THE TIPPING POINT: Retailers Embrace Digital Couponing

THE TIPPING POINT:

Retailers Embrace Digital Couponing

THE TIPPING POINT: RETAILERS EMBRACE DIGITAL COUPONING

Table of Contents Executive Summary..................................................................................................3 The Evolution Of Coupons.......................................................................................4 Digital Coupon Delivery Moves To The Forefront...........................................................................................6 Personalization Tops Digital Coupon Benefits.........................................................................................11 Retailer-Manufacturer Collaboration Moves The Needle On Digital Couponing.............................................................................................15 The Retailer Learning Curve For Digital Couponing............................................................................................16 The Digital Future...................................................................................................18 Conclusion: Retailers’ Digital Couponing Predictions and Demands.................................................................20 Appendix..................................................................................................................21

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THE TIPPING POINT: RETAILERS EMBRACE DIGITAL COUPONING

Executive Summary Over the last two decades, technology has helped put security and distribution controls in place to build the online coupon system that we see today. With the rise of smartphone usage, we see an even more dramatic shift for consumers away from traditional clip-and-save paper coupons and towards digital coupons. In a recent Google survey, 59% of consumers said they have loaded coupons onto a loyalty card (from mobile or web).1 To understand the digital coupon mindset of retailers, Google commissioned Retail TouchPoints to survey nearly 150 retail executives. Key findings include: n7  4% of retailers believe digital coupon use will increase dramatically by 2018. n 74% of retailers are integrating mobile apps, SMS text messaging, web sites or email to deliver their coupons.

n9  0% of retailers agree that digital coupons improve their ability to deliver personalized offers. n6  1% of retailers said digital coupons improve speed of checkout.

With digital technology, retailers can not only deliver coupons directly to customers’ loyalty cards, they also can offer targeted, personalized coupons to shoppers via their mobile devices. Retailers have found digital couponing to yield cost savings, ease of delivery, ease of redemption and an increase in overall revenue. The following report provides detailed results on the survey findings to help retailers formulate current and future couponing strategies.

1

Zavers by Google and Shopper Sciences, Coupon Usage Study, December 2012

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THE TIPPING POINT: RETAILERS EMBRACE DIGITAL COUPONING

The Evolution Of Coupons More than 120 years after Asa Candler first offered paper tickets for free samples of his new CocaCola drink, coupons continue to play a significant role in successful product marketing strategies. Retailers know that consumers love coupons, and coupons drive sales. But no one loves the old-fashioned couponing process. Manual handling of paper coupons — sorting, counting, submission and reimbursement — is expensive, time-consuming, error-prone and inefficient. Plus, paper coupons don’t provide the robust redemption data that merchants need to support educated decisions about their future marketing strategies. Couponing is primed for improvement and innovation. The Internet brought the first major paradigm shift in coupons in the ‘90s, as retailers were able to offer downloadable coupons online. However, retailers and manufacturers were slow to adopt due to the risk of fraud. Over the years, companies have put new security and distribution controls into place. Today, mobile technology is rapidly enabling the second paradigm shift — delivering targeted, personalized coupons to the mobile-enabled shoppers who are most likely to purchase those products.

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THE EVOLUTION OF COUPONS

5

1888

First paper coupons: Asa Candler uses paper tickets for free glasses of Coke to help market his new soda

1990 The Internet leads to the downloaded printable coupon and online coupons

1940 Big chain grocery stores begin to use coupons to attract consumers away from purchasing at local markets

2013 Target becomes the first national chain to offer scannable phone coupons for all its stores

1965 Half of all the families in the United States begin cutting coupons

1930 Coupon usage grows dramatically during the Great Depression

2008 Merchants begin using mobile phones to deliver coupons to consumers

Sources: wikipedia.org and blog.couponsherpa.com

In June 2013, Google surveyed nearly 150 retail executives representing the Grocery/Supermarket, Big Box, Pharmacy/Drug Store and Department Store segments — as well as a broad range of annual revenue and store counts — on the benefits, practices, and progress of digital couponing. Their responses, outlined in this report, offer deep insights into retailer and consumer preferences and trends that will affect the future of couponing.

