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Coupons: Why Shoppers are Missing Out on 300+ Billion Savings

Based on Inmar’s report, 321 billion coupons were distributed in 2015, but only 2.5 billion were redeemed. In 2016, only 2.2 billion coupons were redeemed. That’s a redemption rate of less than 1 percent.

In fact, coupon redemption rates have been on a decline since 2011.

Image source: Inmar

So, why are shoppers missing out on 300+ billion coupons?

Just a moment… Before we analyze the reasons why, you should understand why this should concern marketers, although customers are the ones losing out.

Low Coupon Redemption Rates Means Poor ROI for Marketers

A study by Nielsen shows that consumer product companies don’t break even on two-thirds (67%) of trade promotions. That’s an incredible loss considering the yearly spend of $1 trillion on such promotions, which include offers, loyalty rewards and coupons.

Obviously, if coupon promotions don’t reach the intended audiences, marketers can’t expect good results from their trade promotions.

Why Coupon Redemption is Incredibly Low

 

Several blatantly obvious errors have contributed to the historically low coupon redemption rates – to the detriment of both consumers and marketers.

1.      Contrast Between Coupon Distribution Methods and Redemption Rates for Different Platforms

In 2015, 89.1% of coupons were distributed as free-standing inserts, yet free-standing inserts made up only 38.4% of the total coupon redemption. On the other hand, coupon distribution through instant redeemable/ IR cross ruff was only 0.9%, but it made up 20.9% of the total coupon redemption.

Even more surprising, free-standing inserts seemed to be the only underperforming coupon distribution method, in terms of redemption rates. And that’s despite it having almost 9/10 of the total distribution allocation.

Data source: Inmar

·         What Retailers Should Do

Retailers can learn a few lessons from the Fraunhofer Institute ‘s bold move to phase out MP3 despite it still being quite popular amongst consumers. That decision was made due to the current availability of more efficient audio codecs with advanced features, compared to the MP3 digital audio coding format.

Even Mark Zuckerberg and his team at Facebook took the bold step to implement News Feed, knowing how valuable it would be to their audience, despite users vehemently protesting against it. The team had seen how this new feature dramatically doubled engagement; hence, potentially more valuable to Facebook users – even if such users may not have realized it at first.

Similarly, retailers can make a radical change in coupon distribution.

Perhaps retailers focus on distributing coupons through free-standing inserts due to their popularity among consumers. However, considering the low redemption rates, this distribution method is proving less viable compared to other methods.

2.      Potential ROI of Different Coupon Distribution Methods

Even just by considering the overall marketing return on investment (ROI) of the various channels, you can clearly see why coupon redemption is so low.

Image source: The Nielsen Company

Although the above statistics from Nielsen was carried out as far back as 2009, it pretty much applies to this day. A relationship is evident when contrasted with coupon distribution methods and redemption rates.

COUPON DISTRIBUTION METHOD 2015 COUPON DISTRIBUTION (percent) 2015 COUPON REDEMPTION (percent) MARKETING CHANNEL ROI ($ profit for each $1 spent)
Free-Standing Insert 89.1 38.4 Newspapers 0.24
Dual Electronic and Paper 2.3 5.1 Co-op program $1.74
Instant Redeemable/IR Cross Ruff 0.9 20.9 In-store programs $0.84
Electronic Checkout 1 7.9 Promotions $1.19
Direct Mail 1 4.3 PR $1.05 (short term), $0.85 (long term)
Shelf Pad 0.3 5 TV Advertising $0.94 (short term), $1.22 (long term)
Handout 0.9 3.5 Outdoor ads $0.34
Internet 0.3 3.2 On-line ads $2.18
Electronic Discount 0.3 2.5
In-ad, Magazine On-page, Magazine Pop-up, Other 3.9 9.3 Magazines $1.12 (short term), $0.45 (long term)

 

The poor performance of free-standing inserts (FSI’s), which are typically placed in newspapers or magazines, may be related to the fact that newspapers possess the lowest ROI.

