The Redemption Sweet Spot
The overall decline in coupon redemption rates in the U.S. and Canada raises a question as old as coupons themselves: What prompts a consumer to redeem?
For an ICOM Information & Communications analysis of coupon redemption drivers, a data pool was assembled that allowed the research to break down coupon redemption trends across a variety of market segments, including health and beauty, food and beverage, and apparel. Information was derived from a 20-year database assembled in the course of designing 6,300 targeted direct mail programs and issuing 425 million coupons to 28 million U.S. and Canadian households.
Coupon variables that were analyzed included expiration, value, volume and product type. User-related variables examined such characteristics as current versus competitive user, frequent versus infrequent user, store-brand versus non-store-brand user, and American versus Canadian redemption characteristics.
Finding the Sweet Spot
Time and value are two important variables to consider when looking to predict coupon redemption. Of them, value in recent years has been stable or increasing, while the trend has been to cut expiration lengths. In the majority of cases, a shorter expiration length reduces redemption far more than any corresponding increase in value can make up.
In fact, the research shows a significant change in redemption time for targeted coupons over a recent 10-year period. From 1996 to 2000, consumers took an average of 5.5 months from coupon distribution to redemption. In the following five years, from 2001 to 2006, average redemption times for the same consumer leapt to 6.5 months, nearly a 20 percent increase.
And the research indicates there is an optimal value-expiration sweet spot for most target groups. The sweet spot is a combination of value relative to retail price plus expiration length that yields maximum redemption. For example, the data shows the sweet spot for a food and beverage coupon targeting competitive product users is 26 percent to 50 percent value with a 12-month expiration period. Altering the expiration length or the value relative to price could have a negative affect on redemption.
The key learnings from this analysis indicate that much of the conventional wisdom about couponing is wrong. Many false notions fail to acknowledge that the redemption of targeted coupons is now less immediate, due to people’s busier lifestyles, more dual incomes and expanded home inventories.
The shifting consumer model demands that couponing approaches also change, or redemption rates will suffer. The following are seven couponing myths and subsequent facts that emerged from the study:
Myth #1: Store-brand users aren’t worth pursuing with target coupon offers.
Fact: As store brands upgrade their quality, fewer store-brand consumers will be price-centric, and more will be quality- and feature-conscious. They’ll often redeem targeted offers at rates as high as those of other competitive users.
Myth #2: Targeting the most loyal users of a competitor’s product yields the best return on a coupon program.
Fact: Light to moderately loyal competitive users are more likely to try a new product and will do so on a lower-value coupon offer.
Myth #3: The presence of a sample is a requisite for driving high redemption rates.
Fact: There are other factors much more likely to drive redemption rates. Some of those include expiration, value, current versus competitive user, and frequent versus infrequent coupon user.
Myth #4: The current users of a product don’t need long expirations to get them to redeem a coupon offer.
Fact: To gain more than two-thirds of potential redemptions—even with current users of your product—offers must be valid for six months at a minimum, and in the 10- to 12-month range for personal care categories like skin and beauty products.
Myth #5: Coupon clutter is pervasive in all delivery strategies.
Fact: Escalated volume is not a factor in targeted coupons mailed directly to homes. Notably, targeted promotion redemption rates are up in this sector for household products and pet products.
Myth #6: Coupon offers on frequently purchased items are redeemed quickly, so an expiration of less than six months will do.
Fact: Targeted offers with expirations shorter than six months in general reap only half as many redemptions as longer term offers.
Myth #7: Current and competitive product users need the same coupon value to be motivated.
Fact: In any product sector, current users typically require much less offer value to drive them to purchase. Sectors vary, but it often takes 40 percent less value to move a current user than a competitive user.
Steve Litt is product director at ICOM Information & Communications, a Toronto-based provider of targeted list, data communication solutions and analytic services. Peter Meyers is vice president of marketing at ICOM Information & Communications. Both Litt and Meyers can be reached at (416) 297-7359.