THE TIPPING POINT: RETAILERS EMBRACE DIGITAL COUPONING

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Digital Coupon Delivery Moves To The Forefront Digital media is becoming retailers’ mode of choice for coupon delivery: Nearly three quarters (74%) use mobile apps, SMS text messaging, web sites or email to deliver their own coupons (Figure 1). Digital media is trailed by print media (61.5%) and direct mail (61%), used in almost equal amounts, and half of retailers also deliver coupons on site, through kiosks and in-store circulars. A closer look shows that some segments have moved more aggressively into digital media than others (Figure 1a). Grocers still use print more than other media. Big Box stores have moved most decisively to digital media and away from print, while pharmacy/drug retailers are heavy users of all methods of coupon delivery.

Figure 1 How Retailers Deliver Coupons To Consumers

74%

62%

61% 50%

Digital Media (mobile apps, SMS text messaging, websites or email)

Print Media (newspaper/ magazines/ circulars)

Direct Mail

In-Store (via kiosks, in-store circulars)

DIGITAL COUPON DELIVERY MOVES TO THE FOREFRONT

Figure 1a How Retailers Deliver Coupons To Consumers (By Industry Segment) 84%

7

95%

95%

84% 84%

84%

68%

68%

72% 51%

78%78%

63% 63%

72%

54%

51%

54%

42%

63% 74%

47%

50%

42%

Big Box Retailer

53%

47%

38%

50%

Print Media (newspaper/ magazines/circulars)

53%

63% 74%

38%

Direct Mail

Department Store Retailer

Digital Media (mobile apps, SMS text messaging, websites or email)

Grocery Retailer

In-Store (via kiosks, in-store circulars)

Pharmacy/Drug Retailer

Big Boxdemand isDepartment Grocery Pharmacy/Drug Satisfying consumer the No. 1 reason retailers issue coupons (Figure 2) with Grocery

Retailer Retailer stores (retailersRetailer with the longestStore history in couponing)Retailer the most likely to rank “satisfying consumers” as the top reason for issuing coupons. The second and third most-cited reasons for issuing coupons were closely ranked: encouraging repeat business and enabling retailers to keep pace with competition. Slightly fewer retailers said that coupons’ ability to boost the size of the shopping cart was very important. In one example, Price Chopper Supermarkets has reported impressive results by offering loadto-card coupons to its shoppers. The New York-based grocery chain has experienced a significant increase in basket size, trip frequency and total weekly spend from its e-coupon customers. At Price Chopper, 50% of e-coupon users are considered the chain’s most-loyal shoppers. “Digital coupons make it easier for shoppers to get savings at the moment they’re deciding what to buy,” says Heidi Reale, Price Chopper Director of Shopper and Digital Marketing. “Plus, with automatic redemption at checkout, our cashiers don’t have to spend time scanning paper coupons.”

DIGITAL COUPON DELIVERY MOVES TO THE FOREFRONT

Figure 2 Why Retailers Accept Manufacturer Coupons

8

54%

19%

18% 7% 2%

Satisfies consumer demand

Enables us to keep pace with competition

Encourages repeat business

Boosts shopping cart size

Handling fees make accepting manufacturer coupons worthwhile

* Percent of respondents ranking 1 on a scale of 1 to 5

Consumer Preference Shifts To Digital Retailers are acknowledging consumers’ desire for digital delivery of coupons. According to the survey, 38% of retailers believe that consumers prefer digital media versus 32% who believe consumers prefer paper (Figure 3). Current research supports this viewpoint: A Food Marketing Institute (FMI) study revealed that almost one quarter (24%) of shoppers currently use their smartphones to search for coupons.2 Additionally, a recent Google Think Insights survey found that 84% of smartphone shoppers use their phones in-store to help them shop for everything from groceries to pet products.3 Overall coupon usage also is on the rise: More than half (57%) of retailers report an increase in consumer use of coupons in their stores, compared with just 17% noting a decrease. Smaller retailers, those with between 1 and 50 stores, are the most likely to believe coupon use is declining.

