CPG Coupon Trends, 2002

The total number of manufacturer coupons printed and distributed by consumer packaged goods (CPG) companies grew by 3.8% to 248 billion in the United States during 2002, as measured by NCH Marketing Services Health & Beauty Care (HBC) products saw the largest increase, up 15.9% and volume was driven up by large companies who issued more coupons to consumers through corporate events in solo and co-op Sunday free standing inserts (FSIs). The second half of 2002 saw a rebound of coupon events growing by almost 10% compared to the second half of 2001, which had been greatly impacted by 9/11, the economic downturn and an overall advertising and promotional spending decline. The positive rebound of 2002 was seen in many types of coupon media, including in and on-pack, Internet, electronically dispensed, run-of-press (ROP) newspaper and FSIs. FSIs continue to increase their share of all coupons distributed, rising to 86% of the 248 billion manufacturer coupons in 2002. Most notable in the FSI increase is the volume driven by national corporate solo events such as Procter & Gamble's brandSaver insert, and Kraft's Food & Family insert. Additionally, other large corporations like Campbell's, ConAgra, and Nestle, with many brands across several categories, have created corporate group events over the first six to ten pages of co-op FSIs that feature many of their products in one congruent campaign. Such events provide significant corporate branding and consumer recognition opportunities with coupons. Internet coupons experienced continued growth of over a 50% increase in distribution volume in each of the previous three years. Handout coupons remain the second most frequently used medium to issue coupons, which includes in-store, on-shelf, electronically dispensed and with samples. [Chart A] "Consumers interest in all types of coupons grew in the past year, as primary grocery shoppers looked for ways to economize on their family budget, choosing brands offering coupons that they know and trust and forming positive connections with new products," said Charles Brown, vice president of marketing for NCH. Today, 84% of shoppers report they use coupons while shopping for grocery, health care, and household items at supermarkets, mass merchandisers, and drug chains, according to NCH's 2002 Consumer Survey. Consumers' attitudes toward coupon values are changing. Now, 71% of consumers agree that coupons save them a lot of money, compared to only 51% of consumers in 2001. [Chart B] The savings value may be more reflective of the perceived need to economize, than the actual savings offered by manufacturers.Average face values offered and distributed on coupons increased by 4 cents to $0.89 overall in 2002, however, coupons with multiple purchase requirements rose two percentage points to 26% of coupon distribution, effectively counteracting the face value increase. With multiple purchase requirements, the average value offered per product item purchased is really only $0.77, a gap of $0.12 per item versus the printed face value. "The savings per item gap has offset the increased face value offered to consumers, making coupons less attractive to redeem," said Brown.Consumers saved more than $3 billion by redeeming CPG coupons in 2002, or $0.80 per coupon redeemed on average. "The $0.80 average savings obtained by consumers in using coupons continued a departure from the typical trend when in 2001, for the first time ever, the average face value redeemed declined and dropped below the average face value distributed," noted Brown. "This was true again in 2002, and is due to many of the higher face value coupons requiring consumers to purchase multiple items (two or more) in order to redeem the coupon. Consumers are less likely to redeem those coupons, and instead, choose single purchase, lower face value offers."Additionally, coupons that are good for multi-brands or good universally across an entire product group saw a significant increase in usage among marketers last year, up 22% in distribution volume. "This type of multi-brand coupon first became popular when the Post brand of cereals introduced a universal coupon in 1996. Although in the last two years we had seen a declining usage of the technique, there was a big upswing again in 2002," noted Brown. The return on investment (ROI) for the marketer using multi-brand coupons can be excellent, because they offer high perceived face values, but often also move two or more product items with multiple purchase requirements, all in one distribution buy. In 2002, however, the complexity and clutter of multi-brand and universal coupons, worked to suppress redemption, as the average redemption rate for those offers dropped to 1.5% from 1.8% in the prior year. Multi-brand and universal coupons carrying purchase requirements of two or more items grew to 40% of all such coupons distributed, which contributed to the decline in redemption.Consumers also had less time to redeem the coupons distributed in 2002. The overall duration of offers was dramatically shortened, by nine days less, to an average of only 12.6 weeks, down from 13.9 weeks in 2001. "This is the first time ever in the United States that we have seen offers with this short a duration since NCH began tracking worldwide coupon trends nearly 40 years ago," said Brown. "Throughout the 90's, an average expiration date of three and a half months was typical for all coupons. Now consumers have less time than ever to use a coupon, as many Sunday FSI coupons have only eight to ten weeks as a typical expiration date," noted Brown.Consumers reacted negatively to the shortened period of time available to use their coupons in 2002. NCH's Consumer Survey showed a dramatic increase in the number of consumers who said coupons expire before they have a chance to use them. In 2002, 69% of consumers said coupons expire too soon, compared to only 53% of consumers in 2001 when duration averaged more than three months.These suppressing offer characteristics generated a total redemption volume of 3.8 billion coupons in the United States, a reduction of 5% compared to the year prior. "To balance budgets, marketers continued to increasingly use multiple purchase requirements, while also shortening the expiration period of coupons by more than one week, significantly reducing the usability and attractiveness of coupons for consumers by 20%, in spite of the increased quantities printed," said Brown. The NCH Coupon Attractiveness Index measures the offer attributes of expiration date, face value and multiple purchase in combination to show the overall effect on consumers' propensity to redeem. The NCH Coupon Attractiveness Index dropped seven points to 51 points in 2002, after several years of holding relatively steady. All in all, redemption attractiveness is far less than it once was for manufacturer coupons. [Chart C]Not all coupons are designed to be redeemed; in fact, an opposite 20% increase in the Coupon Attractiveness Index would exceed most marketers' budgets. It is a balancing act between motivating consumer response, supporting retail sell-through and creating advertising value from the coupon, while also maintaining control of the promotion budget. In the past year, marketers have suppressed redemption due to a number of factors, including the new Financial Accounting Standards Board (FASB) ruling requiring redemption cost to be accounted for as a direct reduction of revenue, and the impact of a rising cost per coupon redeemed for many traditional grocery channel retailers and wholesalers != especially influential to the small and mid-size coupon volume manufacturers.The grocery channel represents the largest portion of all coupons redeemed; however, the share of coupons going through traditional supermarkets has been declining as more shopping shifts to other channels. Evidence is seen even within the top five retail redeemers of coupons in the United States:KrogerWal-MartAholdMilitary CommissariesSafeway"As more and more consumers shop for grocery items in alternative channels like discount, dollar and drug stores, I would expect to see Wal-Mart outpace Kroger as the largest redeemer of coupons, as well as, a continued shift in the landscape of where coupon use occurs," said Brown. "The impact of a rising cost per coupon redeemed combined with the lack of merchandising around coupon events within the traditional grocery channel would seem to be counterproductive to competing with the emerging channels."Coupons continue to be used successfully by marketers for new product introductions, as seen last year particularly among health and beauty care items, where seven of the ten fastest growing categories for coupon distribution were HBC products. The highest growth in coupon distribution volume for 2002 came in the Oral Hygiene category where many promotions were seen for the introduction of teeth whitening products. While HBC products saw a 15.9% increase in total coupon distribution volume, grocery products declined in total by 2.7%. Among the categories with the largest volume of coupons distributed, Prepared Foods and Detergents moved up the ranks to No. 2 and No. 3 respectively, following Household Cleaners, which held the No. 1 spot for two years in a row. Full details of the category trends and analysis of all the factors influencing the coupon markets of Canada, Italy, Spain, Germany, the United Kingdom and the United States are available in NCH's annual report: Worldwide Coupon Distribution and Redemption Trends.

CPG Coupon Trends, 2002

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