The Lowly Coupon: Hot Potato, Reminder, Offer and Contract
American shoppers love deals. We love bargains. We love to save money.
We love coupons.
Those free standing inserts (FSIs) loaded with discount—or “cents-off”—coupons that clog our newspapers every Sunday and give hernias to the delivery people are there for a reason: They move merchandise.
In 2006, 270 billion coupons were distributed—roughly 2,500 for every household in the U.S.
Wait in line at any supermarket checkout counter and you will see shoppers happily redeeming them. Kristina Davis of Marietta, Georgia, told Steve Lohr of The New York Times that by clipping coupons from the Sunday paper and redeeming them at the supermarket, she saves 30% to 40% every month on groceries.
Department store customers also love coupons that offer 15%, 20% and more off merchandise. They expect to receive them and traditionally respond. So when Terry J. Lundgren—the hotshot new CEO of Macy’s who engineered the buyout of the Federated Store chain of 410 sites and changed them all into Macy’s—decided to send out lots less coupons, he broke three cardinal rules of marketing:
Rule #1: “Test everything.”
Rule #2: “See Rule #1.”
Rule #3: “If it ain’t broke, don’t fix it.”
The year was 1894. Asa Candler, a partner in the fledgling Coca-Cola Company of Atlanta, dreamed up the idea of promoting his “Ideal Brain Tonic” and “Delightful Summer and Winter Beverage” by couponing—offering a free glass of Coca-Cola. Coupons were sent through the mail, printed in newspapers and handed out on street corners. Local soda fountains were supplied with free syrup, so they would not be out-of-pocket.
Coke and couponing took off like rockets. (At the end of this story are illustrations of early Coca-Cola coupons.)
Fast forward a century and hear what a former chief marketing officer of Coca-Cola proclaimed:
“The paper coupon is the single most inefficient marketing tool you could imagine … The traditional paper coupon is going to die. It can’t survive in the Internet world.”
—Peter Sealey, marketing consultant, Sausalito, California
Apparently Terry J. Lundgren bought into this cockamamie pronouncement which was reinforced by his own research—that Macy’s customers did not like couponing, that it is complicated and confusing, and that they did not know what the exact price was.
“Mr. Lundgren said the new chain, with 800 stores and $27 billion in sales, would be big enough to secure exclusive product lines from big names—as it did, with Elie Tahari and Martha Stewart,” wrote Michael Barbaro in The New York Times, “then blanket the country with advertisements to let shoppers know about it.”
After cutting back on coupons, sales at Macy’s tanked all across the country and the stock plummeted 40%.
The “Paperless World” of the Internet
One of the most fascinating, charismatic characters in the great dot-com boom was the founder of Priceline.com, Jay Walker, wiry, ebullient with black hair and bushy black eyebrows—a master entrepreneur who was so persuasive that he could sell Viagra to a eunuch.
In December 1998 Jay had been Target Marketing magazine’s Direct Marketer of the Year, and the following May he received the same honor from Direct Marketing Days New York (DMDNY). On Wednesday, May 26, 1999, at a luncheon in the grand ballroom of the New York Hilton, Jay delivered a stem-winder of a speech to the 2,000 attendees. As described by David Shepard in the July issue of Direct magazine:
Priceline.com founder Jay Walker stunned an audience at Direct Marketing Days in New York this spring by describing a new D[irect] M[arketing] business model—one with close to zero printing, production, postage, lettershop and customer service costs. The message from DMDNY’s direct marketer of the year was clear: Welcome to DM over the Web.
Jay’s message was not happy news for printers, paper salesmen, list owners, proprietors of lettershops and the folks at Pitney Bowes. At the conclusion of his talk, the entire audience was ready to slash its collective wrists.
Jay was dead wrong. With Can-Spam and Do-Not-Call legislation, direct mail is once again the workhorse of direct marketing. Jay lost several hundred million dollars in a wacko scheme called WebHouse Club that would enable shoppers to bid on grocery items and pick them up at their local supermarket. Priceline.com stock went from $16 to $166 before closing at the end of 2000 at $1.31 with Walker out on his ear.
The Internet is wonderful in many ways, but it will not replace the use of paper in marketing. Although retailers detest coupons, they will be with us for a long time to come. Here’s why:
* Coupons that arrive in the mail or printed in the newspaper are what direct marketing guru Walter Weintz called “hot potatoes”—attention-getters that force the consumer to act.
* The three legs of the direct marketing stool are lists (40%), the offer (40%) and everything else (20%). Coupons make an offer. If a family has a baby in diapers and receives a coupon offering Huggies at $1.00 off—either in the newspaper or via direct mail—here’s what happens:
• The coupon conveniently arrives in the home.
• It is a physical reminder to buy diapers.
• It has perceived value.
• The coupon saves money.
• It is the contract—the guarantee that the 25% discount will be honored.
Coupons sent over the Internet make the consumer work. As Bob Tedeschi wrote in The New York Times last February:
ONLINE coupons have always been a bargain-hunter’s diversion, which may be precisely why the market has grown so slowly. Who wants to take time out of the day to track down sites that give away 50-cent discounts, then search for eligible products that they might need?
Right now, the practice appeals only to about 12 percent of the 175 million Internet users in the United States, according to comScore Media Metrix. The rest are apparently happy getting coupons in their Sunday paper, where they can flip through them in seconds.
Web couponing may be convenient and cheap for marketers, but they won’t move anywhere near the amount of merchandise that paper coupons or certificates will.
The same is true for upmarket items—clothes, appliances, automobiles … just about anything you can name. For example, I have a dreadful body—fat neck, tire around my middle, short arms and short legs. I have tried Macy’s and Joseph A. Bank, but I have found their fitters and tailors to be poor. I recently sent a perfectly good pair of gray flannel trousers from Joseph A. Bank to Goodwill Industries, seldom worn because they were so horrendously uncomfortable.
The best men’s store in Philadelphia is Boyd’s—great clothing that is altered to make me look almost respectable and feel comfortable. I always wait to receive a flier in the mail from Boyd’s offering $50 and $100 discounts on clothes and accessories.
These are “hot potatoes” that force me to (1) think about my wardrobe and (2) make a decision. I can buy a suit and save $100, which means two nice lunches at Delaware Park Racetrack for my wife, Peggy, and me (not counting wagers). I would be nuts to buy retail.
If Boyd’s decided to cut out its direct mail and rely on newspaper or broadcast advertising, probably three-quarters of its customers would miss the ad and miss the sale.