2

Food Marketing Institute, FMI 2013: Tomorrow’s Trends, Delivered Today, 2013

3

Google, Shopper Marketing Council, Mobile In-Store Research: How in-store shoppers are using mobile devices, April, 2013

DIGITAL COUPON DELIVERY MOVES TO THE FOREFRONT

Figure 3 Changes In Couponing Preferences: Retailers Say Consumers Shifting To Digital Coupons

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Overall Coupon Use 54%

54%

Digital vs. Paper 38% “Most consumers prefer digital coupons over paper coupons”

38% 32%

32%

“Overall coupon use is increasing”

“Most consumers prefer paper coupons over digital coupons”

17%

17%

“Overall coupon use is decreasing”

Note: Some responses to this question were eliminated due to inaccuracies, so results are based on 129 total responses.

More Retailers Accept Digital Coupons The growth of digital coupons is evident in the fact that the largest group of retailer respondents (44%) accept both print and digital coupons (Figure 4), led by pharmacy/drug retailers and retailers with more than 2,000 stores. Today, 40% of the overall respondents accept only printed manufacturer coupons — dominated by retailers with 1 to 50 stores, as well as grocers. But 20% of the overall respondents plan to accept digital coupons in the future.

Figure 4 Digital Manufacturer Coupons On The Rise

44%

Yes, we accept both digital and paper manufacturer coupons

40%

We accept only paper manufacturer coupons

20%

We do not accept digital coupons, but plan to in the future

9%

We accept only digital manufacturer coupons

9%

We do not accept paper coupons, but plan to in the future

Note: Some responses to this question were eliminated due to inaccuracies, so results are based on 129 total responses.

DIGITAL COUPON DELIVERY MOVES TO THE FOREFRONT

Retailers Remain Confident In Digital Coupon Impact Retailers are increasing investments in and commitment to digital coupons, as consumers adopt them and become more comfortable with digital technology. A growing number of consumers are storing/redeeming coupons using their smartphones (76%), according to retailers (Figure 5). This trend is particularly significant for grocery and pharmacy/drug retailers. Additionally, 44% of consumers are using their smartphones to look for offers.4 In one example, customers at Canadian Big Box chain Zellers (before its recent sale to Target), were strongly demanding smartphone coupon reading, so the retailer created a workaround with codes to accept the coupons. The majority of overall respondents (60%) also agrees that consumers’ ability to store and access coupons without worrying about losing them is a key benefit; and 54% see value for consumers in the time saved by not clipping coupons.

Figure 5 What Retailers See As The Greatest Potential For Consumers In Digital Coupons

Consumers can store/redeem coupons on their phones

76%

Consumers can store and access coupons without worrying about losing them

60%

Consumers can save time clipping coupons

54%

Consumers can receive personalized offers

47%

As many as 42% of consumers have left a retail store without purchasing an item because they left a coupon at home.5 With digital coupons always readily available, consumers will be more likely to complete their transactions.

4

Google, Shopper Marketing Council, Mobile In-Store Research: How in-store shoppers are using mobile devices, April, 2013

5

Zavers by Google and Shopper Sciences, Coupon Usage Survey, December 2012

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THE TIPPING POINT: RETAILERS EMBRACE DIGITAL COUPONING

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Personalization Tops Digital Coupon Benefits Consumers don’t think about the technology behind the scenes of everyday transactions — they simply want the right products at the right time and price. Having the ability to personalize coupon offers gives retailers an opportunity to communicate one-on-one with customers and improve the overall consumer experience. Retailers see the ability to personalize (72%) as the No. 1 potential benefit of digital coupons, followed closely by providing a new way to engage with consumers on their mobile devices (67%) (Figure 6). Approximately half (49%) also believe digital coupons will increase redemption rates.

