P&G ENDS THREE-CITY TEST OF ZERO COUPONING

JAMES TENSER / Additional reporting: DAVID ORGEL

CINCINNATI -- Procter & Gamble here said it has discontinued its 14-month test of coupon elimination in Buffalo, Rochester and Syracuse, N.Y., and is "returning to our national marketing plan in these markets."

Popularly referred to as the "zero coupon test," the P&G study has drawn much industry scrutiny since it began in February 1996. The test's premise was the company's belief that broad-distribution coupons are an inherently inefficient way of delivering value to the consumer.

Now the company is calling the study a "success" and says it is evaluating what effect, if any, the upstate New York results will have on its promotional tactics elsewhere.

"We start and stop a lot of tests all the time," said Linda Ulrey, P&G's spokeswoman on the zero coupon test. "We'll look at our learnings and see how to apply them or add them into our national marketing plan."

"Success," in this instance, is defined by P&G in terms of providing some measure of validation for its coupon hypothesis.

"We learned we can deliver good value to consumers without the inconvenience and cost of coupons," said a company statement issued last week.

"Consumers enjoyed consistent, low everyday prices in these markets. In fact, on average, during the test period, consumers paid the same for P&G products without coupons as they did during the year before the test," the statement continued.

But the effect of the 14-month .... coupon hiatus might also be measured in terms of sales volume, profitability, trade response and consumer attitudes, quantities the company would address only in a limited way.

"Across all classes of trade, our business was about flat compared to before the test," Ulrey told SN. She declined to address the test's effect on profits, return on investment or other financial measures.

The company said it believes it won over some consumers in the three cities, who have become accustomed to local supermarkets battering each other with double- and triple-coupon redemption policies. When the zero coupon test was first announced, P&G took some heat about it.

"Certainly there was some initial publicity and comments from consumers about the coupon test when we began it," said Ulrey. "But we've had very few comments and reactions since the test has been ongoing. That may show most consumers have figured out they are ultimately paying for coupons."

One further objective of eliminating coupons, Ulrey said, was to improve shopper convenience. "By having consistent low everyday prices, all consumers benefit without having to use coupons, without the effort of clipping, saving or remembering to use them."

In the 14 months .... which have ensued since P&G's test began, some competing manufacturers reacted to the strategy by withdrawing coupons as well, while others have stepped up coupon activities.

Two significant competitors, Kimberly-Clark and Clorox Co., followed P&G down the zero coupon path for a time, while others in the market chose to use the opportunity to step up coupon distribution in an effort to grab market share.

Their collective actions also attracted the attention of the New York State Attorney General's office, which said it would investigate the situation with respect to consumer protection.

That matter is "still ongoing," said Marc Carey, spokesman for New York State Attorney General Dennis Vacco, in an interview following P&G's announcement.

"While we applaude P&G for reinstituting coupons, and think it's a good thing for consumers, we will continue our investigation into the whole subject," Carey said. "Procter & Gamble was not the only group involved."

The absence of P&G coupons in the upstate markets led to a mixed response by competitive manufacturers, according to Charles Brown, vice president of marketing for NCH Promotional Services, Lincolnshire, Ill., a coupon-redemption and promotion information management company.

NCH analyzed a few categories that P&G participates in to determine couponing fluctuations between 1996, when P&G was mostly not a coupon participant in those markets, and 1995, before P&G began its elimination test.

Brown said NCH's data in those markets indicated that in some categories manufacturers increased coupon distribution while in others they pulled back.

In detergents, for example, including laundry and dish soaps, competitors reduced their couponing by 48% in 1996, when P&G was mostly not couponing, he said. In coffee, however, the competition increased couponing by 93%, "taking advantage of P&G's absence to build share," Brown said.

In the soap category, the competition retreated and coupon activity declined by 49% vs. 1995.

Brown said NCH has generally found couponing can increase sales and consumers are apt to switch brands if the incentive is strong enough. "The question is, can you keep interest up enough to offset the fact that there are no coupon incentives?" he said.