Saturday, July 11, 2020

Life of a Coupon: The Industry Value Chain That Powers Manufacturer Coupons

Let’s talk about coupons.

More specifically, the full value chain of activities and industry players that constitutes the ‘Life of a Coupon’ – from the CPG manufacturer to the consumer to the retailer’s checkout register and back to the manufacturer.

A ‘manufacturer coupon’ is a particular breed of consumer discount that has some very real and well-established benefits not just for consumers, but also for CPG marketers and FMCG retailers. Consumers can reap meaningful savings and have the freedom to use the coupon at any retailer of their choosing. CPG brands are able to engage and reward their target consumers independently of any retailer’s influence and agenda, while also motivating a broad set of retailers to restock additional cases of their products ahead of the surge in demand. And retailers benefit from the increased traffic and product sales coupons drive, which are often paired with ‘trade discounts’ that reduce the cost of goods to the retailer. The scale of this popular marketing tactic is considerable – according to the 2018 Inmar Promotions Industry Analysis, 267 billion coupons were issued and distributed in the U.S. that year, and 1.74 billion of those were redeemed by customers.

These benefits are made possible by a market structure and value chain of agreements and services that have existed for decades, and have thus instilled trust and predictability among everyone involved – consumers, retailers, and manufacturers.

There are five distinct stages in the Life of a Coupon (see Figure 1), each enabled by an infrastructure of industry players, standards and agreements that make the well-established system work. All coupons, both electronic and analog, go through the same five stages, but there are some notable differences between how paper and digital coupons function, which result in the respective advantages and limitations of each format.

Life of a Coupon – the Value Chain that Powers the Massive Volume of Manufacturer Coupons
Figure 1. Life of a Coupon – the Value Chain that Powers the Massive Volume of Manufacturer Coupons

1. Setup
Coupons are born at marketing headquarters of major CPG brands and play a variety of roles in achieving the brand manager’s business objectives. These include supporting new product introductions, generating new customer trial, driving brand loyalty through pantry loading, and recovering lapsed buyers.

As CPG marketers design their promotional campaigns, they determine the appropriate face value of the coupon, the duration of its validity, the product purchase requirements, and the scope of the campaign (national vs. regional vs. retailer-specific). They generate the creative for the coupon campaign, which includes both the equity message (where applicable) and the coupon artwork and determine the method of distribution. They adapt the creative for different coupon formats, e.g. paper FSI, Catalina coupon, digital coupon, instant redeemable coupon (IRC), etc. (see below).

To get a coupon ready for marketplace consumption, the brand team then obtains from their clearing house a valid GS-1 offer code, which has all the attributes necessary for the coupon to be machine-readable by the point-of-sale (POS) system at checkout. These include manufacturer code, brand family and face value. Then, they book a ‘drop date’ and media rates with their distribution providers, and if the campaign is run on a ‘category exclusivity’ basis, they secure all the relevant categories, so competitors’ coupons in the same product category don’t get published alongside this campaign. Finally, the CPG team delivers the print artwork or digital assets, including the correctly configured GS-1 databar, to the coupon distribution vendor(s) who will publish the coupons per the contracted arrangements.

2. Distribution
Once the coupon is designed, assigned a GS-1 code, and setup in the distribution vendors’ systems, it’s time to get it into the hands of as many target consumers as possible. One big decision is “paper vs. digital” – or how much of the coupon’s circulation to allocate to analog (or paper) modes of distribution and how much to distribute electronically via digital channels. Another decision is what types of coupons to activate as part of the campaign.

While coupon formats and distribution vehicles continue to proliferate, there are four primary types of coupons to choose from:
  • Free Standing Insert (FSI) – paper coupons published in cooperative booklets and distributed as Sunday newspaper inserts and mailed directly to consumers’ homes.
  • Digital Coupons – the two most popular digital formats are Load-to-Card (L2C) and Print-at-Home (PAH). These are sent electronically to target consumers via any digital channel, including email, in-app, social, but most commonly, they are published online on retailer websites and third-party savings portals.
  • Catalina Coupons – also known as ‘electronic checkout’ coupons, they are printed dynamically at the time of checkout on Catalina’s proprietary in-store printers.
  • Instant Redeemable Coupons (IRC) – these are coupons that are attached to the product itself, either as peel-off stickers, bottle-hangers, or neck tags, and can be redeemed immediately by the consumer at checkout.
And then, there are all the other modes of distribution, which include direct mail, in-person handouts, at-shelf pads or coupon machines, printed in magazines and circulars, etc.

