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Coupon Craze Causing Marketers to Rethink Discount Strategies

2011 was a record-breaking year for coupon distribution, and 2012 is poised to follow suit. Marketers are flooding the marketplace with coupons in an attempt to reach today’s value-centric consumer, explains Suzie Brown, Valassis CMO.

What’s really on the rise is couponing of the extreme variety—a phenomenon that runs counter to the notion of coupons as loyalty builders. As couponing emerges as a cultural pastime—a hobby for many and a full-time endeavor for some, as illustrated on TLC’s Extreme Couponing, which “follows savvy shoppers as they plan and plot their way to unbelievable savings”—the traditional benefits of couponing, such as incenting trial to build customer loyalty, have become all but extinct. Ultra-price-sensitive consumers effectively refuse to pay full price for brand-name products. To maintain loyalty and avoid being usurped by private-label products, brands are forced to creatively discount their products to maintain customer interest.

Brands aren’t the only entities rethinking their promotion strategy to maintain relevance to the coupon culture. Retailers who have previously steered clear of coupon promotions—such as Walmart, which preferred to reinforce their “Everyday Low Price” message—are now jumping back in the game, likely due to customer demand. Walmart revisited, and significantly relaxed, their coupon policy in 2011 and released an updated version that can be found on their website.

Further embracing—and strategically leveraging—their audience’s affinity for incremental savings, Walmart.com now offers a digital coupon interface, powered by digital coupon giant Coupons.com. Walmart-appropriate Coupons.com offers can be downloaded and printed directly from Walmart.com. While the vast majority of these coupons are manufacturer-issued (meaning they can be used at any retailer), the Walmart.com shopper is automatically predisposed to using the coupons at Walmart, capturing a disproportionate share of the redemption for the retailer.

With over 22 million unique visitors each month and growing, Coupons.com boasts higher traffic than its competition—of which it has no shortage. Digital coupon programs are responsible for sustaining, and exacerbating, coupon habits created during the most recent recessionary period. While traditional coupon vehicles, such as FSIs, are beginning to report declining redemption rates overall despite the massive increased brand activity, digital coupons are redeeming at 22.5 times the rate of printed FSIs, more than making up the difference.

Daily deal coupons sites, such as Groupon and LivingSocial, have contributed heavily to the cultural coupon craze. Relying primarily on viral promotion, these sites offer high-value discounts for things like entertainment and event tickets, electronics and dining. Despite a 110% increase in traffic in October 2011 over the previous year and significant reach (Groupon has over 142 million subscribers in 500+ markets, while LivingSocial has 34 million members in the U.S. and 46 million worldwide), the sustainability of these sites is uncertain. Close to 80% of deal purchasers are new customers, and trends are beginning to emerge showing that, over time, significantly fewer users are spending beyond the deal’s value, and they are not returning to purchase at full price. Retailers may turn skeptical regarding the ROI of these promotional opportunities.

Brand and retailer reactions to shopper demands for incremental savings are unsurprising to marketers. Said Brown, of Valassis “For years, we have heard that the consumer is king, and this rings so true today. Shopping and savings go hand in hand.”

Sources:

NCH Marketing Services, Inc. Coupon Facts Report 2011 Alter, Cathy. “What’s the Deal with Daily Deals?” Washingtonian. November 28, 2011.