Much Of Foodtown Chain Abandons Web Coupons

Written by Evan Schuman
June 18th, 2009

Many—if not all–of the 60 or so stores in the regional Foodtown grocery chain have abandoned accepting Web coupons, pointing to an extremely high fraud rate. But is the move by franchisee owners of Foodtown—with stores in New Jersey, Pennsylvania and New York—a hint about retail unhappiness with Web coupons overall?

Foodtown is far from the first chain to back away from accepting Web coupons, but are Web coupons saveable?

Web coupon fraud “is rampant. All you need is a computer and Photoshop and you’re ready to go,” said Bob Olstead, the store manager of a Foodtown in Denville, NJ, who added that it is sometimes as long as three months after a coupon is honored before the store’s coupon clearinghouse tells them it’s bogus and therefore rejected.

Would it make sense for manufacturers to get together and create an database to authenticate Web coupons and to allow chains to access the database as easily as they can verify a credit card? How many more chains must stop accepting the Web coupons before the industry will act?

But the delays here could have a quickly multiplying bad impact. First, consumers with legitimate coupons will be furious with their retailers for denying the coupons. Talk of fraud protection goes over fine if you’re asking the consumer to authenticate themselves. But in the fact of an outright refusal to accept the coupon, the consumer could feel insulted at the suggestion that they might have forged a coupon.

There’s another psychological factor, though, that could make a delay especially deadly. Consumers are just now accepting Web coupons, which was a big step for them. That is a huge behavioral change, especially for older consumers who have spent much of their lifetime clipping coupons out of the newspaper.

To get consumers to start using online coupons and to then reject them, only to later say “We have online access now. You can start bringing online coupons back in again” could easily be much jerking around for even younger consumers.

Beyond negating negatives, there’s a host of positives to be gained from such a database. But what consumer goods manufacturers want more than anything? They want greater visibility into who is buying what and when and why. This would provide all of that.

Retailers could see huge data gains as well. One of the problems with Web coupons is that can exist in unlimited numbers. With today’s mechanisms (what mechanisms?), there’s no way to enforce a one-per-customer rule, other than enforcing it for that single checkout session.

What if a chain said that it would accept all coupons, but only with a valid loyalty card with perhaps a linked payment card? The coupon use can now be entered into the chaIn’s database, which could be instructed to block that customer from using that coupon again. If the database is centrally managed by manufacturers, it could be set to limit usage for that consumer through all participating chains.


6 Comments | Read Much Of Foodtown Chain Abandons Web Coupons

  1. Bill Bittner Says:

    Web based paper coupons will never work by themselves. In fact FSI paper coupons in general are no longer safe. The Foodtown store manager was perfectly right to identify the ability to easily duplicate or create fraudulent paper coupons as becoming their downfall. They don’t have to be just from the Internet, any paper coupon has the potential to be a counterfeit. If it is just a duplication, it is not a big deal because it is a valid offer and hopefully it will be accepted by the manufacturer (after all, someone tried their product). It is when the counterfeit is for a completely bogus offer that things get dicey.

    Security experts like to say there are three things necessary to ensure identity: something you own (a credit card), something about you (your fingerprint), or something you know (a password). With credit cards, companies have applied special holograms (something owned), interrogated the magnetic flux of the magnetic strip (its finger print), or a PIN (something the card owner knows) to ensure identity. With coupons, the only method for validation has been their appearance. The low redemption rate makes it is necessary to distribute coupons widely and keep their print cost low. The Internet is a perfect vehicle for distribution so it is important that we figure out a way to use it.

    Some hold out hope for serialization, but that requires a database and would still not eliminate duplication. If we are willing to live with the duplication fraud, there might be a way to stop the bogus offers. The new DataBar could be used to provide an encrypted hash number that is derived from the terms of the deal. Manufacturers would provide their public encryption key to all the retailers so they could decrypt the hash total and compare it to the deal terms. Without using any databases (except the list of vendor encryption keys), a retailer could validate the paper coupon with confidence. In this case we have added something the coupon knows (the encrypted hash) to the validation process so there are two steps to the validation. Anyone hoping to create a bogus offer would have to know the manufacturer’s private encryption key.

  2. Evan Schuman Says:

    Editor’s Note: Some readers have made the argument that mobile coupons might address some of these issues. The plus side is that they would be trackable and automatically linked to a particular consumer (via their phone). That should make it easier to enforce one per customer rules.
    But the big issue here, as Bill pointed out, are the coupons that are completely fraudulent. Theoretically, a digital coupon would be harder to fake IF–and only if–it could be verified realtime. That again brings us back to some system integrated into POS. But it would be easier with a digital system, which is the way consumers are leaning anyway, at least in the next several years.
    But, yes, having a policy distinguish between potentially fraudulent Web coupons and potentially fraudulent newspaper or magazine coupons seems silly. With the right paper stock (very easily stolen) and a little bit of creativity, those coupons can be faked quite cost-effectively.

  3. kaykatz Says:

    Refuse my coupon; I shop somewhere else. It’s as easy as that.

  4. James Tenser Says:

    I’m more and more convinced that online coupon redemption using mobile devices is the way to go. However, the “scan my phone screen” method used in examples tested so far is wholly inadequate.

    The killer app is NFC – near-field communications chips – like those found in Visa PayWave or Mobil SpeedPass and similar “tap to pay” cards. I saw a demonstration yesterday of a solution that stores coupons on an NFC-equipped key fob – resembling a USB thumb drive. Shoppers load the drive with downloaded coupons at home and carry it to the store to shop. It redeems instantly when the device is tapped on an NFC reader at retail.

    The whole system is linked to a Web-based coupon redemption system that ensures each uniquely-coded coupon is redeemed once and only once, with no handling or counting. It even pays the retailers a few extra cents for accepting. Pretty sweet.

    Within a couple of years NFC may be built into cell phones here (as it is in Japan and some parts of Europe). That scenario will support virtual coupons delivered via SMS. Very convenient. In the meanwhile, the fobs might be the vehicle to get the NFC bandwagon rolling.

  5. Rob Rice Says:

    I agree that FSI paper coupons has a challenging model going forward for many reasons already stated in this post and comments. Although mobile approaches have the potential to make online coupons more secure, these Web coupons as they exist today do not create a win-win-win for retailers, CPGs, and consumers.

    Most digital coupon approaches fall short by ending interaction with the customer upon coupon issuance or activation, and most mobile approaches promise to end at scanning mobile phones at POS (after they address the screen scanning issues mentioned by others). Also, to avoid negative interaction with customers at the checkout, cashiers quickly rely on manual overrides to apply coupon discounts without validating if the qualifying item was bought or not. Not only is this a burden on cashiers, but retailers are further burdened by:
    a.) uploading batch promotion files from their vendors, testing each in the POS,
    b.) downloading batch transaction files to support a semi-automated settlement process, and
    c.) auditing, redemption disputes and negotiating settlement amounts on activity from 30-90 days ago.

    With all this burden to “make it easier,” why do other contributors to this post agree that fraud risk remains evident with today’s coupon models? To me, today’s “digital model” is labor-intensive for the Retailer, is inconvenient to the consumer (print at home, bring to store; or surrender your cell phone to a cashier) and is counter-intuitive to what “digital” implies and means.

  6. Bud Miller Says:

    An interesting discussion. Prevention and education are certainly key to addressing counterfeit coupons.

    Most counterfeits are for Free Product or high values and cashiers should exercise extra care with such coupons. Stores should also look for the CIC hologram on Free Product and High Value Coupons.

    Stores can get information about counterfeit coupons currently in circulation at:


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