The Holding Pattern Coupon Strategy

Written by Evan Schuman
June 25th, 2009

Typical retail IT execs trying to map out their chain’s long-term coupon strategy are hoping for 20 percent off their migraines. That’s because as Web fraud—not to mention the death of newspapers across the country–is making today’s paper coupons less and less viable, the frequently-discussed replacements for paper coupons are still likely a couple of years away.

Many retailers had hoped that paper coupons will die a slower death, hanging on until mobile coupons were ready for mass market. But that’s not the way it’s playing out, especially among younger consumers.

The nirvana is to go with a full mobile approach, whether it be NFC or regular smartphone coupon displays. The idea would be a color display with enough CPU and RAM to handle a very large number of customized coupons and a POS-connected scanning device that could read off of the screen. Or perhaps it could be beamed to the POS system.

Even for those retailers who want to deploy such a system today, there are three obstacles to widespread immediate deployment:

  • Upgrading Retail Hardware (especially imaging scanners, typically costing between $400 and $800 each)
  • Upgrading Consumer Hardware (waiting for the marketshare of smartphone-like devices to be substantial enough)
  • Evolve Consumer Behavior (fancy way of saying that we need to give consumers enough time to get comfortable with using a cellphone as a payment mechanism).

    Most vendors involved expect all three to take roughly two years, which conveniently suggests a very ripe market for the next stage coupons around mid-2011. But with the strong belief that coupons will lose support in all segments (other than, perhaps, senior citizens) long before then, the migraine-inducing question becomes “What do we do until then?”

    One strong possibility is to make a few small changes in the system. First, start the migration from manufacturer-centric paper coupons to retailer-centric digital coupons. This might be done by having consumers go to the retailer’s Web site and logging into a free account that has already been authenticated to that consumer. On the site would be displayed a virtually unlimited number of coupons, mostly from manufacturers but also from the retailer.

    Consumers would select whatever coupons they want and then save it. Nothing more would need to happen. When those consumers went to that retailer’s store and purchased some of the incentivized products, they would have to identify themselves, preferably with a loyalty card, but a driver’s license or any other ID would suffice. The system would then automatically apply the discounts.

    Not only would this keep CRM records current, but it would effectively prevent abuse of the one-coupon-per-customer rule. It would also nicely sidestep any of the hardware issues detailed above.

    Duncan Taylor, director of product management for Epicor Software, a retail specialist, said the interim approach will likely be effective, but only as a temporary stopgap.

    “You won’t need mobile to do it. (Mobile will be) just a nicer and cooler way to do it,” Taylor said. “I don’t want the customer to have to present anything other than themselves.”

  • advertisement

    3 Comments | Read The Holding Pattern Coupon Strategy

    1. Bill Bittner Says:

      Let’s just hope the retailer is not using a stand-beside device for credit card authorization (just kidding)

    2. James Tenser Says:

      Paper coupons appeal to a very defined subset of shoppers – roughly 30% – who are generally inclined toward pre-planning behavior. This group is very demographically diverse, and includes folks who just clip paper coupons and others who join coupon clubs online.

      The rest of the population generally ignores pre-planning and therefore can’t be bothered with coupons. Nevertheless, 300 billion paper coupons are issued annually in the U.S. About 1 – 2% of these are actually redeemed, so I think reports of their imminent demise are unjustified.

      Now, print-from-the Web coupons are certainly a concept with a very limited future. But this was true from the start. The future is certainly the personal mobile device, juiced up with an NFC-enabled coupon “wallet”. But this is a short way off.

      I think the most promising transition technology might be NFC-enabled USB key fobs (available now) that let shoppers download and store security-coded Web coupons and instantly redeem with a tap at the POS. The NFC readers cost as little as $40 and are USB plug-and-play (that is, they look like a bar-code scanner to the POS terminal).

      The cool thing about this scenario is that the NFC coupon’s convenience and speed might appeal to shoppers who until now have shunned pre-planning and coupon use. Oh – and did I mention this would completely bypass today’s clumsy coupon redemption process, putting more pennies in the retailers’ pockets?

    3. Kate Janson Says:

      The only way this can evolve is for banks/credit cards to issue the coupons at POS via opt-in web-based CRMs. Card swipe at checkout, discounts applied to consumer, bank/credit card companies reimburse retailer (better yet, offset transaction fees), manufacturers partner with retailers and bank/credit cards and reimburse discount with marketing promotion budgets. When will retail learn that in this new tech society, less is more?


    StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 60,000 retail IT leaders who subscribe to our free weekly email. Sign up today!

    Most Recent Comments

    Why Did Gonzales Hackers Like European Cards So Much Better?

    I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
    Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
    A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
    The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
    @David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

    Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.