Figure 6 Where Retailers See The Greatest Potential In Digital Coupons

72%

67%

57%

49% 37%

Ability to personalize offers/make promotions more targeted

A new way to engage with consumers on their mobile devices

Less costly to process than paper coupons

Increased redemption rates

An opportunity to run a ‘green’ initiative

29% Can help increase the speed of POS transactions

PERSONALIZATION TOPS DIGITAL COUPON BENEFITS

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Figure 6a Where Retailers See The Greatest Potential In Digital Coupons (By Industry Segment) 84% 63%

70% 71% 72%

74% 74%

84% 84%

54%

51% 40%

84%

58%

68%

78%

63% 71% 68%

56% 49%

95%

53%

56% 63%57% 74% 49%

42%

50% 29%

46% 47% 37% 32% 38%

35% 35% 28% 11%

Increased redemption rates

Ability to personalize offers/ make promotions more targeted

Big Box

Big Box Retailer Retailer

A new way to engage with consumers on their mobile devices

Department

Department Store Retailer Store Retailer

Less costly to process than paper coupons

Grocery Grocery Retailer

Retailer

An opportunity to run a ‘green’ initiative

Can help increase the speed of POS transactions

Pharmacy/Drug Pharmacy/Drug Retailer

Retailer

These consumer benefits mostly outweighed more tactical deliverables, such as lowering the costs of coupon processing (57%). Pharmacy/drug retailers were most likely to cite lowering processing costs as a key benefit, rating it equally with providing a new way to reach consumers (Figure 6a). In fact, retailers see personalization of coupons as the key to unlocking cascading benefits for their businesses. As seen in Figure 7, the benefits of personalization start with increasing sales (72%), followed by increasing coupon redemption rates (57%) and more consistent and frequent purchases by individual consumers (55%). Figure 2 (page 8) shows that retailers do not feel strongly that current paper coupon programs boost cart size. Digital coupon programs, on the other hand, can deliver personalization and targeting that in turn will drive increased sales and purchase frequency. Personalization drives relevancy; and relevancy drives redemption, larger carts and higher sales. Retailers with strong loyalty programs can use the rich shopper data from those programs to help deliver more relevant, personalized coupon offers, resulting in more satisfying consumer experiences and higher redemption rates.

PERSONALIZATION TOPS DIGITAL COUPON BENEFITS

Figure 7 Greatest Potential Impact Of Personalized Coupons For Retailers

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72%

Increased sales

Increased coupon redemption rate

57%

More consistent and frequent purchases by individual consumers

55%

Increased in-store traffic

42%

More loyalty program/ card sign-ups

34%

Digital Delivers Coupon Benefits More Effectively As seen in Figure 8, retailers strongly believe that digital coupons can help them become more relevant and valuable to their consumers. An overwhelming 90% of retailer respondents agree that digital coupons improve their ability to deliver personalized offers, and 84% say digital coupons improve their ability to collect and analyze consumer data. As many as 78% of retailers say digital coupons increase basket size, compared to 49% for paper. 90%

84%

Figure 8 Digital Coupons Best Vehicle For Delivering Coupon Benefits

61%

81%

84%

90%

61%

81%

78%

% 61%

61%

26%

28% 14%

16%

49%

5%

16%

10%

2%

26%

Digital

14%

Increases basket size

Paper

16%

14%

32%

26%

28%

22%

Improves speed of checkout

61%

32%

16%

5%

Diminishes potential for fraud – customer or employee

Improves ability to collect and analyze customer data

16%

2%

Improves ability to deliver personalized offers

Neither

Digital

Paper

Neither

10%

14%

Decreases handling/ clearing costs

16%

Makes it easier to resolve potential disputes with manufacturers and/or clearinghouses

PERSONALIZATION TOPS DIGITAL COUPON BENEFITS

That’s been the experience of National Wholesale Liquidators (NWL), an 11-store big box discounter in metropolitan NYC. The retailer’s text-based promotions are becoming incrementally more personalized as they build up a consumer database, but they have already learned valuable lessons about the type and timing of digital coupons. For example, properly timed Spend X-Get Y-Free digital coupon offers have doubled their market basket sizes, according to Drew Bickel, Director of Planning for NWL. Retailers also said that digital coupons lower costs: n8  1% report decreased handling/clearing costs n6  1% see improved speed of checkout n6  1% note that digital delivery makes it easier to resolve potential disputes with manufacturers and/or clearinghouses Additionally, more than 60% of respondents believe digital coupons will reduce losses by diminishing the potential for fraud by both consumers and employees. In the past, retailers were hesitant to accept print-at-home coupons for fear of fraud. Thanks to vast improvements in reporting and tracking of digital coupons, many retailers now view them as safer than paper or print-at-home coupons.

