Digital Deals

MICHAEL GARRY

“The future is already here — it's just not evenly distributed,” said the science fiction writer William Gibson, who coined the term “cyberspace.”

That characterization may well apply to “digital coupons,” found online and increasingly on mobile phones. They represent anywhere from 0.5% to 5% of all coupons, which are still dominated by the paper coupons typically distributed through newspaper freestanding inserts (FSIs).

But with the decline of newspaper readership and the emergence of the Internet and the mobile phone as mainstream communication vehicles, retailers and marketers are gravitating toward distributing coupons in digital form.

“Digital couponing is small, but it's growing fast, especially among young adults,” said J.P. Beauchamp, senior vice president, consumer and shopper insights division, Information Resources Inc., Chicago, during an SN-hosted webinar last month. “They are interested in receiving offers, but in the environment they are comfortable with — the digital environment. It's important for marketers to be in every space that they're in.”

In the first half of 2009, about 10 million digital coupons were redeemed, up 25% from the previous year's first half, according to Inmar, Winston-Salem, N.C.

Vijay Chetty, president of ScanAps, Los Angeles, believes that in the next five to seven years, 25% of all coupons will be digital.

“Generation Y doesn't want to cut out paper coupons,” he said last month at the LEAD Marketing Conference in Rosemont, Ill.

Because of their more targeted nature, the new breed of digital coupons typically trump paper coupons in redemption rates, often reaching double digits, compared with the 1% or lower rates achieved by FSI coupons. Getting rid of the paper can also simplify the reimbursement process for retailers.

But the methods for redeeming online and mobile coupons at the POS are still evolving as retailers try to make the redemption process as seamless and fraud-proof as possible.

ELECTRONIC ENVIRONMENT

Marsh Supermarkets, Indianapolis, has been exploring various forms of digital communications to shoppers over the past year, including mobile offers, email blasts, social media, online advertising and website coupons. “We are creating an environment that easily enables consumers to engage Marsh electronically,” said Mark Heckman, the chain's vice president of marketing, who also spoke in the SN webinar.

Marsh has been running a modest Marsh Mobile marketing program, in concert with SmartReply, Irvine, Calif., for about two years. The program has attracted a “small but loyal group of customers,” said Heckman, who put the number at about 5,500. They simply text “JOIN” to Marsh, which allows them to receive text messages on the chain's weekly specials and to enter sweepstakes.

Marsh Mobile shoppers also get sent an occasional special offer that can be downloaded to a loyalty card and redeemed at the checkout. Response rates to these offers range between 20% and 25%, said Heckman.

In marketing its mobile program, Marsh has targeted younger shoppers, particularly the collegiate crowd, who are more conversant with the digital world. Heckman said he has experience in his own family with the cell phone habits of the young. “I'm the parent of a 22-year-old senior in college who has never read a supermarket newspaper ad but is a master of text messaging.”

To engage students, Marsh established a student club in which members can save 10% off a Saturday shopping trip; 25% of the student club has signed up for the Marsh mobile program. In other promotions, students can text an entry to a $1,000 scholarship sweepstakes, while country music fans can text entries to win a trip to a Kenny Chesney concert. These “text to win” shoppers often end up subscribing to the Marsh mobile program, said Heckman.

While some of Marsh's mobile offers can be downloaded to a shopper's loyalty card and redeemed at the POS, other retailers have been more proactive in this regard. Shoppers at Safeway and Kroger, for example, can access coupons from Cellfire and Shortcuts.com via their mobile phones, and download them to their loyalty cards. But downloading mobile offers to cards is not the only way to redeem them.

For example, in June, Unilever and Samplesaint ran a mobile couponing test at a ShopRite store in Hillsborough, N.J. In this test, cashiers used a handheld digital image scanner to scan the bar code of the coupon displayed on the phone's screen.

This month, Coupons.com began offering a free application for the iPhone that allows shoppers to print out coupons. (Safeway shoppers are able to download them to loyalty cards.) At the end of the year, Coupons.com's coupons will also be incorporated into the GroceryIQ list-making iPhone application, which Coupons.com acquired in January.

The new Coupons.com iPhone application includes a “Show & Save” feature that allows shoppers to save an electronic coupon to their phone from any of 17,000 local retailers and service providers such as restaurants and dry cleaners. To redeem these coupons, consumers display them on their cell phone at the retailer.

High-volume retailers such as supermarkets will not be among the retailers featured in “Show & Save.” That's because Steve Boal, chief executive officer, Coupons.com, strongly believes that presenting a cell phone coupon at the POS of those retailers for scanning or manual entry of a code could interrupt the checkout line. He pointed to the potential for reception problems, or phones that have to be turned on. “If somebody's phone rings, even if that costs you 10 seconds, it's a killer,” he said. “Moving people through the checkout is job No. 1 for a high-volume retailer.”

Cell phones will be compatible with high-volume checkouts, Boal added, when near-field-communication (NFC) between phones and checkout systems become widespread, probably not for another three years.

But one vendor — Tetherball, Indianapolis — is offering to seamlessly link mobile phones to the POS today via an RFID solution. Shoppers affix a tiny RFID chip to their phones, creating an invisible connection to RFID readers at the POS. Offers texted to the phone can be redeemed and tracked through this system, which is being tested by some International Dairy Queen franchisees.

