumers want clearly defined products and terms.
Ensure that the coupon is properly bar coded including the manufacturer, family and value code.
You should also utilize the extended 128-bar code to facilitate the efficiencies of One-Step Processing by the retailer's clearinghouse as well as the manufacturer's redemption agent.
Follow the industry recommended guidelines regarding the coupon size and design.
Coupon Redemption Policy
Develop a Coupon Redemption Policy to deal with couponing issues. Establish procedures for dealing with day-to-day issues such as retailer inquiries and invoice deductions.
Notify retailers of your coupon redemption policy.
Establish the Legal Terms and Conditions
Develop legal disclosure of all information required for redemption of the coupon.
Include legal copy to protect against fraud and misredemption and to create a contract between the consumer, retailer and the manufacturer.
Actively Participate in Industry Associations
Join and be an active participant in Industry Associations such as the Grocery Manufacturers of America (GMA), Association of Coupon Professionals (ACP), Food Marketing Industry (FMI), Promotion Marketing Association (PMA), Joint Industry Coupon Council (JICC).
Follow industry recommended guidelines regarding Coupon Design and Format, Coupon Chargebacks, Electronic Data Interchange (EDI).
Participate on industry committees such as Electronic Clearing, One-Step Processing, Retail Scanning, etc.
Use Discretion When Selecting Target Markets
Some markets historically have higher misredemption rates. Develop an alternative promotional plan for these areas, using fraud deterrents such as lower face values, shorter expiration periods or more targeted marketing vehicles.
Monitor New Offer Closely
The majority of a coupon offers redemption are made in the first month of a coupon drop. Monitor submissions from retailers and compare them to historical redemption patterns as well as your forecasted redemption rates.
Use Copy-Proof Paper Stock
When issuing Free or very high value coupons, copy-proof paper stock such as Comark Bates CopyStop paper which produces a "Void" message when duplicated on a copy machine or scanner.
Actively Discourage the Buying and Selling of Your Coupons
The Internet, coupon clubs, charities and coupon magazines operate in a gray area of the law. Have your legal department advise these groups of the "non transferable" policy.
Avoid No Expiration Date and Long Expiration Dates on Your Coupons
Coupon clubs and fraudulent redeemers seek these coupons because they can be submitted over a long period of time, making it difficult to detect fraud. We recommend that you limit your expiration dates to six months or less.
No expiration date coupons make it difficult to close out the liability and budget for these coupons. They also are much more vulnerable to counterfeiting.
Perform a Legal Review of Contracts
Conduct a legal review of contracts with your Coupon Redemption Agent, Printers and Suppliers.
Some of the basic areas to cover are:
Processing and payment turnaround time.
Retailer verification methods.
Fraud and misredemption programs, procedures and techniques.
Proceeds from uncashed checks.
Manufacturer's right to audit.
Data storage and reports
Certified destruction of coupons.
Customer services to be provided.
Insurance & indemnification.
Confidentiality.
Wikipedia
New
York Times CBS
News Washinton
Post Boston
Globe
Audit Coupon Redemption Agents, Retail Clearinghouses, One-Step Processors and Printers.
This can improve communications and provide the manufacturer with the opportunity to identify, review and clarify administration of your coupon program and responsibility of each party.
Audits can identify areas for possible cost savings as well as make recommendations for increased efficiencies in the processing.
Audits address the reliability of information, the processes that create it, and the effectiveness and efficiency of controls. The audits include assurances about the effectiveness and efficiency of the services provided by the redemption agent, one-step processor.
The audit provides assurances about compliance with contractual requirements, internal controls or other specified criteria.
Audits detect, identify, prevent and control risks associated with your promotions thus impacting your bottom line.
Audit programs translate into better control over your promotional dollars.
Review Your Coupon Promotional Programs
Conduct an annual review of your coupon programs to determine how effective your programs have been.
Review total coupons distributed and redeemed by vehicle, face value and by brand.
Improve Communications with Your Retailer Customers Initiate efforts to open communication and provide early resolution of problems.
