Free-Standing No More

Manufacturers' free-standing insert coupon programs always have had one foot in consumer marketing and the other in trade promotion. They provide a purchase incentive for shoppers while demonstrating a company's commitment to its brand, thereby giving retailers an incentive to increase display and feature activity.The dual role has been critical for what has been a much-maligned marketing tactic. Although coupons can generate volume growth, they do so at the expense of profit. The harshest critics say coupons at best train consumers to buy only "on deal" and generate hard-to-perpetuate sales lifts -- and at worst give unnecessary discounts to loyal users and erode brand equity by damaging the value proposition.The biggest knock against the FSI has been the redemption rate, which even for strong programs rarely reaches above 2% and, on average, now stands at just 1.5%, according to NCH Marketing. For a national program dropping to 40 million households, that's 39.4 million coupons that will go unredeemed and $282,000 in costs guaranteed not to produce any return on investment.That's why leading packaged-goods makers increasingly are enhancing FSI programs in two ways: --By staging corporate coupon "events" that align multiple brands and SKUs under an umbrella marketing theme. Such programs, generally delivered through multi-page spreads in the weekly newspaper programs of Valassis and News America, give retailers a hook on which to hang their own activity. Examples include Nestle's periodic "Good Food, Good Life" campaign and Johnson & Johnson's annual "National Safe Kids Campaign."--By providing local, account-specific overlays to national FSIs through the Valassis Retail Connection or News America Price Feature Plus program. Funded by the manufacturer, these half-page add-ons, usually placed on an adjacent page, give retailers a branded tie-in to the FSI and an opportunity to present "additional" savings on the featured product. Gillette, Kimberly-Clark, Campbell Soup Co., and Schering-Plough are among the dozens of leading CPGs employing the tactic. The brandSaver modelLeading the wave of event FSIs has been Procter & Gamble, which took the concept to the extreme by producing a branded insert of its own. The company this year boosted distribution of its two-year-old brandSaver insert program (run through the Valassis newspaper network) to near-monthly frequency (11 times) after running eight "editions" in 2002.The May 2003 brandSaver was 24 pages long, and contained 50 coupons totaling $51.19 in savings on 20-plus brands (and even more SKUs) spanning P&G's entire portfolio. All coupons carried two-month durations. Recent editions have featured a front-page "partner in quality and value," Kellogg's in April, and Good Housekeeping in May. (Kellogg's returned for the June issue with three coupon pages but no front-page mention.)P&G never has been a real fan of coupons, for the reasons noted above. In the early 1990s, the company attempted to stop the practice completely in upstate New York, but recapitulated after being soundly criticized by both retailers and consumers. More recently, in 2001, P&G tried to wean Luvs customers off the promotional pacifier (promising lower SRPs instead), but again met stiff resistance.In the case of brandSaver, P&G seems to be employing the tactic at least partially as a corporate branding tool, but more importantly -- and strategically -- as a means of strengthening retailer support. The insert has proved successful in gaining feature space in the circulars of leading retailers and heavier merchandising activity in stores. (The strategy seems to be working most effectively among top drugstore chains, where P&G has been making a strong marketing push this year.) Here's a look at recent retailer support gained by the insert:Each month, Kmart runs a two-page spread in the Valassis insert accompanying the brandSaver drop. The chain also devotes two pages in that week's circular to the tie-in, billed as "Have to Have P&G Kmart Savings Days."Walgreens has been devoting two pages in its circular. Instead of focusing on brandSaver, however, the feature emphasizes an account-specific overlay offering two free movie tickets with the purchase of $20 in P&G products. (The promotion ran May through July).Albertsons' Osco drugstore chain ran two pages in May and one in June. The May feature included an exclusive offer for a free subscription to Good Housekeeping (brandSaver's "quality partner") with the purchase of three P&G products. East Coast grocer Pathmark ran a full-page ad in News America's SmartSource FSI in June, touting additional savings on five P&G brands for the chain's Advantage Club cardholders.CVS devoted a half-page in the May circular, advertising eight brands and an account-specific offer for $5 in CVS Extra Bucks with the purchase of $20 in P&G products. In June, the same offer earned most of the circular's front page.Ralphs' May 4 circular gave brandSaver a small mention along with a handful of sales features.Stop & Shop circulars in both months offered subtle mentions: A small box stating "See Sunday's Paper for Additional Savings" ran adjacent to P&G product features (but also with other manufacturers' products.) In December 2002, the chain gave prominent feature space for a brandSaver issue celebrating P&G's sponsorship of Special Olympics.The summer edition of brandSaver, which dropped July 6, gained