Cutting through the Clutter of Couponing

On its face couponing would seem to be easy. It’s just a coupon, right? In reality fraud and a convoluted payment chain create complications. Ever evolving barcode standards add complexity. Digital channels present fascinating opportunities for marketers – but they require learning the intricacies of a new way of doing business.

This white paper is intended to be a basic introduction to couponing for manufacturers. Specific manufacturer, retailer or clearinghouse practices may vary.

Why Use Coupons?

Some common reasons to run a coupon program are:

  • Encouraging Trial – It could be a new product or an attempt to upsell an existing product.
  • Brand Switching – Entice customers of the competition to try a product.
  • Build Loyalty – Consumers might need to purchase a product multiple times before becoming a loyal customer. A coupon program (perhaps with declining value over time) can generate those habit-forming sales.
  • Market Research – A well-designed coupon program can help determine price sensitivity or other needed data.
  • Track Marketing Vehicles – A coupon can be encoded to track redemptions by vehicle. Vehicle effectiveness can then be measured and ad spend adjusted accordingly.
  • CRM Tool – A coupon can be provided as an enticement to subscribe to newsletters and provide useful marketing information. Online often uses this technique.
  • Retailer Support – Gaining shelf space can be problematic. A strong coupon program can be quite helpful in convincing retailers to stock a product

Distribution Vehicles

Coupons are found in a variety of formats and delivery sources:

  • Free-Standing Insert (FSI). Once found just in Sunday newspapers, these coupon “books” are now also delivered via direct mail and weekly papers.
  • In-Store. Coupons found throughout a grocery store, such as:
  • On-Pack & In-Pack. On-pack coupons are found on the package. The package must be opened to retrieve an in-pack item. On-pack may be designed to use at the time of purchase (“instant onpack”) or affixed so it must be redeemed at a later date. Typically instant on-pack coupons are peel-off; care should be taken in production to ensure they do not stick together in the cash drawer.
  • Shelf talker, Coupon Machines (“Blinkies”). These coupons are placed near the item, but not directly on it. Placement and servicing usually is handled by a third-party marketing organization.
  • Targeted promotions. These coupons are driven by purchase history tied to a loyalty card. Within a store they can be provided at checkout or via a kiosk. They can arrive via direct mail or email.
  • Customer service. Brands will mail high-value coupons to consumers contacting them with a product complaint. Because of the high value, brands should employ stringent fraud control procedures, including the use of a hologram.
  • New Media. Coupons delivered via new media can be divided into two types: Those that eventually result in a printed item and those that always remain digital.
  • Consumer printable. The most common new media technique, these are coupons found on a website and then printed out by the consumer. At that point they are just like any other coupon and follow the standard redemption process.
  • Mobile & Loyalty Card. The latest technique completely avoids any physical media – the coupons remain digital from start to finish. Consumers “load” a discount onto a frequent shopper card or
  • Smartphone. On a phone a barcode could be displayed and scanned at checkout. Data must be transmitted for reimbursement to occur. Some manufacturers accelerate retailer reimbursement for pure digital coupons.

Certain types of coupons must be delivered to each location and placed on the items, for example a “neck hanger” designed to go on a bottle of olive oil. The logistics of how the coupons are printed and then distributed is an important consideration when choosing the couponing vehicle.

Robinson-Patman

A variety of laws affects couponing. One of the most significant is the Robinson-Patman antitrust act. Consult counsel for specifics on this act and other legalities. In general, it guides decisions about when a coupon can be good at a specific retailer versus good at any retailer. Section 2(d) is particularly relevant. In summary, it states that it is unlawful for any person engaged in commerce to pay anything of value to a customer unless such payment is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.

Proper Coupon Design

Proper coupon design makes it easier for consumers to identify and understand the offer. Design must be balanced with the limited available space (a coupon is a relatively small item). Good design helps retailers process the coupon as efficiently as possible, reducing checkout delays. And it helps to lessen and detect fraud. Important elements of coupon design include:

Expiration Date.
All coupons must have a prominent expiration date. The expiration date should  correspond to purchase cycles. Items with shorter purchase cycles should have a short time horizon;  make it longer for items with a longer purchase cycle.

Consumer & Retailer Instructions.
For the consumer provide general information guiding redemption including actions that will void the coupons – such as altering or copying. For the retailer provide  general information about how to receive reimbursement.

  • Consumer Instructions Example
    CONSUMER: Limit one coupon per purchase on specified product. Void if reproduced, transferred, or altered. Any other use constitutes fraud. Valid only in the USA. Void where regulated or  prohibited. Consumer pays sales tax. Cash value 1/100th of 1¢.
  • Retailer Instructions Example
    RETAILER: Manufacturer Name will reimburse the face value of this coupon plus 8¢ if submitted in compliance with our redemption policy previously supplied to you and available upon request. Send to address. Invoices proving purchase of sufficient stock to cover coupons must be provided on request.

Send To Address
The retailer or retailer clearinghouse will mail your coupons to this address for  processing. Do not modify this address. Modifications will delay processing, creating a potential payment issue with your retailers.

Product Image.
Always include a product image on each coupon. It makes it easier for the consumer
to locate the product on the shelf. If the coupon is good on multiple products show as many products as possible

Offer Details.
Use clear language in describing the couponed products. Mention size and variety. The language must be clear to the consumer and to the retailer.

