Commentary
Coupon Clippers Proven To Drive Incremental Sales
- by Cory Treffiletti , Featured Contributor, November 11, 2009
Well, I guess in the old-fashioned sense of the phrase, "I clip" coupons. There's really not too much clipping going on anymore since I can accomplish the same thing by pushing the "print" button on my computer.
Digital couponing has risen dramatically in the last 12 months because consumers are more concerned with saving money than they were in recent years. According to one study that was cited recently in MediaPost and published by ICOM, one out of three consumers report using more coupons than just one year ago. About half of males 18- to 34-years-old reported comparison shopping, with as much as 38% actively searching for coupons. An economic recession can have that effect.
Online couponing, because it's not sexy, can be an overlooked part of many online marketers' plans. But coupons work and they offer an immediate measurement for performance on sales that can be missed with other components of the online marketing plan. Strategically, they are best used when trying to generate trial or increase purchase frequency, but coupons are also a strong awareness generator if you realize whom you can be reaching and the context in which you would be reaching them.
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The goal of most marketers is to get as close to the point of purchase as possible and influence intent. The further you go upwards in the decision-making process, the more you focus on consideration and eventually awareness. A coupon can accomplish all of the above. It can obviously influence intent and consideration by weighing the balance in your favor vs. that of a competitive brand, but just by being in the coupon section of a shopping site, you can influence consumers who may be looking to do their research on brands prior to making their decisions. What's also the case is that they can level the playing field vs. generic brands that are generally cheaper. According to the same study referenced earlier, as much as 59% of consumers will sacrifice name brands for generic brands based on price. That translates to a rapid decline in brand loyalty, a difference that coupons can take into account.
This leads us to the Holy Grail for CPG marketers online: determining growth vs. cannibalization. The one big question that surrounds online coupons, and coupons in general, is whether the use of them cannibalizes your existing consumer base by driving them to buy your product at a lower price (thereby dragging down your margin) or whether they bring new consumers into your category or to your individual product, thereby impacting the business of your competition.
Many of the big online coupon companies are already investing in research to answer this question. According to a study from Coupons.com that was published in Q3 2009, online coupons are indeed driving incremental sales, with as much as 40% of redemptions coming from new or lapsed buyers. According to the same study, 63% of the redemptions drove incremental volume rather than cannibalizing existing sales. This would suggest that online couponing is a valuable and required tool for driving incremental sales!
What's also very interesting to me is that by evaluating the performance of coupons in different locations, we could create a proxy ratio to evaluate other efforts at influencing sales. For example, if we distribute a coupon via email, via an ad unit and via a digital FSI, we could evaluate the CPM, click-through rate and interaction rate of these units to create a baseline for comparison with non-coupon-oriented messaging. Thus we could evaluate comparable efforts in email and ad units and measure their CPM, click-through and interaction rates, and determine a ratio to see if the decrease in performance without a coupon is in direct proportion to those with a coupon. If one tactic is underperforming based on that ratio, then the hypothesis is that it is not influencing the consumer in the same manner. Would that give us somewhere to start with, from an analytics perspective?
Of course, this is just one idea. I and the other readers of this column would love to hear your thoughts on how CPG marketers should use coupons to understand their total campaign effectiveness. Share some best practices and further the industry by letting us know on the Spin Board!
I feel using digital and social marketing for promotions is more effective than traditional couponing, and does more to strengthen the customer-brand relationship. Starbucks has run multiple such promotions through its Facebook page, other brands have followed suit, some use Twitter codes to receive discounts. This defies the cannibalization problem you allude to, since in a way it rewards your best customers, those who follow your brand on multiple channels. Viewed from that perspective, I think its good. Traditional couponing, even with the analytics you propose is more of a recessionary reaction, not a sustainable strategy.
Couponing strategies for CPG are more complex than Cory's "holy grail of cannibalism" described in his column. Couponing was originally a good tactic for draining excess inventory out of the warehouse. In today's Just-in-Time environment, that rationale is obsolete.
With the transfomation to JIT inventory management, CPG marketers found themselves addicted to coupons to sustain market share. They often described coupons as the "crack cocaine" of the marketing plan and they knew that the way coupons caused day-to-day sales to look like a roller coaster instead of a flat line was inefficient.
Better daily inventory data soon proved the obvious - when all the major brands in a CPG category use coupons, you don't grow the overall size of the category. You trade fickle consumers back and forth with a tactic that drains profits. Even worse, you train an ever growing group of consumers to define an acceptable cluster of brands in the category that they will buy and then they just wait to see which brand has the best coupon that week. This consumer practice was exceptionally painful for the disposable diaper category in the 1990's.
Slowly, CPG marketers came to believe in the value of Everyday Low Pricing as a better strategy. The transition was very hard, P&G bit the bullet and led the industry in this direction. Today, ELP is widely accepted as a better CPG marketing strategy than couponing.
Coupons denegrate the brand, reduce brand loyalty, grow perceptions that all brands are alike and leave premium brands very exposed to store brands.
There are still good reasons to use coupons but they are very narrow and short term. Fast growing CPG categories and new product trial are the two primary examples. But, even today, most couponing is a defensive strategy that backs a brand into a corner from which it is hard to escape.
So, Cory, before you send a bunch of folks who are only trained in digital advertising off to recommend digital coupons to their CPG clients, try to do a more complete job of explaining the history of couponing to these folks so that they do not end up looking naive.
Thank you.