3. Clipping
Technologically, this is not a complicated step, but it is a very important one from the standpoint of the CPG marketers. It is the step when the consumer takes their first action vis-à-vis the coupon and demonstrates their interest, or even intent, to take advantage of the discount offer.

In the world of traditional paper coupons, this action takes the form of the consumer literally using scissors to ‘clip’ the coupon from the FSI booklet and saving it (usually placing it in their wallet) for later use. For ‘extreme couponers’, laying out all the coupon booklets on the kitchen table each Sunday and clipping the offers they like is a coveted weekly ritual.

In the case of digital coupons, the ‘clipping’ is virtual and it involves the consumer clicking on the coupon and adding it either to their retailer loyalty-card account or another authenticated identity account. For PAH coupons, the printing of the coupon by the consumer is de facto the clipping action. Nowadays, digital coupons can also be saved into the smartphone wallet or payment apps to be electronically presented – or automatically redeemed – at checkout.

4. Redemption
This is by far the most critical step – both for the consumer experience and for future innovation of the coupon industry infrastructure. The consumer wants to be able to take the coupon – paper or digital – to any store where they are shopping and have it readily and effortlessly redeemed by the retailer.

With paper coupons, such as FSI or Catalina, this consumer expectation is met pretty much flawlessly, thanks to an industry infrastructure of technology and agreements that have been in place and operating smoothly for decades. Retailer POS systems have all been programmed to read the GS-1 bar code and instantaneously recognize and honor a printed manufacturer coupon. The contracts both CPG and retailers have with clearing houses, such as Inmar and NCH, give all players confidence in the system – retailers are comfortable fronting the face value of the discounts because they know they will get paid, and CPGs know they will get a detailed accounting of all coupons redeemed at each retailer.

With digital coupons, the value proposition is still not quite there as compared to what consumers have come to expect from paper coupons. The most dominant form of electronic paperless coupons, L2C digital coupons, require a membership or loyalty card account with a particular retailer. So, for example, a consumer who loads a digital coupon to their Albertsons “just for U” rewards card, cannot redeem that coupon at a Kroger supermarket or at the nearby drugstore or convenience store. For the CPG brand manager, that means that they cannot really plan and execute ‘national’ digital coupon campaigns, but rather have to activate retailer by retailer, effectively turning digital coupons into an extension of their retailer-specific trade marketing budgets.

The reason for that disconnect is that, instead of having all POS systems utilize a single standard “language” for recognizing and redeeming digital coupons, each retailer has their own software solution, either homegrown or provided by one of the leading digital coupon integrators, Quotient and Inmar. These integrators have multiple retailers in their respective networks, so to some extent, they can offer CPGs a ‘multi-retailer’ solution, but to the consumer, the experience is still fragmented.

5. Clearing
This is the backbone of the couponing industry. The job of the clearing house is to keep track of all coupon codes within a CPG campaign, collect the physical coupons – or a record of the digital coupons – redeemed at various retailers, count them and verify the cumulative face-value amounts each retailer advanced to consumers who redeemed the coupons, provide detailed accounting and reporting to the brand manager, and use the funds in the CPG campaign escrow account to settle these outstanding amounts with all retailers.

In the case of physical coupons, cashiers place the redeemed paper vouchers in Ziploc bags, which are delivered to the clearing house. Retailers are compensated by the CPG (usually $0.08 per redeemed coupon) for this “handling” of paper coupons.

Clearing providers then ship all the paper coupons to a processing facility, usually across the border in Mexico, where they are manually counted, and the information about the types of coupons redeemed, the face value, the retailer where the redemption took place, the product category and brand name, etc. is entered in the clearing systems.

The process for digital coupons is analogous, except there is no paper to collect, ship and count. Instead the software integrator who provides the retailer’s coupon recognition and redemption capability, connects their systems, or in some cases provides a flat file, to transmit the same information about the redeemed digital coupons. While the clearing system is vital and reliable, one can easily see where the process can be improved or even disrupted.

Coupons continue to be a powerful tool in the CPG marketer’s toolkit, and consumers’ love affair with coupons has shown no signs of abating – in 2018, U.S. consumers saved an estimated total of $2.5 billion by using manufacturer coupons. As the world of media and marketing services continues to digitize, it is key that industry players understand all the steps in the Life of a Coupon and why the legacy system that powers traditional paper coupons works. More importantly, the industry must work in tandem to resolve the limitations of the existing infrastructure that prevent digital incentives from rising to the scale and popularity of the paper tools, like FSI and Catalina coupons, that preceded them.

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