Purchase Requirements.
If more than one item must be purchased mention the minimum purchase requirements prominently, as in “Save $1.00 on TWO”.

Free & High-Value Coupons
Be judicious in the use of free and large values, these are more likely to  generate fraud. State a maximum value if the coupon is for a free item. This provides guidance to the clearinghouse and helps reduce fraud from overcharging. Include a “Selling Price” blank line on free coupons. The cashier will enter the actual selling price on that line. When possible use a hologram.

Coupon Redemption Policy

Maintain a written coupon policy and provide it to retailers and clearinghouse. Reference this policy on all coupons.  A typical policy will be three to five pages long. It establishes a host of rules governing reimbursement such as:

  • Grace period. How long past expiration reimbursement consideration will be allowed.
  • Processing Time. The time needed to make a payment determination after coupon receipt.
  • Payment Terms & Amounts. Items that are, and are not, eligible for reimbursement and the amounts that will be paid.
  • Proof of Stock. A statement that additional documentation may be required for payment.

Barcodes

BARCODES speed up processing, reduce errors and help with fraud detection. Barcodes include “human readable” elements so retailers without scanners can still process the coupons and enable processing a coupon with a damaged barcode. Barcodes are important not just to the retailer, but to the retailer clearinghouse and to the manufacturer clearinghouse. They should be used in all cases. Specifically, a GS1 databar always should appear. The EAN is an outdated barcode that should no longer be used. In most cases a UPC is no longer needed on a coupon as the GS1 now can be scanned at nearly all retailers. Lack of a barcode could lead to the imposition of “hard to handle” fees.

Coupon barcodes do not identify a specific item. Instead, the product is identified at the “Family” level. Ensure that the Family Code used in the barcode is the proper Family Code and that it covers all items mentioned in the coupon text.

The Offer Code specifies the particular promotion. The Offer Code is part of the barcode and it is a human readable element. A new Offer Code should be generated for all new promotions. Recycling Offer Codes complicates the clearing process, adds processing time and creates the potential for late charges and retailer chargebacks. It also makes it harder to generate and interpret reports.

Before distribution, consider printing the barcode on sample paper and testing it to ensure it scans properly. Poor paper choice can cause bleeding; bad contrast can make it hard for the POS to read the barcode. Barcodes that cannot be scanned will result in extra fees.

Family Code Management

FAMILY CODE MANAGEMENT is an essential aspect of couponing. All coupons must have a manufacturer generated Family Code. That Family Code is part of a structure that must be designed and communicated to retailers. New products must be added to the structure and the update sent to retailers.Family Codes are a three-digit code only used in couponing. They are not part of product packaging. The Family Code allows the coupon to be used on an array of product sizes, flavors, colors, varieties, etc. For example, the coupon may state “good on 14.5 oz or larger package”. Each Family Code is associated with
one or more product UPCs.

All items have a unique UPC. The barcode on a 14.5 oz package will not be the same as the barcode on the 16 oz package. A 500 ml bottle of root beer will not have the same UPC as a 500 ml bottle of orange soda. The Family Code structure combines like items together in a hierarchy. Manufacturers determine what “like items” means.
For example, a (simplified) structure for the soda line within a company may be:

  • 200 – All soda.
  • 210 – All root beer.
  • 212 – Diet root beer.
  • 218 – Diet root beer, 2-liter or larger.
  • 220 – All cola.

If that company adds a line of snack chips, the UPCs for all the chips must be assigned to at least one new Family Code and that update sent to retailers. Chips should not be made part of the 200 series – that is used for soda.

There are many nuances to Family Code management including codes that are not allowed and codes that are reserved for specific purposes.

How Everyone Gets Paid

Typically the retailer clearinghouse pays the retailer after processing. The retailer agent then submits the coupons to the manufacturer clearinghouse (or manufacturer if self-clearing) for reimbursement. If not paid within the allotted time, the retailer agent will reverse the transaction. The retailer agent also will rescind funds denied payment by the manufacturer agent – for example due to fraud.

General Chain Store Coupon Processing Cycle

After a consumer redeems a coupon the cashier places the coupon in the cash drawer. At the end of the shift the coupons are separated from the cash and checks. Eventually – perhaps once a week – the coupons from all the locations are sent to corporate. The shipment should include documentation on the quantity and value.

After a while – often measured in weeks – HQ will send the coupons received from all the locations to a company that acts as a clearing agent for that retailer. The retailer agent will divide the coupons by manufacturer and count them. The agent deposits funds into the retailer’s bank account. The agent expects to get reimbursed by the manufacturer or manufacturer’s agent. If reimbursement does not happen within the allotted time, that deposit will be rescinded. Some major retailers do not choose to use an agent and instead do the clearing themselves.

Each set of coupons is then sent to the address on file for that manufacturer. This is usually a manufacturer’s agent although some manufacturers do their own clearing. The manufacturer’s agent has
these goals:

  1. Enforce the manufacturer’s redemption policy
  2. Conduct retailer verification
  3. Perform mis-redemption review (fraud, counterfeit, etc.)
  4. Count the coupons correctly
  5. Process the payment – if any – within the time period outlined by the manufacturer
  6. Supply needed data and reports.

It can be far simpler at a sole proprietor. In that case the owner may just let the coupons pile up in a box. Eventually, the owner will sort the coupons and send them directly to the address printed on the coupon, avoiding using a relatively costly clearing agent.