The nation's economic downturn could create couponing opportunities for consumer packaged goods manufacturers who want to win over what's become a more price- and promotion-sensitive consumer.
The recession and aftershocks of Sept. 11 have made people more financially unsure and, consequently, budget-conscious. While the Conference Board's Consumer Confidence Index initially remained high for months despite an unofficial recession, it dropped from 97 in September to 85.5 in October 2001, the lowest reading since February 1994.
As of November 2001, the unemployment rate stood at 5.7%, a 0.3% increase from October, the highest it's been since August 1995, according to the Bureau of Labor Statistics of the U.S. Department of Labor. The November increase followed a jump of a half a percentage point in October.
This translates into about 8.2 million people who are unemployed and, no doubt, reassessing how they spend their money. Even those who still have jobs are uncertain about their future and are looking for bargains as a way to keep spending in check. As part of this trend, consumers may rely more on coupons to help reduce a big expense: their grocery bill. In turn, manufacturers can tailor coupon programs to reach a wider audience and move more products, thereby increasing the return on investment, according to representatives from coupon companies.
While coupon distribution was down about 6% through October 2001, coupon redemption showed signs of an increase after Sept. 11, according to preliminary estimates by NCH NuWorld Marketing, Lincolnshire, Ill., a coupon processing and promotion information management firm.
Marketers said post-Sept. 11 redemption rates were 2% to 3% higher than they would expect to see during that time of year, according to Charles Brown, vice president, marketing, NCH. Brown is also co-chair of the Promotion Marketing Association's Coupon Council, and member of several other coupon organizations.
CPG firms that respond to this trend by increasing coupon volume could see brand loyalty increase, according to coupon industry executives.
"There's an opportunity to pantry-load consumers and steal share over competitors," said Lynn Liddle, vice president, investor relations/communications, Valassis, Livonia, Mich., a marketing services company. Liddle also is co-chair of the PMA's Coupon Council.
While final 2001 coupon volume and redemption trends were unavailable, NCH forecasted that about 230 billion to 233 billion coupons were printed for the entire year. In 2000, manufacturers distributed 248 billion coupons, a 3% decline from 1999, according to NCH. Of the coupons distributed in 2000, 4.5 billion were redeemed, down 4.2% from 1999.
So now that consumers may be more apt to redeem, will manufacturers boost coupon volume? It could be difficult for some. After all, marketers are also feeling the financial crunch of not only the recession, but also industry consolidation. Often, when a company merges with or is acquired by another one, promotional strategies are altered as a way to reduce the bottom line.
In some cases, marketers are more hesitant to move ahead with coupon programs, instead finalizing bookings at the last minute, according to Liddle.
"We're seeing a situation of unprecedented uncertainty," said Liddle.
But that could change if consumers begin shifting to lower-priced products, like many of the increasingly sophisticated store brands.
"Many marketers won't react until they see their market share and sales go down," said Brown.
Private label is already a more formidable competitor. Retailers are not only improving the quality of their store brands, but also the scope by expanding them into new categories and products. Retailers are also more aggressive in pricing and promoting private-label lines. Some have even begun to offer store-brand coupons, according to Liddle.
Consumers are responding warmly to such strategies. According to an NCH survey conducted in August 2001, the frequency of store-brand purchases over national brands has increased over the last year. Fourteen percent of consumers said they "always" buy store brands over national brands, up from 11% in 2000. Likewise, 61% said they "sometimes" buy store brands, up from 56% in 2000.
Indeed, consumers are increasingly price-conscious and promotion-sensitive, according to the NCH survey. (NCH defines promotion-sensitive shoppers as being aware of sales coupons and discounts; price conscious, those who buy the least expensive all the time.) According to the survey, 31% of consumers describe themselves as price-conscious, while 33% say they are promotion-sensitive. Meanwhile, 16% said they are brand loyal, while 13% said they are time-crunched, meaning they buy what is available, fastest and easiest.
One way for marketers to fight back against private label is to increase coupon distribution, executives from coupon companies said. Coupons can help decrease the price differential between national and store brands.
"[Coupons] give consumers an opportunity to buy products they enjoy without spending much more to do so," said Lorraine Gallaher, director of marketing, CMS, Winston-Salem, N.C., a promotional settlement and information management services firm.
Gallaher expects consumers will now have an increased interest in coupons, and is hoping that manufacturers respond by maintaining a good level of incentives for them. Since manufacturers are feeling the recession as well, she predicts less experimentation with distribution methods, and a focus on proven techniques, like in-pack/on-pack and freestanding inserts.
"Good marketers will want to make their promotions more appealing to consumers," she added.
Still, strategies at some companies will remain the same. Procter & Gamble, Cincinnati, is one of them, according to Lisa Jester, spokeswoman for the company's Pampers brand.
"We're staying the course," she said. "Our goal is to provide everyday good value. That's not just a function of price, but also performance. We know that many consumers shop for price, but we also know that they want a brand they can trust. When times get tight, people look for that kind of value."
Marketers who do decide to focus more on couponing should adhere to couponing best practices, according to Liddle. Among them:
Don't make purchase requirements too stringent.
Don't put multiple brands on one page.
Give consumers enough time to redeem the coupon.
Include a prominent picture of the product in the ad.
Use bold headlines to announce the savings.
Industry executives also predict a focus on co-equity promotions, including those in which a national brand coupon can be used only at a specific retailer or when a coupon is tied into a retailer's loyalty club.
"Co-equity promotions help manufacturers leverage their retail marketing dollars and give them some control over the process," said Liddle. Such coupon activity was up 200% in 2001 vs. 2000, according to Valassis.
Some companies are leaning toward solo-FSIs, or multipage ads that include coupons as well as recipes and content. Kraft, P&G, Nestle and ConAgra have been especially progressive in this area, said Gallaher.
"The industry could do a better job making people feel comfortable using coupons," she stressed.
A good amount have tried to do just that, according to a Brand Marketing survey conducted over the summer of 2001. While the survey showed that 52% of manufacturers said spending on coupons would remain the same in 2001 as in 2000, 26% said it would increase. Less than one-fourth expected that spending would decrease. Most also expected coupon value and experimentation dates to remain the same in 2001 as in 2000.