Earlier this month, Vivo-tech, Santa Clara, Calif., and Tetherball announced that Vivotech's readers, which process contactless credit cards at thousands of retail locations, are now able to read the Tetherball RFID tag. Food retailers equipped with Vivotech readers include Whole Foods, Meijer and ShopRite.

MARSH MAIL

Another electronic means of delivering coupons is email. Marsh runs a Marsh Mail email program in which shoppers can opt to receive a weekly e-newsletter featuring coupons, previews of ad items, contests and other information. One emailed coupon offer for a free 2-liter bottle of Coke drew a 20% response from subscribers, Heckman said. In general, 20% to 25% of subscribers at least click on an offer to examine it.

Marsh's email program currently has 75,000 subscribers, and Marsh would like to boost that number to 100,000 — about a fifth of the chain's weekly shopper base. “We would like to achieve critical mass with email distribution so it can be a viable alternative to traditional venues,” he added.

Marsh segments its email subscribers into eight categories, from “ultra loyals” to those who spend pennies of their grocery dollar with Marsh. The segmentation “helps us understand how to communicate to them, make offers and measure the response,” said Heckman.

Email subscribers who are also loyalty card holders can download the coupon offers to their card and redeem them automatically at the POS; this is made possible by Marsh's Copient targeting system. To date the chain has been offering only its own online coupons for downloading to a loyalty card, but it plans to offer manufacturer coupons as well. “This is an opportunity to drive value to the card,” Heckman said.

Marsh also employs banner ads on local websites, such as an ad for free prenatal vitamins on the Lafayette (Ind.) Moms site. An ad on a local news site invited shoppers to click for, and then print out, a $5-off coupon on a trip of $30 or more. The redemption rate of such offers, once activated, is 30% to 50%, said Heckman. “It's an excellent way to drive traffic to stores.” Marsh is working to make these coupons downloadable to loyalty cards, which has been possible on a limited basis.

Facebook and Twitter are two more avenues for Marsh offers. The chain has about 4,000 “Facebook fans” who can access special offers and early views of weekly specials. This venue has not been without some challenges; in August, Marsh had to pull a $10 coupon off its Facebook page because the coupon was being copied and distributed in an unauthorized manner.

On a scale of one to 10, Heckman said Marsh is only at about three or four when it comes to online and mobile marketing. “We'd like to make gargantuan progressive steps going forward,” he said, such as becoming more targeted in mobile and Web offerings.

LEVERAGING CARDS

As with mobile and emailed offers, the trend for redeeming online coupons is to download them to a loyalty card so they can be automatically processed at the checkout.

In attempting to leverage loyalty cards as the vehicle for redeeming its digital coupon offers, Marsh is pursuing a cutting-edge course used by Kroger, Safeway and others.

Safeway's website includes a CouponLink section where shoppers can download coupons from Shortcuts.com, Cellfire, Coupons.com and Procter & Gamble's P&G eSaver onto their loyalty card. Coupons.com also allows shoppers to print coupons. Kroger's site offers the identical options except that Coupons.com coupons can only be printed.

Boal said six more retailers beyond Safeway will feature Coupons.com's “Save to Card” functionality on their websites in the first quarter of 2010.

Other retailers offering online coupons on their websites that can be downloaded to cards include ShopRite (Cellfire), Giant Eagle (e-Offers), A&P (Red Tag online coupons, via Zavers), Lowes Foods (eOffers, via InstaSave) and Pittsburgh-based Shop ‘n Save (E-Coupons, via You Technology).

Another digital coupon system, which is being initially marketed to small independent grocery operators, is ScanAp's Couponbank.com. With this system, shoppers are given their own online coupon account, where they can gather online coupons provided by a retailer and, in the future, by other entities such as CPG manufacturers or sites like Coupons.com. Shoppers redeem the coupons by clicking on the ones they want and then, at the checkout, presenting a loyalty card or another identifier such as a phone number.

The Couponbank system is being tested at Bales Marketplace, a two-store operator based in Portland, Ore. During the test, which began Aug. 15, about 30 employees and a few customers are trying out the system. Bales plans to open it up to all shoppers on Dec. 7, said Stacy Brown, POS and new programs manager at Bales.

Apart from a few minor technical glitches, “the pilot has been going well,” said Brown, who spoke at the LEAD conference last month and more recently with SN. “People are using it and it's working.” The Couponbank system interfaces with Bales' ISS45 POS system, and the stores have kiosks where shoppers can access their accounts. Initially, shoppers will receive only Bales coupons via the system. Manufacturers are waiting to see how the system works before offering their coupons, she said.

During the first few weeks of the launch, Bales will locate trainers at the kiosks to explain how the system works. Cashiers will promote the system and receive incentives for getting shoppers to sign up. “The cashier can have a big influence on getting people involved,” said Brown.

Bales plans to use the Couponbank to strategically target offers. “If I see Mary buys a lot in the deli, I can drop a coupon in her account for $5 off her next deli order,” said Brown. “If we have overstock, we can drop coupons in the Couponbank.”

Brown believes Couponbank will make it easier for shoppers to use online coupons. “If you go online for coupons, it seems like you get sent in circles,” she said. “You have to load your printer. It's complicated.”