This will enhance the manufacturer's reputation, reduce legal expenses and increase sales.
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The Food Stamp Act of 1977
Both the outgoing Republican Administration and the new Democratic Administration offered Congress proposed legislation to reform the FSP in 1977. The Republican bill stressed targeting benefits to the neediest, simplifying administration, and tightening controls on the program; the Democratic bill focused on increasing access to those most in need and simplifying and streamlining a complicated and cumbersome process that delayed benefit delivery as well as reducing errors, and curbing abuse. The chief force for the Democratic Administration was Robert Greenstein, Administrator of FNS; in Congress, major players were Senators McGovern, Javits, Humphrey, and Dole and Congressmen Foley and Richmond. Amidst all the themes, the one that became the rallying cry for FSP reform was "EPR" -- eliminate the purchase requirement -- because of the barrier to participation the purchase requirement represented. The bill that became the law (S. 275) did eliminate the purchase requirement. It also:
eliminated categorical eligibility;
established statutory income eligibility guidelines at the poverty line;
established 10 categories of excluded income;
reduced the number of deductions used to calculate net income and established a standard deduction to take the place of eliminated deductions;
raised the general resource limit to $1,750;
established the fair market value (FMV) test for evaluating vehicles as resources;
penalized households whose heads voluntarily quit jobs;
restricted eligibility for students and aliens;
eliminated the requirement that households must have cooking facilities;
replaced store due bills with cash change up to 99 cents;
established the principle that stores must sell a substantial amount of staple foods if they are to be authorized;
established the ground rules for Indian Tribal Organization administration of the FSP on reservations; and
introduced demonstration project authority.
In addition to EPR, the Food Stamp Act of 1977 included several access provisions:
using mail, telephone, or home visits for certification;
requirements for outreach, bilingual personnel and materials, and nutrition education materials;
recipients' right to submit applications the first day they attempt to do so;
30-day processing standard and inception of the concept of expedited service;
SSI joint processing and coordination with AFDC;
notice, recertification, and retroactive benefit protections; and
a requirement for States to develop a disaster plan.
The integrity provisions of the new program included fraud disqualifications, enhanced Federal funding for States' anti-fraud activities, and financial incentives for low error rates.
The House Report for the 1977 legislation points out that the changes in the Food Stamp Program are needed without reference to upcoming welfare reform since "the path to welfare reform is, indeed, rocky...."
EPR was implemented January 1, 1979. Participation that month increased 1.5 million over the preceding month.
[edit] Cutbacks of the Early 1980s
The large and expensive FSP proved to be a favorite subject of close scrutiny from both the Executive Branch and Congress in the early 1980s. Major legislation in 1981 and 1982 enacted cutbacks including:
addition of a gross income eligibility test in addition to the net income test for most households;
temporary freeze on adjustments of the shelter deduction cap and the standard deduction and constraints on future adjustments;
annual adjustments in food stamp allotments rather than semi-annual;
consideration of non-elderly parents who live with their children and non-elderly siblings who live together as one household;
required periodic reporting and retrospective budgeting;
prohibition against using Federal funds for outreach;
replacing the FSP in Puerto Rico with a block grant for nutrition assistance;
counting retirement accounts as resources;
State option to require job search of applicants as well as participants; and
increased disqualification periods for voluntary quitters.
Electronic Benefits Transfer (EBT) began in Reading, Pennsylvania, in 1984.
[edit] The Mid- to Late 1980s
Recognition of the severe domestic hunger problem in the latter half of the 1980s led to incremental improvements in the FSP in 1985 and 1987, such as elimination of sales tax on food stamp purchases, reinstitution of categorical eligibility, increased resource limit for most households ($2,000), eligibility for the homeless, and expanded nutrition education. The Hunger Prevention Act of 1988 and the Mickey Leland Memorial Domestic Hunger Relief Act in 1990 foretold the improvements that would be coming. The 1988 and 1990 legislation accomplished the following:
increasing benefits by applying a multiplication factor to Thrifty Food Plan costs;
making outreach an optional activity for States;
excluding advance earned income tax credits as income;
simplifying procedures for calculating medical deductions;
instituting periodic adjustments of the minimum benefit;
authorizing nutrition education grants;
establishing severe penalties for violations by individuals or participating firms; and
establishing EBT as an issuance alternative.