Instant redeemable coupons, which are on-pack coupons, probably benefit from the ROI of both in-store programs and promotions. Also, since online ads have a high ROI, internet coupons could potentially produce higher redemption rates if they had a greater share of coupon distribution.

·         Marketer Preaching Water but Dying of Thirst

Recently, President Donald Trumps’ meet-up with Saudi Arabia’s King Salman came under serious scrutiny from the ever-vigilant eyes of US citizens. Since President Trump had criticized former President Obama in the past for bowing to the Saudi leader, it was quite a spectacle to see Trump go one step further to curtsy.

It’s just as embarrassing to see that marketers aren’t making good deals on their promotions, yet such promotions are aimed at helping customers get good deals.

3.      Mismatch Between Coupon Distribution by Marketers and Coupon Discovery by Customers

Any smart marketer would target coupon distribution through the methods customers commonly discover such promotions. However, there seems to be a mismatch between common customer discovery methods and coupon distribution methods.

 

COUPON DISTRIBUTION METHOD 2015 COUPON DISTRIBUTION (percent) TOP 5 PLACES WHERE SHOPPERS REGULARLY DISCOVER COUPONS
Free-Standing Insert 89.1 43% Inserts from the Sunday newspaper
42% Found in store circular
Electronic Discount 0.3 37% Loaded onto my retail store loyalty card/associated with my account number
Instant Redeemable/IR Cross Ruff 0.9 36% Peeled off product package in the store
Internet 0.3 31% Found on a coupon website

Data source: Inmar

 

At least 30 percent of shoppers discover coupons through each of the 5 top channels. However, less than 1 percent coupon distribution is allocated to either electronic discounts (related to retail store loyalty cards), instant redeemable coupons (coupons peeled off product packages), or internet (related to discovery through coupon websites).

4.      Changing Customer Habits

Apart from curbing their mistakes, marketers have to deal with changing customer habits. This can make it incredibly difficult for retailers to accurately target and distribute coupons to the right people.

A study by Millward Brown Digital shows that more than half of marketers experience a challenge in keeping up with consumers’ changing behaviors.

Source: Millward Brown Digital

 

Coupons were once largely targeted at customers with tight budgets. Now, even the well-off are couponing. RetailMeNot reveals that 73 percent of high earners took advantage of a promotion to buy something in 2015.

Such changes are also affecting coupon discovery by customers, with 18-24 year-olds more likely to learn about good deals from friends. This means the promotion strategies marketers use would only reach target recipients through third parties.

Such fluctuating customer habits make the job of retailers more complicated. However, the problem isn’t really changing customer habits, but the inflexible nature of marketing promotions.

·         Why the Problem is Marketers – Not Fluctuating Customer Habits

The way marketers have trouble understanding changing customer habits is much like how English speakers find the Japanese language quite complex. English is highly organized with strict structures on forming sentences, while Japanese is highly flexible. In fact, in Japanese, you can say “I love you” in as many as 248,026 different ways!

After many years in the industry, established marketers develop well-organized and clearly structured systems of executing promotions. Unfortunately, their well-organized, regimented and systematic methods aren’t in tune with the highly flexible, constantly changing habits of customers.

So, marketers are always trying to keep up with what clients are doing.

·         The Solution Starts With Eliminating Stereotypes

Fortunately, marketers can learn several useful lessons from the process Duolingo, a language-learning platform, used in helping English speakers learn Japanese effectively.

The Duolingo team realized that English students wouldn’t fully comprehend Japanese just by learning the Western alphabet representation of Japanese sounds, called romanji. Instead, they teach the basics of the actual Japanese writing system, which includes all Hiragana characters (approximately 50), all Katakana characters (50), and 88 basic Kanji (Chinese) characters.

How does this apply to marketers?

