PUTTING COUPONS IN THEIR PLACE

RICHARD TURCSIK

The future of couponing is right on target.

Brand marketers are making more use of retailer frequent shopper data bases and targeted programs developed by clearinghouses, direct-mail and freestanding insert distributors. Many are folding in their own sales and ZIP code data to better target current and potential customers.

At the same time, they are trimming back overall distribution and trying alternate coupon media with higher redemption rates, all in the hopes of improving the return on their coupon investments.

"The targeted coupon is an up-and-coming technique to lower overall distribution while increasing redemption," says David Schames, president and chief executive officer of B&M Processing Corp., a South Windsor, Conn.-based coupon processor.

"Targeting couponing is very important and is where the industry is going," says Karl Maggard, executive vice president of marketing at Catalina Marketing Corp., St. Petersburg, Fla., which specializes in highly targeted, purchase-triggered coupons.

"Interest in mass-distributed coupons is declining and, conversely, interest in targeted and electronic coupons has grown dramatically. Our business grows 20% to 30% per year, by and large, and that has proved that our clients are getting more and more interested in targeting," Maggard says.

"Targeted coupons are becoming a bigger sector of the coupon industry," agrees Jane Perrin, senior vice president of marketing at NCH Promotional Services, Lincolnshire, Ill.

She cites NCH figures that show that direct mail's share of total coupon distribution dipped slightly in 1995 to 2.7% from 3.2% in 1994. However, direct-mail redemption rates increased year to year from 3.2% to 3.7%. "While there have been some declines in direct mail, it is not in the real targeted programs. The declines were in the general national drops. The direct-mail companies that have specific lists, sending baby food coupons to households with babies, for example, are showing growth," Perrin says.

NCH's numbers also show a shift toward in-store handouts, which accounted for 6% of total coupon distribution in 1995, up from 5.3% in 1994.

"FSIs are becoming more targeted and people are literally looking into which newspapers and demographic areas of which markets they should be in," Perrin adds. In 1995 FSIs accounted for 83.3% of all coupons distributed, up from 82.3% in 1994. Redemption rates for Sunday newspaper FSIs hover at 1.4%, compared with 1.5% in 1994.

She adds, "Brand marketers are thinking twice about national drops and saying, 'Where do I want to go?' 'What is my competition doing?' and 'How do I counteract what my competition is doing?' And in-store coupons are more targeted. We're seeing a growth in all of in-store."

These questions are being faced because "broad- or mass-distributed coupons are not as effective or efficient as they were 10 years ago when redemption rates were about 3.5%, compared to under 2% today," Maggard adds.

Richard Furash, national practice director of consumer businesses at Deloitte & Touche Consulting Group, Phoenix, finds changes in the demographic makeup of the country, along with improving technology, are helping to spur the growth of targeting.

"As a result of the development of data bases, marketers are studying and just starting to target their coupon campaigns," he says.

"I'm real enthusiastic about the health of the coupon industry in the future, primarily because as long as there are companies with marketing budgets and marketing people with creative minds, they will find a way to reach the consumers," Furash adds.

One of the firms leading the way in coupon targeting is Spectra/Market Metrics, a Chicago-based marketing firm that specializes in consulting, software and data bases for geodemographic targeting.

"The whole idea from our perspective is to develop much greater efficiency in terms of cost per target household reached. This allows people to do a much more effective job, because they are not spending dollars on inefficiently delivered couponing. If coupons are effective for you, you can focus your resources where they can do the most good," says Jim Hertel, senior vice president of client service.

"In targeted couponing we have newspaper delivery areas that are profiled both in terms of the households, as well as readers by our neighborhood classification schemes. And we've got third-party syndicated data bases or mailing lists, such as [Donnelley Marketing's] Carol Wright, that are also classified back against the neighborhood and household classification scheme," he explains.

"We can now profile freestanding inserts, household by household, relative to a Carol Wright list, or ZIP code by ZIP code relative to a Carol Wright list," Hertel adds.

Spectra/Market Metrics counts more than 70 top consumer companies as its customers, including H.J. Heinz Co., Pittsburgh. Marion Millrod, manager of promotion and advertising services at Heinz, said the consumer products giant targets its coupons to get the most efficiency as possible from its coupon drops.

"We understand that there are a lot of variables that need to be built into a marketing plan according to the audience being targeted," she says, adding that Heinz targets coupons for all of its products, including baby food.

"We have used targeting not just for coupons, but for special events as well. Our Heinz 57 Sauce has done a couple of summers now of targeted events that would incorporate advertising as well as promotion," Millrod explains.

Pillsbury Co., Minneapolis, also uses targeted direct mail through third-party sources, says Diane Slayton, director of group promotions.

"We primarily use co-op programs with folks like Donnelly [Carol Wright], Larry Tucker, etc. They have the capability of identifying a more finely tuned target base primarily on demographics data, and we will continue to utilize them," she says, noting the costs are prohibitive for Pillsbury to go it alone.

"We haven't found an efficient way to do it by ourselves. It is pretty difficult to pay back a one-on-one relationship on a packaged goods item," she says.

Brand marketers have been quick to embrace targeted coupon delivery vehicles. For example, Advo STARS, a new direct-mail coupon insert that began test markets in the San Diego, Houston and Pittsburgh areas, quickly sold out, with 30 manufacturers and 50 brands involved. Advo STARS is mailed to households once a month as part of Advo's regular Mailbox Values portfolio, which includes weekly circulars from local supermarkets, drug stores and mass merchants.

"We are now selling the national expansion dates for September 1996," says Joe Durrett, president and chief operating officer of the Windsor, Conn.-based direct-mail firm. "We originally thought that we would take a little bit longer, but the people involved wanted to know what the national dates were and wanted to start making some reservations."