Throughout this era, significant players were principally various committee chairmen: Congressmen Leland, Hall, Foley, Panetta, and de la Garza and Senator Leahy.
[edit] 1993 Mickey Leland Childhood Hunger Relief Act
By 1993, major changes in food stamp benefits had arrived. The final legislation provided for $2.8 billion in benefit increases over Fiscal Years 1984-1988. Leon Panetta, in his new role as OMB Director, played a major role as did Senator Leahy. Substantive changes included:
eliminating the shelter deduction cap beginning January 1, 1997;
providing a deduction for legally binding child support payments made to nonhousehold members;
raising the cap on the dependent care deduction from $160 to $200 for children under 2 years old and $175 for all other dependents;
improving employment and training (E&T) dependent care reimbursements;
increasing the FMV test for vehicles to $4,550 on September 1, 1994 and $4,600 on October 1, 1995, then annually adjusting the value from $5,000 on October 1, 1996;
mandating asset accumulation demonstration projects; and
simplifying the household definition.
[edit] Later Participation Milestones
In December 1979, participation finally surpassed 20 million. In March 1994, participation hit a new high of 28 million.
[edit] The Personal Responsibility and Work Opportunities Reconciliation Act of 1996
The mid-1990s was a period of welfare reform. Many states had waivers of the rules for the cash welfare program, Aid to Families with Dependent Children (AFDC) before major welfare reform legislation was enacted in 1996. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) removed the entitlement of recipients to AFDC and replaced that with a new block grant to states called Temporary Assistance to Needy Families (TANF).
Although the Food Stamp Program was reauthorized in the 1996 Farm Bill, major changes to the program were enacted through PRWORA. Among them were:
eliminating eligibility of most legal immigrants to food stamps;
placing a time limit on food stamp receipt of three out of 36 months for able-bodied adults without dependents (ABAWDs) who are not working at least 20 hours a week or participating in a work program;
reduction in maximum allotments by setting them at 100 percent of the change in the Thrifty Food Plan (TFP) from 103 percent of the change in the TFP;
freezing the standard deduction, the vehicle limit, and the minimum benefit;
setting the shelter cap at graduated specified levels up to $300 by fiscal year 2001, and permitting States to make use of the standard utility allowance mandatory;
revising provisions for disqualification, including comparable disqualification with other means-tested programs; and
requiring States to implement EBT before October 1, 2002.
The Balanced Budget Act of 1997 (BBA) and the Agricultural Research, Education and Extension Act of 1998 (AREERA) made some changes to these provisions, most significantly:
additional Employment and Training (E&T) funds targeted toward providing work program opportunities for ABAWDs;
allowing States to exempt up to 15 percent of the estimated number of ABAWDs who would otherwise be ineligible;
restoring eligibility for certain elderly, disabled and child immigrants who resided in the United States when PRWORA was enacted; and
cutting administrative funding for States to account for certain administrative costs that previously had been allocated to the AFDC program and now were required to be allocated to the Food Stamp Program.
The fiscal year 2001 agriculture appropriations bill included two significant changes to the Food Stamp Program. The legislation increased the excess shelter cap to $340 in fiscal year 2001 and then indexed the cap to changes in the Consumer Price Index for All Consumers each year beginning in fiscal year 2002. The legislation also allowed States to use the vehicle limit they use in a TANF assistance program, if it would be result in a lower attribution of resources for the household.
STUDIES INDICATE COUPON ARE AN EFFECTIVE PROMOTIONAL TOOL
Consumer packaged goods manufacturers spend approximately 50% of their total advertising/promotion budget on trade promotions, 26% on advertising and 24% on consumer promotions. The goal is to determine the optimal allocation in order to maximize their return on their promotional investment. They must evaluate what drives their sales from a consumer’s perspective.
