What once seemed like a technical advance for the distant future is moving closer to reality this year. A joint industry coupon committee has endorsed a scannable bar code as a standard to facilitate clearing. Several tests scheduled around the country are designed to prove the benefits of this front-end practice. That's good news for brand marketers. The scanner-driven systems would eliminate coupon misredemptions, malredemptions and charge-backs. They would also provide manufacturers with the extended bar-code information needed to track coupon effectiveness more precisely.
"Electronic coupons will be able to accomplish several things. But validating purchases against the coupon with whatever point-of-sale system the retailer has at the front end is the key thing. That will then eliminate malredemptions," said Carol Haas, chief executive officer of American Redemption Systems, St. Louis. ARS, a coupon processing agent, is a wholly owned subsidiary of Ralcorp Holdings, St. Louis, and until last month was part of Ralston Purina Co., also in St. Louis.
"The other thing is that it will capture that extended bar code, the suffix code, for manufacturers. I think it's absolutely the right direction. We need to get to scanning the coupon at the retail level," she said.
"It's certainly the ECR of the industry," said Ron Fischer, manager of coupon operations at Lever Bros. Co., New York. "Once the compliance rate for scanning manufacturer extended bar codes is [high enough], many of the processing steps can be eliminated."
The information and faster timing inherent in electronic coupon clearing "will give brand marketers a much better idea of how their couponing programs are doing, and accuracy will improve tremendously," Fischer said.
The benefits of moving toward an electronic clearing system were also spelled out by Bob Grottke, founder of Robert Grottke & Associates, Chicago. Grottke is a former associate with Arthur Andersen & Co., Chicago.
A major couponing issue for manufacturers is the ability for retailer POS systems to read and transmit vital extended bar-code information, he said. "This whole area has not advanced faster mainly because of the inability of earlier systems to capture the manufacturer portion of the bar code. Manufacturers need that information, but the capability to capture it didn't exist."
Under electronic clearance systems, coupons would be scanned and verified at the front-end checkout, with all the key information needed electronically gathered and transferred, either directly or through a third-party firm, to the manufacturer. Physical handling of paper coupons eventually would be eliminated completely.
As part of the industry's Efficient Consumer Response initiative, electronic clearing also is projected to result in savings of up to $750 million a year and cut coupon processing costs by up to half.
Until now, though, progress in implementing an effective electronic coupon clearing system has been slow. But all that may be about to change. Several electronic clearing systems are set to undergo extensive industry testing for the first time this year, with more programs expected to be announced before long.
The most comprehensive test of an electronic coupon clearing system thus far is the brainchild of Catalina Electronic Clearing Services, St. Petersburg, Fla. Catalina's system is slated to undergo testing in 24 supermarkets at 12 chains, including Kroger Co., Giant Food, Ralphs Grocery Co., Dominick's Finer Foods and Pathmark Stores.
The test, now in the process of being implemented, is being supported by a considerable number of large manufacturers, led by Procter & Gamble, Nestle U.S.A., Campbell Soup Co., Lever Bros., Nabisco Food Group, Ralston Purina and Best Foods.
In addition, at least three other companies, including Comark Technologies, Virginia Beach, Va., and Advanced Promotion Technologies, Pompano Beach, Fla., are expected to announce test programs of electronic coupon clearing systems this year.
Perhaps as important, the Joint Industry Coupon Committee of the Grocery Manufacturers of America and the Food Marketing Institute has endorsed a scannable bar code as a standard to facilitate electronic coupon scanning. The code, an extended version of UCC/EAN-128, could provide manufacturers with much of the information they require from coupons, many industry sources say.
The Uniform Code Council's board of directors was expected to endorse the recommendation of the GMA-FMI joint committee at a meeting late last month.
The committee also is expected to put its stamp of approval on several electronic coupon clearing pilot tests later this year. The programs should help usher in new communication standards and set the stage for a wider rollout of electronic clearing.
While some controversy remains about whether the extended UCC/EAN-128 code is the answer to providing manufacturers with all the coupon information they need, many industry observers are praising the adoption of the code as, at least, a necessary step in the right direction. "We believe the adoption of the 128 extended code is a done deal. The UCC extended code documentation has been circulated to board members, and I don't see any major hurdles or obstacles to moving forward with it," said one executive, who asked not to be named.
"There have been surveys done and manufacturers, by and large, seem to support the code. They are comfortable about the size of the code, how much space or real estate it will take up on the coupon, and that it will work with scanner technology," the source said.
"EAN-128 sure looks like it will provide the information that is needed" by manufacturers, said Haas. "As soon as I say that, of course, someone else will say that it doesn't meet their needs. But I sure think it is a step in the right direction," she added.
That the industry is now gearing up to implement an electronic clearing system to dramatically alter how coupons are handled is beyond doubt. The question now is how long it will take to revamp the system.
In Grottke's opinion, a two- to three-year test period will be sufficient to convince manufacturers and retailers that electronic coupon clearance is reliable, verifiable and feasible for all industry segments.
By 1996, he predicted, the supermarket industry should be processing coupons completely differently and more efficiently than it does today.
"I think that the testing period in the next two years is really going to convince manufacturers that the front end of the supermarket has the controls in place to clear coupons. After that point, I think the process will flow a lot smoother than it has so far," Grottke said.
"It just has to be a period of time when we have to demonstrate that to the manufacturer. I think it is a win-win situation, though," he said.
"I don't think anyone knows how quickly we can get to the point where electronic coupon clearing is a reality. Manufacturers and retailers need to be able to have confidence in the data transferred back and forth. There is also the issue of security with coupons and whether to destroy them at the checkout," said another executive, who asked not to be named.
"Also, there is the issue of standardizing an extended code before any of this can take place, even though it looks as if the adoption of the extended 128 code is all but a done deal."