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Target’s $5 Million Coupon Fix

Written by Evan Schuman
November 11th, 2010

Target on Tuesday (Nov. 9) issued a chain-wide software patch to theoretically resolve a three-and-a-half-month-long coupon-scanning nightmare in which consumers were often given a small fraction of the promised discount. But that was only after it ordered cashiers that weekend to manually review all paper coupons, a move estimated to cost the chain as much as $5 million in additional labor costs alone.

As part of the ordered manual review, Target shut down its POS Cashier Speed-O-Meter system to accommodate the additional time for the manual reviews. Those reviews will cost the chain between $2 million and $5 million in additional labor costs for the month, said IHL President Greg Buzek, who calculated that fee based on an additional minute for every transaction and the number of stores and checkout aisles that Target is using, plus Target’s efforts to add more people to keep the lines moving.

The coupon problem involved manufacturer coupons that required multiple purchases; for example, $5 off a brand of yogurt but only if the consumer purchased six containers. The error came about because the system applied the entire value of the coupon to the first item, and couldn’t discount a price to below zero. That meant if the first item cost $1.10, that was the amount the consumer was credited, instead of taking the full $5 off from the entire six-item purchase.

Sometimes, the glitch gave the consumer a discount that was more than the value of the coupon.

“The issue does happen with that first item,” said Target spokesperson Amy Reilly.

The problem involved Target POS custom coding and did not involve either Target’s POS vendor—NCR—or its coupon clearinghouse, which is NCH Marketing Services, according to people familiar with the glitch.

The Target custom work at issue was “less of a coding matter and more fraud prevention,” said one official. In other words, rules and limits were put in place to prevent someone from gaming the system and it somehow overreacted to the problem, like an overactive antibody that ends up making its human host sick.

One Target source pointed to a recent payment problem with a San Francisco public transit system—where riders could game the system to get free or heavily-discounted rides, by leveraging a convenience function—as an example of the kind of fraud the custom coding had been designed to prevent.

An interesting aspect of the multi-month coupon situation is how Target learned of the problem. The coupon hiccups began in the middle of this summer, but Target corporate didn’t officially become aware of it—in a meaningful way—until early August.


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