Thrifty Consumers Buoy Circulars and Coupons

Newspaper FSIs, coupons and store circulars are on the rise -- despite an overall drop in newspaper advertising and increased use of electronic marketing. Growth of paper vehicles, along with newer electronic media, is being fueled by recession-weary shoppers hungry for deals. During the first half of 2009, TNS Media Intelligence reported that spending on all free-standing inserts increased 4.6%. The smaller Internet display segment grew at a higher 6.5%. These were the only media with expenditure growth during that period. Compared to the same period in 2008, total measured advertising spending fell 14.3% to $60.9 billion. But coupons are seeing results. Promotions company CMS reported a 23% increase in total industry coupon redemption for the first half of 2009, on pace for the first annual increase in redemption since 1992."After years of slowly losing interest [in circulars and coupons], the consumer has been looking for ways to stretch their dollar," says Catherine Lindner, vice president of retail marketing for Deerfield, Ill.-based Walgreens. "Circulars are still one of the most cost-effective tools a retailer has to drive traffic in highly consumable categories."Recession-driven growth has a cost. Profits and pricing related to shared mail and FSIs "remain dramatically depressed," Alan Schultz, chairman and CEO of paper and electronic media giant Valassis Communications, said during an Oct. 29 third-quarter earnings call. Still, the $2.4 billion Valassis preprint business grew over the past three quarters. In August 2009, Valassis increased FSI distribution within its shared mail package to 10 million circulations. This month, the Livonia, Mich.-based company plans to hit 11.5 million. Experts believe circulars' popularity will continue. But the momentum of paper circulars is probably not sustainable. For starters, newspaper circulation and print ad rates have declined and much of the void should be filled by electronic media and direct mail. CMS saw a 308% growth rate for coupons delivered via the Internet in early 2009. Internet print-at-home coupons now account for nearly 2% of all coupons redeemed, they add. Magazine on-page coupons, like All You magazine, totaled a 157% increase in redemption, and direct mail and FSIs all saw growth, according to CMS.Price and Targeted OffersMost marketers are using both paper and electronic media for maximum reach. Electronic circulars, namely those from grocery and drug chains, carry the same information as paper ones but can be linked to POS and loyalty card data."We rely on the full complement of marketing tactics for reaching consumers," says Geoff Jackson, director, shopper and event marketing at Camden, N.J.-based Campbell Soup Co. "Families are looking for coupons and are going to traditional as well as online sources."Jackson points to IRI data that pegs 18- to 44-year-olds as most accepting of online circulars. Still, newspaper circulars are read 27 times more frequently. But the electronic market is making inroads. A leading discount chain noted that 60 million people visited its online circular, 40% more than during the previous year. "The concept of the circular still works, but it is being delivered in multiple formats," says Vikram Sharma, CEO of Chicago-based ShopLocal.com, a business unit of Gannett and which hosts circulars for more than 100 retailers nationally.Historically, CPG companies have had the upper hand. But retail consolidation and aggressive store branding by chains like Target and Wegmans have given retailers more power. "CPG companies realize the retailer is gaining control and need to get a hold of their franchise," says Rodney Mason, CMO of St. Louis-based Moosylvania Marketing. Don Stuart, president and CEO of Wilton, Conn.-based Cannondale Associates, says that, outside of promotions, the only ways suppliers can lure consumers is to lower prices or increase value like adding more product (Frito-Lay upped its per-package chip volume by 20%). Declines in food prices have made promotions particularly attractive, he says. "Manufacturers are spending pretty aggressively."Most circulars emphasize price -- even though retailers may tell Wall Street something else. "While retailers may want to tell a marketing story, this isn't why consumers use circulars," says Stuart. "'Hot spots' are not the banner headlines or retailer logos. Circulars have very focused price and product messages."Richard Guha, partner at Weston, Conn.-based Max Brand Equity, says coupons and circulars debuted in the 1970s and exploded in the 1980s as retailers gouged prices via double coupons and other offers. Some ate into profits too deeply. The retail market then consolidated and private brands expanded. Walmart grew, as did its every day low price (EDLP) strategy. "In the 1980s, it was ludicrous," he says. "[Retailers] cannot compete on price like they used to."Today's electronic and paper promotions encourage repeat traffic. In November 2009, A&P offered to double manufacturers' coupons up to $1. But consumers had to present a circular coupon and loyalty card. Cardholders who purchased $40 worth of Pepperidge Farm, Campbell's and Mott's products were also eligible for a free Riverside turkey.Circulars also rely on consumer data. ConAgra Foods, Omaha, Neb., combines its proprietary "Shopper Seasons" data with other information to create seasonal promotions. While Mom is still the prime target, efforts may center on 20-minute meal preparation or other seasonal specifics, says Jesse Spungin, vice president of shopper marketing."Ten years ago, this information didn't exist," he adds. "Retailers provide loyalty, POS and other data. We also partner with Yahoo!. We know that the Hawaiian Punch customer is also a big purchaser of Chef Boyardee. Information is very specific."Target marketing is also used with direct mail and electronic media. The former is often applied in markets where newspapers have collapsed. Since offers target narrow groups of repeat customers, companies can offer deeper discounts."A company offers 50 or 75 cents off to target the masses," says Phil Rist, executive vice president of strategy at Columbus, Ohio-based BIGresearch LLC. "But if you want to persuade Mom to switch diaper brands, you can use loyalty card and other data to offer a more aggressive amount off."Online OptionsElectronic media is also a cost-effective media buy. Moosylvania's Mason says it costs $30,000 to $50,000 to run a paper FSI in a large market, but clients can achieve 10 times more coverage and the same (or higher) redemption rates through electronic delivery at the same cost. Open rates of opt-in e-mails, he says, are 10% to 15%; conversion rates are 2% to 3%.Rich Tarrant, CEO of MyWebGrocer, a specialist in electronic promotions, says monthly e-mail open rates exceed 25% (or 5 million). "This doesn't count the number of times the promotion is opened on the Web or via other means."The Burlington, Vt.-based company uses a CPG ad network to create and manage electronic circulars and websites for more than 90 supermarket chains. Consumers can opt-in to receive specific stores' circulars weekly. A health-conscious shopper may receive different messages than a very price-oriented person. "There used to be one print run for each price zone," says Tarrant. "Electronic circulars provide flexibility."Sharma of ShopLocal.com says information on electronic circulars can be divvied up for specific targets. Parts of a circular can run as freestanding search ads, he says. Ads can highlight one store or market. The bottom line is that they pop up in multiple places."It is insufficient for a retailer to only promote on its website, since consumers don't spend much of their Internet time there. The concept of the newspaper circular works. But it is being delivered in multiple formats," Sharma says.People can browse ShopLocal's circulars by sales, department or category. "They can narrow choices to only view Whirlpool refrigerators," says Sharma. "It becomes a mini website."Electronic media lets companies change promotions on a moment's notice. If a shipment does not arrive on time, another product can be substituted. "You can make changes and adjustments," says David Lied, vice president of consumer promotional services for Brunner Inc., a Pittsburgh ad agency.

Thrifty Consumers Buoy Circulars and Coupons

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