CHICAGO -- With manufacturer coupon distribution at record levels and redemption costs climbing, some brand marketers and industry experts are debating the validity of coupons as a marketing tool.
The issue provoked considerable controversy at a recent seminar on coupon management sponsored by the Grocery Manufacturers of America here, and delivered a wake-up call to businesses that make their money from the delivery or processing of coupons.
"Should we be in the coupon business at all?" questioned Jim Shad, sector sales merchandising manager for Procter & Gamble's paper products division. He gave a talk titled "Coupons as a Marketing Tool."
A key question worth pondering is "How do coupons satisfy the value demands of consumers?" he added.
And Patrick Kiernan, senior vice president of industry relations and productivity for GMA, added, "A growing number of manufacturers are no longer willing to invest a dollar to lose 50 cents. The ugly truth of coupons is they motivate just a fraction of the population of brand-loyal customers as we use them today."
Kiernan also pointed out that there are some 40 retail formats today competing for consumers' grocery dollars. "In many of these formats, coupons are neither wanted nor needed," he said.
Many attendees at the GMA seminar were members of the Joint Industry Coupon Committee, which is laboring mightily to identify and create more efficient solutions to the processing of coupons. Most were prepared to confront issues related to bringing redemption costs into line and speeding the process with technology. Few were prepared to have their livelihoods questioned.
While references to the marketing value of coupons cropped up in several presentations, most of the reaction seemed leveled at Shad, whose company -- not coincidentally -- has significantly cut its coupon usage since its shift in recent years.
Attendees from the coupon processing industry seemed threatened most by Shad's suggestion that the number of cents-off coupons circulated last year -- 330 billion -- is well in excess of the marketing value that they can provide.
He put those coupons at an estimated face value of $175 billion, or an average value of about 60 cents. The average household sees 400 pages of freestanding inserts per month.
Shad pointed to declining redemption rates as evidence that coupons are becoming less compelling to consumers. Redemptions dropped to 6.8 billion coupons in 1993, from 7.5 billion a year earlier, and are at their lowest level since 1988, when 7.1 billion were redeemed.
"Redemption rates are at 2.3% -- an all-time low," he said. "More and more of our coupons are being thrown away."
One critic of Shad's premise was Jane Perrin, senior vice president of marketing at NCH Promotional Services, who pointed out in a conversation with Brand Marketing that the redemption rate trend may not be as flat as it seems on the surface, owing to a general tightening of expiration dates on coupons down to a current average of 3.1 months. The net effect, she explained, is that fewer valid coupons are available for redemption on any given day, despite the larger total number in circulation.
And another speaker, Frank Pringle, a partner at Coopers & Lybrand, noted that while P&G has dramatically cut back on coupons since its shift to value pricing, "it hasn't eliminated them."
Shad acknowledged in his talk that his opinion on couponing did not reflect an absolute policy on the part of Procter & Gamble. He also cited a variety of situations in which coupons "serve a purpose." Among them were new product introductions, isolated short-term promotional opportunities, matching the competition and reaching a targeted consumer base.
He argued that those uses do not justify why "manufacturers invest 90% of their consumer promotion dollars in coupons. That figure excludes trade promotion dollars."
Shad said that with consumers "drowning in coupons," their usage is limited by three key factors: the time to sort, clip and collate; less financial need in an improving economy, and other value options such as private label and alternative retail channels.
He also presented findings based on P&G consumer research that suggest the earlier accepted profile of the heavy coupon-using consumer may no longer be accurate. "Our previous belief was that our best coupon customers came from large households, had higher incomes and spent more on groceries, and were in their peak consuming years due to family responsibilities," he said.
Shad said that in gathering newer data on best customers, P&G focused on those people who redeem a large number of coupons in a year. Those heavy coupon users, it turns out, had an unexpected profile.
"The heaviest coupon users have time to burn and are often on a fixed income," he said. They tended to come from smaller households, be older than 55, and be in a higher income bracket, typically above $25 thousand per year.
"Light" users, on the other hand, tend to come from larger households of five or more members, in which the head of the household works full time. Single-parent and minority households also fit the light designation.
Why are these consumers redeeming fewer coupons? Shad said that P&G's research turned up that they have less time, are taking advantage of noncoupon value opportunities such as club packs, and are harried and forget to bring the coupons. In addition, P&G asked consumers what attribute they found most important in supermarkets, Shad said. Top of the list was "everyday value," cited by 24% of respondents. Convenient location had a 21.4% top rating, and service was third, cited by 15.5%.
"Does a coupon enhance value?" Shad asked. "Our study showed that less than 40% of coupon dollars spent by manufacturers get into the consumers hands."
Adding together costs associated with the production and distribution of coupons ($2.065 billion per year), store handling costs ($450 million), lost sales ($228 million), environmental costs (1 million trees and 125,000 of paper disposal annually) yields total system costs of about $2.7 billion per year, exclusive of redemptions, Shad said.
Shad said that $800 million in misredemptions, if accurate, represented a rate of 20%, not the 8% widely accepted in the industry.