P&G ZERO COUPON TEST DRAWS INDUSTRY SCRUTINY

JAMES TENSER

BUFFALO, N.Y. -- Brand marketers and coupon industry executives have their sights locked on Buffalo, Rochester and Syracuse, N.Y., as Procter & Gamble begins its zero-coupon experiment here.

Most insist fears of the demise of coupons are unfounded. But all acknowledge that the test could trigger long-lasting changes in how promotions are done.

"This is a major initiative, which has been very well-received by the trade," said Burt Flickinger, director at Management Horizons, New York. "Tops, Wegmans, Quality Markets and Fleming's Jubilee are all on double or triple coupons. These are some of the most sophisticated retailers in the country with some of the lowest price points in categories that P&G competes in."

Flickinger said the current test echoes a similar trial P&G's soap sector floated in the same markets in the 1988-1989 time frame, but with a big difference. This time, P&G is working top-to-top with the retailers; last time, field sales took the proposition to the buyers.

"The buyers said 'ho-hum' and it went by the wayside," Flickinger said of the prior attempt.

This time, he said, the deck appears stacked in P&G's favor. "P&G has got more divisions and brands participating, which is a major plus. Also, double and triple coupons have really driven some margin erosion up there. From a trade standpoint that is a key initiative."

"I suspect this is being driven by the trade," said another observer. "P&G will save some money, but the retailers spend so much on double and triple coupons that they will be happy to see it go."

The idea for the test may actually have originated with Wegmans, this observer added, since the retailer has had to pay the added redemption costs out of its own profit margins. Elimination of P&G's coupons would add a significant fraction to the retailer's bottom line, he reasons.

Added Don Stuart, a principal of Cannondale Associates, Wilton, Conn., "It plays right into Wegmans' and Tops' hands. They want to try new things and be in control of more marketing dollars."

He added, "These retailers would like nothing more than not to have to deal with coupons."

Both Tops and Wegmans have issued statements of support for P&G's test, but no retailer has taken credit for initiating the idea.

"One thing we all need to do is step back and look at the big picture," said Lynn Liddle, vice president of corporate communications at Valassis Communications, Livonia, Mich., a major freestanding insert publisher. "Coupons are 100 years old. Now we have a single announcement of one test, and the marketing community has a kneejerk reaction."

She added, "P&G's decisions are not made in a vacuum. If there are no more Tide coupons, the second and third brands may step in."

"P&G said it would get rid of most coupons when it went to value pricing in 1992," added Paul Kelly, a principal of Silvermine Consulting, Westport, Conn. (Indeed, P&G has stated that its couponing levels are presently about half what they were at that time.)

Will P&G's competitors step up in response? "That's what I would do," said Kelly. "P&G probably feels that if they pull this off the economies of scale will crush the Colgates of the world." "We too are going to be watching," said Sharon Joyner-Payne, vice president of CMS Inc., Winston-Salem, N.C., a coupon processor. "We have called a couple of our clients. They think [P&G's experiment] may be innovative too. They also said they wouldn't stop couponing any time soon."

"Consumers like coupons. They wouldn't have lasted 100 years if they didn't," said Jane Perrin, executive vice president of NCH Promotional Services, Lincolnshire, Ill.

"This is a smart move by Procter, one which they can measure," said Stuart, who applauded the company's choice of market for the test. "They should gain valuable learning. It is pretty close to the perfect test."

Perrin of NCH said she agreed that the test would be highly measurable. She is looking into ways to use her company's resources to study what happens in the Buffalo-Rochester-Syracuse markets during the next several months.