"We're going to provide a service for the packaged goods people, with a trade tie-in that makes it superior and at a better cost than solo mail," Durrett says, noting that STARS should help improve the efficiency and effectiveness of participating coupons.

And although STARS has a higher cost per thousand, or CPM, than a traditional FSI, Durrett says its benefits more than make up for the cost differential.

"We know through research that we provide better readership and response through our mail vehicle. As a result, it is a premium product that does receive a better CPM rate," he says.

Because of its effectiveness, targeted direct-mail is becoming increasingly popular with some manufacturers.

In Atlanta, some brand marketers reach consumers via direct-mail through Kroger's Power Pages, an advertising vehicle developed by KRGR Entertainment & Media Network. Kroger's Power Pages is published every two months and is inserted in Value Clipper magazine, which contains ads for local restaurants, shops and services, and is mailed to Atlanta-area households with a median income of $35,000 and above.

"What makes our joint relationship unique is that with Kroger's Power Pages we offer local services and retail combined with national packaged goods to provide a very strong program that is delivered to income demographic selectivity areas," says Ron Ade, general manager of Value Clipper magazine, a division of The Atlanta Journal & Constitution newspaper.

Val-Pak of Manhattan, the New York franchise of Largo, Fla.-based Val-Pak, can microtarget its mailings to as little as 10,000 households with its "shopping center within an envelope" packs of manufacturer coupons and ads for local businesses, merchants, services and professionals.

"So if there is a little supermarket in Manhattan on West 57th St., they can mail within a four-block radius of their location. But in Manhattan, because the density is vertical, four blocks can have 10,000 households in it," explains Rosalind Dubin, president of Val-Pak of Manhattan.

"And since we mail to the households, our product is not just being dumped in a hallway somewhere," she adds.

Karen Schreiner, marketing director in the Oakbrook, Ill., office of Stamford, Conn.-based Carol Wright Consumer Promotions, says she is seeing a greater sense of cooperation between manufacturers and retailers in the development of targeted coupons.

"I do see the manufacturers trying to make peace with the retailers and team up to target the consumer. That helps Carol Wright tremendously because we can radiate around retail stores and do coupons, specific offers and things like that with specific households," she says.

Barry Kotek, managing partner of Retail Systems Consulting, Naples, Fla., finds more manufacturers targeting customers through retailer frequent shopper programs, which, in turn, is spurring the growth of targeted coupons.

"There are some retailers who have really been on the forefront of using their data bases to do direct mailings and targeted mailings in store," Kotek says. "They have done that by taking and cutting out most of their traditional advertising, and instead using their data base."

Kotek says moves by some manufacturers, most notably Procter & Gamble, to eliminate advertising in FSIs is helping to develop direct mail and other more targeted and in-store means of couponing.

"There is going to be a lot more interest on the part of brand marketers to take and try to find other successful alternatives, particularly if this trend to reduce FSIs is successful on the part of Procter & Gamble. Our belief is that a lot of these alternatives will be in-store programs, frequency programs, electronic marketing programs and different avenues to work with retailers on co-promotions in store," he says.

According to Sharon Joyner-Payne, a spokeswoman for CMS Inc., the nation's largest clearinghouse, based in Winston-Salem, N.C., manufacturers are turning to targeted couponing not just to lower costs, but also to obtain analytical information for their promotions.

To assist brand managers, CMS has developed the Geographic Market Analysis Program, or GMAP, which allows manufacturers to examine FSIs on a particular geographic region, down to the newspaper and retailer level. CMS is working with News America and Valassis Communications, the two largest FSI distributors, on GMAP, and each firm has designed a unique coupon processing code to track redemption. News America's additional coupon code is called Access, while Valassis' is known as Horizons Coding.

"That is a real positive in that they are going to be able to see how specific newspapers did. They will be able to target better and be able to determine which newspapers in which areas work best for them. With some initial results we have gotten back we have seen that redemption rates for one offer can vary from 0.4% to 11%. That is really going to make a difference," Joyner-Payne says, adding that 14 additional manufacturers recently signed up for the one-year-old GMAP service.

Dawn Northrup, FSI product manager at Livonia, Mich.-based Valassis, says while manufacturers are interested in targeting, they are not taking advantage of the many targeting capabilities offered within the FSI.

"Some of the targeting capabilities that we are seeing range from basic targeted market lists and simple demographic rankings of newspapers among families and markets with a higher propensity of young children; among age, income and urban/rural distinctions," she says.

"We have a targeting department that can help manufacturers rank their markets and newspapers along that line, at no more costs than what they are using for their regular FSI promotions," Northrup notes.

Al Ovadia, president of News America, New York, said his FSI firm is moving toward target couponing at the request of its customers.

"Ours is mass vehicle. Because it is delivered mass vehicle instead of direct to the consumer, the targeting becomes more by region or zone or community as opposed to by the specifics that you would get through a direct-mail opportunity," he says, noting that FSIs still offer a "significant bargain for our clients."

Ovadia says News America expects to become more involved in targeting.

"As the company moves forward and as more clients begin to focus on targeting, we will definitely be in that arena more likely than not as an ancillary business to our core business."

In addition to direct mail, coupons that target customers in the aisles are also on the rise.

"You want to be at the point of decision and influence the shoppers as they are shopping the shelves," says Jon Rubin, vice president of marketing at ActMedia, Norwalk, Conn.

"We're seeing manufacturers getting more sophisticated in choosing the offer by clusters of stores. It can be as simple as markets, by looking at low-development markets vs. a high development, to literally looking at store clusters based on the Spectra/Market Metrics and clustering or putting different incentives in different clusters," he says.