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THE TIPPING POINT: RETAILERS EMBRACE DIGITAL COUPONING

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Retailer-Manufacturer Collaboration Moves The Needle On Digital Couponing Retailers work closely with their manufacturer partners to bring value to consumers. When asked about their manufacturer coupon strategies, 58% of retailers said manufacturers delivered coupons through digital media, only slightly behind traditional print (63%), and outpacing direct mail (55%) (Figure 9).

Figure 9 How Manufacturers Deliver Coupons To Consumers

63%

58%

55% 41%

Print Media

Digital Media

Direct Mail

In-Store

In the retailer deep dives, we see that pharmacy/drug retailers and grocery chains are more likely than other segments to report that their manufacturer partners use digital media for coupon delivery: 94% of pharmacy/drug retailers and 95% of their manufacturer partners use digital media; and as many as 63% of grocers and 60% of their manufacturers use digital media. Retailers that have seen success with digital media will be more likely to encourage and influence manufacturer partners to use their digital channels as a medium for delivering coupons.

THE TIPPING POINT: RETAILERS EMBRACE DIGITAL COUPONING

The Retailer Learning Curve For Digital Couponing Retailers strongly agree that both retailers and consumers need additional education about digital coupons (Figure 10). But in their self-evaluation, retail respondents feel more strongly that they need to catch up to consumers in their understanding of digital products: 75% say they need more education, compared to 66% of consumers, in their view.

Figure 10 Retailers, Consumers Need Digital Coupon Education

75%

66%need “Yes, retailers more education about digital coupons”

Retailers

10%

75%

10% are “No, retailers already sufficiently educated about digital coupons”

66% “Yes, consumers need more education about digital coupons”

Consumers

10%

10%

“No, consumers already are sufficiently educated about digital coupons”

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THE RETAILER LEARNING CURVE FOR DIGITAL COUPONING

Retailers have been through several iterations of what might be considered digital coupons, beginning with printing manufacturer coupons at home, then posting circulars (with coupons) on web sites, loading coupons to a loyalty card, and now mobile coupons that can be read right from the shopper’s phone. But the bottom line is figuring out how to increase revenue from coupon delivery while improving customer satisfaction. Roche Bros., an 18-store grocer in the suburbs of Boston, plans to adopt digital coupons in conjunction with digital wallets as shoppers begin to demand them. “We want to find a way to identify the consumer and have personalized offers, and reward people who shop with us frequently,” said John Lauderbach, VP of IT. One obstacle they cite is a lack of understanding about how digital coupon compensation/reimbursement works. “The infrastructure for coupon compensation is paper,” Lauderbach noted. “If (digital is) more convenient for the retailer, that would be great.”

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THE TIPPING POINT: RETAILERS EMBRACE DIGITAL COUPONING

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The Digital Future Retailers are confident that digital coupons are the future. The largest groups of respondents agree that in 2013, the number of paper coupons will stay the same, while the number of digital coupons redeemed will increase slightly. By 2018, however, paper coupon use is projected to decrease considerably while digital coupon redemption will increase dramatically (Figure 11). “That seems to be the way the market is going, and a way to be relevant to younger, more tech-savvy people,” said Zellers’ spokesperson.