Well, even marketers have certain representations of their target clients, as seen in such terms as Millenials, Baby Boomers, Generation Z…

 

Generation Name Approximate Births Start Approximate Births End
Lost Generation/ Generation of 1914 1890 1915
Interbellum Generation 1901 1913
Greatest Generation 1910 1924
Silent Generation 1925 1945
Baby Boomers 1946 1964
Generation X (Baby Bust) 1965 1979
Generation Y/ Millennials/ Gen Next 1980 1995
Generation Z 1996 2010
Gen Alpha 2011 2025

Source: Career Planner

 

By putting millions of people in such generalizations, marketers can loose sight of the actual individuals those terms represent. In fact, some of the attributes associated to individuals in various generation groups have more to do with lack of exposure than their own preferences. For instance, with increased exposure, Baby Boomers are now more tech savvy, big on social media, and even hip and trendy.

Even worse, grouping people this way might give the impression that those within each group have much more in common than others from separate groups. That may be far from the truth in many areas.

It’s far more valuable to understand the underlying reasons why different groups display certain characteristics – not just defining them based on superficial attributes. Such underlying influences determine behavior changes.

5.      Difference Between Coupon Distribution and Redemption Per Product Category

 

While retailers offer more coupons for non-food items, consumers redeem more coupons for food items.

 

COUPON DISTRIBUTION 2015 COUPON REDEMPTION 2015
Food 37.10% 62.50%
Non-Food 62.90% 37.50%

Source: Inmar

 

Here the solution seems pretty obvious: offer more food coupons and less non-food coupons.

 

6.      Challenge of Measuring ROI

The Getting Digital Right study by Millward Brown Digital, shows how challenging it is to track ROI for different marketing channels. This is based on a survey of 300+ senior executives in advertising, agencies, and media.

Image source: Millward Brown Digital

From the report, email ROI stands out as the easiest to track, and webinar ROI being the least. Traditional media ROI is barely easy to track, yet making up a significant portion of coupon distribution.

With higher ability to track ROI, it’s easier to refine promotions that better suit target customer needs and achieve higher redemption rates.

·         Insufficient Training of Marketers

A study by The Fournaise Marketing Group revealed that 90 percent of marketers have no training in calculating return on investment (ROI) and marketing performance. Yet these are professionals with marketing diplomas/ degrees.

Furthermore, more than half of marketers have no specific training in marketing. They instead possess degrees or diplomas in other field like Economics, Journalism or Sociology.

No wonder marketers have a hard time tracking marketing ROI.

·         Complicating Things That Could Be Simple

An incredibly hilarious article by BuzzFeed shows how women experience issues regarding their private parts: the first time seeing a speculum during Pap smear, hearing horror stories about toxic shock syndrome (TSS), getting urinary tract infections (UTIs), “spotting”… They often get all worked up and overanalyze normal biological occurrences, yet the issue could be a simple thing as using the wrong soap.

In the same way, marketers who are apprehensive and unsure about measuring ROI on promotions could end up complicating simple processes. This applies when marketers shift focus from the key parameter of sales, and instead get distracted by multiple extras like social media likes, shares and going viral.

Worse still, they run the risk of also complicating things for potential customers.

7.      Coupon Design

How coupon offers are presented can make a significant difference in redemption rates.

In 2008, an outdoor gear company received a 72 percent higher conversion rate from $50 off coupons compared to 15% off coupons. This was due to “50” being a greater number than “15”, giving the perception of greater savings, despite both being of similar value.

Several other coupon design factors affect redemption rates:

 

NUMBER OF SHOPPERS BARRIERS TO COUPON USAGE
50% Have to buy multiple items
62% Coupons expire
47% Too many rules/ exclusions

Source: Inmar

 

To counter such barriers to coupon usage, RetailMeNot provides a useful guide on effective promotion design:

 

GOOD BETTER BEST
Free gift with $X Purchase $ or % Off One Item $ or % Off Purchase Sitewide/ Storewide
Cash Back Rebates $ or % Off for Cardholders Add Free Shipping
Up to X% Off Clearance Up to X% Off Holiday Doorbusters

 

·         Can Coupons Get a Facelift?

