New York (CNN Business)Cutting out coupons is an American pastime. Reality shows dedicated to extreme couponers have become sensations. But many companies that issue coupons hate them.
Critics say coupons are expensive, wasteful and inefficient advertising. Some companies have gone to great lengths to get rid of them.
It didn’t end well.
A loyal customer base loves searching for clipped coupons from newspapers and, more recently, on their cell phones. Many buy products solely based on the deals they can find.
Redeeming coupons makes shoppers feel smart — like they’ve outsmarted a brand — and gives them something to brag about to their friends. One study found that customers who received coupons released feel-good oxytocin hormones and their heart rate dropped.
“If you can walk into the store and get paid — some people chase that,” said Jessie Alonzo, who runs coupon blog MoolaSavingMom.com and shares coupon strategies with followers. “It’s like a high.”
According to the marketing and payment service provider Vericast, 865 million coupons were redeemed in the food industry last year.
The Rise of Coupons
Coupons have evolved over the years since Coca-Cola popularized them in the late 1880s.
To promote Coca-Cola to the public, the accountant for John Pemberton — the pharmacist who invented the Coke formula — used a city directory to mail coupons to Atlanta citizens, the company says.
Later, Asa Candler, founder of the Coca-Cola company, gave out paper tickets for free glasses of Coke. Within two decades, Coke had given out an estimated 8.5 million free drink coupons.
The use of coupons increased during the Great Depression. According to the Association of Coupon Professionals, an industry trade group, some of the early distribution methods were through newspapers and women’s magazines.
As supermarket chains expanded in the 1940s, coupons became a common practice. The introduction of direct mail coupons and free-standing inserts in newspapers in the mid-20th century also contributed to their popularity.
In the 1970s, 65% of US households clipped coupons, according to the trade group.
Printed inserts in newspapers were the most commonly used coupons for decades, but the rise of online shopping and smartphone apps made digital coupons more popular.
Coupons vs Sales
Coupons are different from in-store offers, price promotions, or discounts. The sale is available to all customers upon entering or purchasing online. But brands are targeting coupons in mailings and websites to reach the shoppers who are very loyal to them.
“Coupons play an important role in giving brands a chance to reach and engage shoppers who are not making brand choices,” based on on-shelf selling prices, said Aimee Englert, executive director of client strategy at Vericast. “Coupons help to get a brand on the shopping list.”
Brands also dangle coupons when they launch new products to encourage shoppers to try them. Sometimes companies also offer coupons to entice shoppers to sign up for their loyalty programs.
Coupons are expected to play a bigger role for shoppers as prices remain high. Sixty percent of shoppers said they were looking for more coupons to offset higher prices, according to a July online survey by Vericast of more than 1,800 shoppers.
“We’re beginning to see customers using coupons a little more aggressively than before,” Kroger (KR) CEO Rodney McMullen said Thursday during a call with analysts.
Voucher fails
But not everyone loves coupons.
Brands and retailers dislike them because they trick shoppers into only buying products at deep discounts, making it difficult for them to sell their goods at more profitable full prices.
Businesses have said that offering coupons is a waste of money that would be better spent driving down prices across the board or investing in improving the quality of their products. Some companies have even likened coupons to a drug.
“You take money and essentially pay the consumer to buy your product,” said Kimberly Whitler, an associate professor at the University of Virginia’s Darden School of Business and a former marketing director at David’s Bridal and PetSmart. “It diverts resources from building longer-term, more sustainable brand equity.”
Coupons can also pose challenges in forecasting demand and stocking products. It is much simpler and easier for the operation to keep the prices constant. In addition, coupons cost money to design and manufacture, and some customers redeem expired or fraudulent coupons.
“The first time you create a coupon, that’s great because it’s incremental,” Whitler said. “The problem is that it’s now burned into your base. You must keep this coupon.”
But most brands have decided that coupons are a necessary evil and remain part of their pricing strategies. They are afraid to eliminate them for fear of driving away customers or losing business to competitors that they keep.
Retail history is littered with cautionary tales of brands trying to cancel coupons and failing.
in 1996, Procter & Gamble (PG), the maker of Tide, Crest and Bounty, experimented with a “zero coupon test” in three New York state stores where stores had chosen to offer customers double or even triple the value of the maker’s coupons. P&G said it would pass its marketing cost savings on to consumers in the form of lower prices.
“More than 300 billion coupons are issued annually and less than 2% are redeemed,” said then-P&G chief operating officer Durk Jager. “Around 8 million trees are cut down annually for coupons. About 40% of total coupon spend never reaches the consumer. We decided that coupons have to go.”
But P&G’s move alienated loyal coupon clippers in the area and they switched to competitors.
Some of P&G’s competitors also participated in the test, such as Clorox (CLX) and Colgate (CL), and the New York Attorney General filed an antitrust lawsuit against the companies. P&G returned coupons and agreed to pay $4.2 million along with other manufacturers to settle the lawsuit.
nine years later Macy’s (m) (then Federated Department Stores) acquired regional department stores that were known for their coupons and withdrew them, hoping to discourage customers.
But Macy’s abandoned the plan after sales plummeted. “Coupons are a religion in the Midwest,” said one analyst at the time.
JCPenney had the biggest coupon misfire.
In 2012, Ron Johnson, the former head of Apple’s retail operations and a Target executive who became JCPenney’s new CEO, unveiled a major overhaul of the chain. At the heart of the strategy was a plan to do away with coupons and discounts and replace them with low “everyday” prices.
“Rather than inundating the customer with a relentless array of special offers, coupons, discounts, and retail gimmicks,” Penney switched to “fair and square” pricing.
The plan backfired.
Sales plummeted nearly 25% in one year, and the company’s shares plummeted. Johnson lost his job after just 17 months, and Penney quickly brought coupons back. “We didn’t realize how deep some of the customers were into it [coupons]’ said one manager at the time.
Johnson agreed, “Coupons were a drug.”
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