Figure 11 Digital Coupon Redemption Will Dramatically Overtake Paper

62% 62%

58% 58%

48% 48% 24% 24% 16% 16%

12% 12%

Paper coupons now (in 2013)

74% 74%

20% 20% 12% 10% 12% 10%

Paper coupons five years from now (in 2018)

Increase Increase Dramatically Dramatically

Increase Increase Slightly Slightly

21% 21%

16% 1% 16% 1%

Digital coupons now (in 2013)

Stay StaySame the the Same

14% 2% 14% 10% 2% 10%

Digital coupons five years from now (in 2018)

Decrease Decrease Dramatically Dramatically

THE DIGITAL FUTURE

Today, newspapers serve as a primary delivery vehicle for paper grocery and health and beauty aid (HBA) coupons. But newspapers are going mobile: The mobile newspaper audience was up 58% in an average month in 2012 compared with 2011, according to the Newspaper Association of America. New couponing strategies must reflect this trend. The strategic benefits offered by digital coupons can help retailers achieve overall business goals, as indicated by a wide range of executives, including C-level, who are now involved in executing coupon initiatives. In addition to expected titles, such as head of marketing, head of merchandising, head of store operations and head of consumer service, 22% of retailers involve CEOs, 21% CFOs and 16% CIOs in coupon projects (Figure 12). C-level executives at department stores are more likely than others to be engaged in coupon initiatives, while fewer pharmacy/drug store execs at this level get involved.

Figure 12 The Cross-Functional Involvement Of Digital Coupon Decision-Making

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THE TIPPING POINT: RETAILERS EMBRACE DIGITAL COUPONING

Conclusion: Retailers’ Digital Couponing Predictions and Demands Retailers across industry segments are realizing that the benefits of digital coupons surpass paper coupons in a number of ways, among them: n Cost savings n Ease of delivery n Improved consumer satisfaction n Increased revenue n Reduced fraud Digital couponing also offers retailers vastly improved ways to identify, understand and build relationships with consumers based on their individual needs and values. Our survey of retail executives indicates that the more merchants learn about how to implement digital couponing programs, the faster they will adopt digital as their primary couponing vehicle. A large majority of retail executives believe the benefits of personalizing digital coupons will translate to higher sales, increased redemption rates, and more frequent purchases. An even larger majority agree that digital coupons improve their ability to track and analyze valuable consumer data that will likely result in bigger basket size. Driven by these benefits and consumer demand, companies will increasingly embrace and adopt the digital coupon model.

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THE TIPPING POINT: RETAILERS EMBRACE DIGITAL COUPONING

Appendix SURVEY DEMOGRAPHICS

My company is a:

25%

Department Store Retailer

39%

Grocery/Supermarket Retailer

23%

Big Box Retailer

13%

Pharmacy/Drug Store Retailer

What is your company’s annual revenue?

18%

Less than $10 million

30%

More than $1 billion

24%

$11 million - $50 million

11%

$501 million - $1 billion

17%

$51 million - $500 million

How many stores does your company operate?

12%

More than 2,000

20% 1-10

9%

1,001-2,000

13%

9%

11-50

501-1,000

22%

101-500

15% 51-100

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THE TIPPING POINT: RETAILERS EMBRACE DIGITAL COUPONING

About Retail TouchPoints Retail TouchPoints is an online publishing network for retail executives, with content focused on

411 State Route 17 South

optimizing the customer experience across all

Suite 410

channels. The Retail TouchPoints network is com-

Hasbrouck Heights, NJ 07604

prised of a weekly newsletter, insightful editorial blog, special reports, web seminars, exclusive benchmark research, and a content-rich web site featuring daily news updates and multi-media

P: 201.257.8528 F: 201.426.0181 [email protected]

interviews at www.retailtouchpoints.com. The Retail TouchPoints team also interacts with social media communities via Facebook, Twitter and LinkedIn.

About Zavers by Google Zavers is a fast and easy way to offer the right coupons to the right shoppers, and track redemption in real time. Shoppers can find manufacturer discounts on their favorite retailer websites or across the web, and add the digital coupons to their online accounts. Savings are automatically deducted at checkout when shoppers swipe their rewards card or type in their phone numbers — no scanning or sorting necessary. With Zavers, retailers can reward loyal customers with relevant coupons, extend incentive programs, and speed up settlements. For manufacturers, Zavers provides the ability to manage and track the effectiveness of coupon distributions, giving marketers access to realtime redemption data so they can tailor and optimize their campaigns.

Learn more at google.com/zavers.

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