What Happened To The Coupon Clippers Essay

What Happened To The Coupon Clippers. Essay, Research Paper

I. Introduction

Coupons have been a major component of manufacturer and retail trade promotion of products on the shelves of America’s grocery stores for most of the past three decades. From 1970 to 1985 the number of coupons distributed increased from 16 billion to 200 billion, at a compound annual growth rate (“CAGR”) of over 17 percent. However, from 1985 to 1992 the CAGR for coupons dropped to under 7 percent, and in 1993 and through half of 1994 the CAGR for coupons was negative, at -3 percent. Manufacturers have made a major investment in coupons as a promotional vehicle for their products. How have consumers reacted to this investment.

Consumers have reacted by clipping virtually the same number of coupons every year, regardless of how many coupons the manufacturers throw at them. During the period 1985 to 1993 the consumer redemption rates for coupons dropped virtually every year, from 3.25 percent in 1985 to 2.28 percent in 1993. Over the same period the real number of coupons being redeemed has remained static around 7 billion each year. With the flood of coupons on the market why aren’t consumers clipping like they used to. Have the traditional channels for delivering coupons been flooded to the point where consumers just can’t take any more.

Throughout this stagnation period the average face value of coupons has been increasing nearly twice the rate of inflation from 30.4 cents in 1983 to 59.5 cents in 1993. In the past three or four years manufacturers begun to shorten the duration of coupons, to increase their ability to evaluate the performance of coupon programs. Even with a shorter coupon life, there are many more dollars on the table to attract consumers, but they aren’t coming. What are consumers looking for that manufacturers and the trade are not offering.

The traditional method for delivering coupons is direct to the consumer via Free Standing Inserts (“FSI”), Direct Mail, Newspapers, Magazines, In-Store, and On-Pack coupons. Of all of these channels, FSI’s dominate distribution, controlling nearly 83 percent of all coupons. Movement away from FSI’s to alternative delivery channels has been slow and puzzling given the nearly decade long stagnation in consumer redemption of coupons. What are manufacturers and the retail trade doing to stimulate consumer interest in the future.

II. TRADITIONAL COUPON DELIVERY

Typically, FSI’s are the large inserts in the Sunday newspaper, and are the primary method used to get coupons into the hands of consumers. There are many problems with using FSI’s with today’s consumer. Consumers have less time to scan the growing numbers of coupons in FSI’s, they have less time to organize and collate the coupons when making out grocery lists and less time to redeem the coupons while in the checkout line. With more working women, there are fewer women in the traditional family role at home; these women were traditionally the heaviest users of coupons. The United States has not seen a severe economic down turn in the past decade or more, which reduces consumer coupon redemption now, but also will impact the way today’s children, tomorrow’s consumers, use coupons.

FSI’s do not target the specific demographics for the type of consumer a manufacturer wants to reach with its coupons. Research has shown the manufacturer is rewarding current users of its products, and not attracting new users or even new trials of the manufacturers products. The same problems which plague FSI’s also apply to a lesser degree to Direct Mail and In-Ad coupons. There is no way to reach only consumers who have never used a particular product or brand. All the while fewer and fewer consumers are clipping coupons.

Point-of-Purchase (“POP”) coupons, like the dispensers on store shelves, are much more attractive to consumers. POP coupons provide an immediate gratification for consumers and can stimulate consumer impulse buying. The same pitfall of rewarding consumers who already use a product is unavoidable with this type of distribution. Likewise with On-Pack coupons, the manufacturer is most likely rewarding consumers who already use its products. Recognizing these difficulties, many manufacturers and retailers have shifted their promotional strategy to cater to what cost conscious consumers want. Lower prices.

Promotional strategy has shifted in some areas by taking the focus off the occasional discount offered by coupons and going with an Every Day Low Price (“EDLP”) strategy. Using this strategy consumers are assured of getting the lowest price, and there is no need for the consumer to bother with coupon clipping at all. An EDLP approach creates tremendous price competition between manufacturers, making it costly to take market share from the competition using coupons, when margins are already razor thin. Moving in on the name brand manufacturers is an increasingly stronger competitor, Private Label. Private label are retailer house branded products.

Private Label has steadily increased its reputation by improving quality, while almost always providing the lowest prices. Some private label names have been so successful, examples are President’s Choice, Sam’s Choice and Heritage House, that they have nearly the appeal and familiarity of the regular name brand items. The private label brands continue to provide consumers wit