ST. PETERSBURG, Fla. -- Brand marketers could save $1.5 billion by changing the way they handle coupons, said a top executive with Kraft General Foods, Northfield, Ill. Streamlining coupon processing and improving current electronic coupon-clearing methods should primarily be the concern of manufacturers, not retailers or third-party suppliers, said Mark Harran. He is senior vice president of sales, customer development and marketing services for KGF.
He proposed creating a joint industry council to determine how best to wring these savings out of the system. A key factor in the "optimal solution" would be a perfected method of electronic coupon-clearing. The committee would be charged with agreeing upon a method.
"First, I think we should acknowledge that the manufacturer needs to lead the change. The manufacturer is the customer," he said, speaking at an electronic coupon-clearing conference here sponsored by Retail Systems Consulting, Naples, Fla.
"Secondly, I believe that we should reactivate -- regenerate -- the joint industry process and use this process to identify the optimal solution. We should have an industry vision."
Harran proposed creating a closed-end system that would begin and end with the manufacturer. It would reduce coupon processing time and costs. This would lead to fewer misredemptions and malredemptions and result in $1.5 billion dollars in savings industrywide.
Electronically cleared coupons are scanned and validated at checkout using a system that reads the manufacturer identification and offer code. These figures are electronically transmitted to the manufacturer, who then reimburses the retailer based on point-of-sale totals.
This system eliminates the need for redemption agents and the manual calculation of paper coupons. Coupon processing time is dramatically shortened from an average of 45 days down to hours or even minutes.
No such system is currently available. Three third-party vendors -- Advanced Promotion Technologies, Catalina Electronic Clearing Services and Comark Technologies -- have tested various clearing systems over the past few years, but no workable system has yet been marketed.
Harran praised the suppliers of third-party electronic coupon-clearing programs, but said there is still room for improvement.
"We at KGF do believe in and very much support electronic coupon-clearing. We believe the challenge is now how to best optimize the current executions in the marketplace and we're going to work very, very diligetnly and earnestly to do that," he said.
The two biggest stumbling blocks, according to Carlene Thissen, president of RSC, are the lack of trust between manufacturers and retailers and the need for an offer code that can be read by point-of-sale scanners.
With the Quick Pay system, currently in place between several manufacturers and retailers, stores submit electronic totals to coupon-clearing houses. They are reimbursed by the manufacturer based on the those totals, usually within 10 days.
The coupons are then sent to a redemption agent and undergo the traditional manual handling process. Adjustments are made later based on the manual totals.
Quick Pay was seen as an early solution to electronic clearing. With more efficient electronic clearing methods developing, RSC's Thissen suggested this system would probably fall by the wayside.
Harran stressed that his proposed system was not to be viewed as an outline for a system KGF is developing. It was only an "abstract concept" be one that would meet the industry's needs.
The ideal product, he said, would be manufacturer-owned and controlled. Consumers and retailers could interact directly with the system to process coupons.
The first step should be to reduce the number of coupon counts of each manufacturer.
Coupon deductions are the second-largest deductions companies face, after promotions and trade deals, he said.
"Harran's estimate is that about $50 million -- at least -- could be saved by taking out these coupon counts through electronic clearing. It could be as high as $100 million," he said. He reached that number by figuring that manufacturers spend about $120 to clear a coupon and retailers spend about $100.
Manufacturers spend roughly nine cents to process a coupon -- eight cents to the retailer, one cent to the redemption agent. "There's an investment here of about $700 million. Obviously, the more information we move electronically and the less paper [we use], the lower the cost potential here," Harran said.
Harran outlined his vision of the workings of such a system: Coupons would be read and validated by some device installed at the point of sale. Validation results would be sent electronically back to the manufacturer. The paper coupons could be destroyed by the system or salvaged and retained, depending upon the manufacturer's specifications.
Harran explained the factors the developers of such a system should consider: "First, it's got to optimize against each of the five opportunity areas I just discussed.
"Secondly, it's got to provide overall benefits that are truly incremental, implemental and sustainable. "Third, it's got to allow for orderly integration with and transition from the current system."