 

Why should coupons always be 5%/ 10%/ 50% off or $0.50/ $2/ $20 off? Or any of the established forms of coupon variations like mobile, free-standing inserts…. Why does it have to stop at that? Why aren’t there more variations?

To overcome the seeming apathy by customers, coupon design may need something as out-of-the-ordinary as the Hollywood blockbuster-style trailer created by Eugene Romanovsky to sell his disheveled old car. Instead of just settling for a boring vehicle trading website , the Latvian portrays his 1996 Suzuki Vitara being chased by raptors through Jurassic Park, going under water, speeding through the desert in Mad Max: Fury Road, and even flying right to the moon. So far, the video has more than 5 million views.

What if there was a new eye-catching variation of coupon design every year?

8.      Mismatch Between Promotions and Product Features

A product has to actually be worth buying for people to find your promotion valuable. Hence, marketers may be doing their jobs perfectly, but are being let down by manufacturers.

On the other hand, marketers may have forgotten that the value of a product largely depends on the audience. Hence, targeting the right customers is crucial. For instance, health conscious customers wouldn’t care if you offer free fast food. Since 92% of restaurant meals contain too many calories, that’s already a turn-off to health conscious customers – even before you start any promotion.

A study by The Network Advertising Initiative (NAI) revealed that behaviorally-targeted advertising produced 2.68 times as much revenue as non-targeted advertising.

·         Making One Product Attractive to Different Customer Groups

Delivering customized communication to different customer segments is crucial to marketing one product to diverse audiences.

To understand how this works, consider what makes the half-million-acre Great Smoky Mountains National Park the most-visited of all 59 US national parks.


Image source: Pixabay

 

Any one of multiple reasons could have influenced each of the record 11.3 million people to visit the park in 2016: free admission, less than a day’s drive from any part of eastern USA, natural beauty, history, multiple indigenous plants and trees (includes pitch pine, chestnut oak, and mockernut hickory), support for nature, waterfalls and cascades, hiking trails, varied animal species (includes 1,500 black bears  and 30 salamander species) and campgrounds.

In the same way, marketing campaigns would be more effective if combined with the most attractive message for specific customers. Some customers may not care about a 10% discount unless they could easily order the product online. Others may be interested in supporting small businesses – not large corporations. Following popular trends may be more important for particular shoppers.

In other words, a simple discount code may not be sufficient to attract customers – it has to be combined with a convincing message.

 

How to Make the Best of the Current Situation

Based on all these findings, both customers and marketers can play a role in taking full advantage of more than just 1 percent of the hundreds of billions of coupons distributed yearly.

For marketers, one key decision they have to make is a choice between: focusing on a single channel that performs well and eliminating poorly performing ones, or running more effective multi-channel promotions. Each option has its own pros and cons.

Single Channel Promotion Multi-Channel Promotion
Advantages Disadvantages Advantages Disadvantages
Easier to handle for small marketing teams Missed opportunities if target customers are also using other channels 86% of consumers shop on at least 2 channels 51% of marketers don’t have the technological capabilities to react to new channels, trends, devices, or competitors
Easier to dominate the market within one channel Reach limited to the channel used Online platforms influence offline sales and vice versa Only 14% of organizations currently run fully coordinated multi-channel marketing campaigns
A preferred option for marketing teams with limited budgets Inability to track customer behavior beyond one channel More effective tracking of the five stages of customers’ buying cycle Only 37% of marketers have online-and-offline integration systems

 

On the customers’ part, it’s just a case of missed opportunities to make phenomenal savings. With more decisive and calculated shopping habits, shoppers like Jordon Cox have made such incredible savings as getting £600 worth of products for only 4p.