With regards to trade promotions, an Anderson Consulting Study indicated that 51% of consumers were unaware that items purchased were on sale and therefore had no impact on the purchasing decision. Of the 49% that were aware of the sale, 40% said they would have purchased the item anyway. Manufacturer’s estimate that only 50% of trade dollars are passed on to the consumer according to an A.C. Nielsen study.
Consumer promotions, specifically coupons are difficult to evaluate their return on investment due to limitations of the marketing mix models used to evaluate the effects of coupons. These models are limited to aggregate level analysis of retail scanner data according to Frank Mulhern, Ph.D. Northwestern University.
A Promotions Decision Study indicated that trade promotions produced only 16% of total volume, while consumer promotions (coupons) account for 24%. Their test revealed that 42% of total volume was purchased with an incentive (16% trade, 24% coupon and 2% trade and coupon combined) and 58% was purchased at full price.
New versus Current Buyers % of Unit Volume
Full Price
Trade Deal Only
Coupon Only
Coupon & Trade
New Buyers
56%
18%
24%
2%
Current Buyers
59%
15%
24%
2%
The study concluded that much of the 15% of trade volume from current buyers would have been made without a trade deal. New and current users are equally motivated by coupons, therefore, coupons discounts can motivate buyers to try a new brand. Previous PDI research indicated that on average, 53% of FSI coupon redemption’s were generated by new or lapsed users of the product. The characteristics of a coupon, where a consumer must collect and present the coupon at time of purchase supports Mediamark Research that 38.03 percent of consumers use coupons in their purchasing decisions.
Switchers versus Loyal Buyers % of Unit Volume
Full Price
Trade Deal Only
Coupon Only
Coupon & Trade
Switchers
53%
16%
28%
3%
Loyal Buyers
60%
15%
23%
2%
Brand switchers are 75% more likely to use coupons than trade promotions when making purchases and 53% more volume is generated by current buyers with coupons than with a trade promotion.
Trade promotions = 50% spending and returns 13.1% incremental volume.
Consumer promotions (Coupons) = 24% spending and returns 10.65 incremental volume.
The 24% of volume generated by coupons is equivalent to the funds budgeted (24%), while trade promotions provides 16% of volume relative to the funds budgeted (50%). All methods (trade, consumer promotions and advertising) generate 35% to 40% of repeat purchases by First Repeat New Buyers and approximately 64% of repeat purchases by First Repeat Existing Buyers. New buyers are more likely to purchase with a discount where the perceived risk of purchase is lower. On average, 53% of FSI coupon redemption’s were generated by new or lapsed users, thereby motivating buyers to try a product.
From a retailer’s perspective, coupon shoppers are purchasing at full margin. Coupons impact new, current, loyal and switching consumers and helps build brands. Manufacturers must allocate spending to all three areas of advertising, trade and consumer promotions.
In the last five years, the 50 largest consumer packaged goods manufacturers have averaged 11 percent annual profit growth with an average annual increase in sales of less than 5 percent. The slow growth that CPG manufacturers as well as retailers have posted is primarily due to consolidations and cost-cutting efforts. Growth for CPG marketers and retailers needs to come from increasing marketing return on investment (ROI). That means retailers and manufacturers must have a disciplined, consumer marketing process that achieves marketing ROI consistently. They must commit to a marketing strategy which provides a framework for every activity that affects the brands or retailer’s relationship with the consumer.
Retailers must integrate primary and secondary data sources that define their customers and create a single-source platform for target development. To obtain a high ROI, marketing starts with consumer targeting. Advances in data collection and integration will provide the capability to plan, execute and evaluate marketing efforts on a targeted basis.