the strongest support yet (see "P&G's Charity Is Rewarded by Retailers" in Related Articles, below).Paper EventsFew marketers have ad budgets big enough to let them float their own FSIs. Aside from P&G, Kraft Foods is the only one currently doing so. (Kraft pioneered the concept when it began periodically publishing a food & family insert in February 2000).That's why more companies are simply expanding their footprint within the two co-op programs by running multiple, consecutive pages that usually include the cover. That tack gives them a focused, branded campaign without significantly increasing production and distribution costs (see Attachment 1 for News America's rates and Attachment 2 for rates at Valassis). The pages generally are united under a marketing theme, such as the "Rev Up For Racing" promotion from General Mills (which tied together eight pages in February 2003) or Campbell's "Labels for Education" continuity program (three pages in January 2003).On May 4, Johnson & Johnson ran three pages in the Valassis insert touting its annual "National Safe Kids" program and offering coupons for 12 products. The effort gained the following feature space:full page at Walgreens, including an account-specific overlay for a free disposable camera with the purchase of $15 in J&J product.full page at CVS, with an overlay for $5 in CVS Extra Bucks with the purchase of $20 in J&J products.half-page at Stop & Shop, a chain typically stingy about supplying branded space. The J&J feature ran under a "We Help You Take Care of Your Family" headline fitting the chain's typical style.full page at Brooks, half-pages at Rite Aid and A&P, and a one-third page at ShopRite.The jury is still out on whether or not these events deliver higher redemption rates or better ROI than isolated FSI drops. While participating companies contacted by the Institute declined to discuss results, several industry experts say they generally do not -- at least directly. These events can, however, be considered more cost-efficient when viewed as both a sales driver and a brand-building opportunity (especially if the unified efforts lead to discount rates from Valassis and News America). And their ability to enlist retailer activity is evident.Cozier CouponingOn the other hand, there is data that proves the effectiveness of retailer-specific add-ons, which officially are known as "co-equity FSIs." In a review conducted last fall, marketing services company CMS compared 150 co-equity programs with standard FSIs from the same brands with identical face values, purchase requirements and expiration periods. Overall, 60% of the co-equity programs produced redemption rates greater than or equal to the stand programs (see Chart 1 and Chart 2).Internal research at Valassis and News America suggests the lift can be even more impressive. Both suppliers claim that a co-equity program can produce an exponential sales lift for the product through the participating retailer. And despite the specific retailer tie-in, News America claims the lift can be significant market-wide (see Sidebar and Attachment 4).Use of the tactic has increased in 2003 as the demand for account-specific marketing has intensified. Of course, the trend has been nudged along by News America and Valassis, which have latched onto the program as one way to jumpstart the stagnant FSI marketplace -- where distribution growth in 2002 was attributed primarily to brandSaver alone (see CPG Coupon Trends 2003 and Coupon Trends Overview in Related Articles, below).Valassis launched Retail Connection in 1997, and has maintained some differentiation by attracting drugstores and mass merchants to the concept. The market began heating up in 2001, however, when News America jumped in with Price Feature Plus (see Sidebar for more details about the two programs.) Price Feature Plus now boasts more than 70 participating chains, but still is focused on the supermarket channel (see Table 1 for a list of participating retailers.) In both programs, manufacturers foot the bill for the account-specific ads, which in the case of Price Feature Plus carry a CPM of about $6.20 per half-page, roughly 16% cheaper than standard placement rates. (On average, Valassis rates run lower than News America's).Both suppliers pitch the programs as an effective way to gain additional display space from participating retailers, generally in the form of endcap or pallet placement as opposed to brand-supplied displays. (In some organizations, in fact, merchandising departments aren't even aware of the tie-in, which often is hatched by co-marketing teams or sales forces looking to piggyback the work of the consumer promotion department.)In the latest wrinkle, some manufacturers are skipping the national FSI entirely in favor of regional variations featuring specific retailers. Elsewhere, Kroger this spring began hosting its own solo FSI and selling space to manufacturers. (A few competitors have followed suit.)For brand marketers, the next step is expected to be more formal strategic planning, in which the drop of co-equity FSIs will be better coordinated with merchandising and other in-store marketing plans -- a la brandSaverSpeaking of brandSaver, despite P&G's apparent success, it's doubtful that other CPGs will launch solo FSIs. Experts do expect other marketers to continue experimenting with multi-page co-cop events and co-equity FSIs

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