The starting point for all marketing decisions is for marketing, merchandising, media and category management to make decisions jointly instead of planning on separate bases. Improving marketing ROI requires that the packaged goods industry realign its consumer mix allocation. Manufacturers and retailers must allocate promotional spending according to how target consumers respond to different types of promotions.
Finally, the industry must analyze ROI by consumer target by measuring the effective increase in coupon redemption among targeted groups at retail and determine what volume and share increases were gained versus the investment. This evaluation will result in the creation of new action plans for improving product and brand performance.
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HOW TO USE FREE-STANDING INSERTS AS A PROMOTIONAL TOOL
Packaged goods manufacturers are forced to make tough choices regarding the promotional tools they use and how they use them. Once viewed as a mass vehicle, the Free-Standing-Insert (FSI) is now capable of meeting more targeted needs. By gathering actionable data, targeting decisions can be simplified, and promotional dollars can be used to their fullest. The targeting process begins with segmentation, or the process of dividing the population using specific criteria. The three main segmentation alternatives are demographic (characteristics of the population), psychographics' (consumer lifestyle profiles), or geodemographic (depicts where customers-or people like them-live). Once an approach is determined, various resources can be used to apply the segmentation process to a brand's market list.
There are many different ways by which you can break down your market list, including the following:
Custom Region/District: Reviews coverage by custom sales or broker territory; can reveal differences in support levels.
Scanner Market - Looks at coverage by IRI Infoscan or Nielsen Scantrack markets; help align promotional support with your marketing strategy.
User Profiles: Identifies the newspapers with the greatest concentration of potential brand, category or competitive users; get to know the consumers your promotion is reaching.
County Coverage: Provides options of ways to improve coverage in counties where your brand usage skews; improve penetration levels by county.
Brand and Category Development Indices: Weighs markets by sales volume; optimize results by altering page sizes, face values and coverage levels to best meet your marketing objectives.
The components and characteristics of a Free-Standing Insert that impact redemption rates significantly include face value, expiration period, clear and simple offers, coupon size and layout. If you review your historical redemption data, you will likely find that as you lower the face value of the coupon or increase the purchase requirements, you will reach a point where the redemption rate significantly declines. You should be conscious of the "outer limits" of your coupon's face value or purchase requirements. Your brand advertising should use a headline that is well established and systematically run to generate higher redemption rates. It should be simple, clear and highlight the benefits of the product.
Over an extended period, a coupon with two time-releases (i.e. one month and three month expiration dates) will redeem significantly higher than a solo coupon with either a one month or three month expiration date. Coupons offering "One Free with multiple purchases" will redeem higher than a dollar value "Cents-off on multiple purchases even if the face value is the same as the value of the "Free" offer. It should be noted that if the free offer is more generalized, the redemption rate will be lower than a "Free" offer that is clearly defined.
Larger coupons redeem significantly better than smaller coupons, especially if the coupon is not cluttered. In a test of dual coupons, the $1.00/2 and 50¢/1 redeemed higher, collectively than the $1.25/2 and 50¢/1coupon. While the $1.00/2 redeemed less than the $1.25/2 coupon, it's 50¢ coupon redeemed significantly higher than the $1.25/2 counterpart 50¢ coupon.
Combined with a market leader, a weaker brand's coupon redemption will be higher than by itself. Where possible, take advantage of a strong related brand to strengthen a weaker brand. If you are sharing a page, redemptions are considerably stronger, collectively, on a horizontal rather than a vertical layout.
The following are variables that can affect the redemption rate of a Free-Standing Insert:
Face Value
Expiration Period
Coupon and Page Size
Competitive Activity
Brand's Market Share
Product's Purchase Cycle
Trade Support or Display Activity
Economic Factors
Seasonality of Product
Product Availability
Number of Coupons on the Page
Effectiveness of Ad Copy
Atypical FSI with 40 million circulation will cost approximately:
Artwork $30,000
Insertion (Full Page) $240,000
Redemption (50 cents) $400,000
Handling (10 cents) $100,000
Total $770,000
Assumes a 2% national redemption rate.
Credit: Santella . com
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