With the economic downturn hitting consumers where it hurts, brands and retailers are under pressure to offer shoppers some much-needed respite. At a time when price is the prime motivator for shoppers, retailers and brands, token- and coupon-based promotions are once again coming into their own.
The thinking is seemingly straightforward: money-off or collector schemes are fairly simple to track and control, and risk management is an excessive indulgence. Or is it?
Coupons are a sure-fire way to boost short-term sales, and distribution through newspapers, in-store magazines, on-pack or as part of sampling activity is paying dividends - it is obvious that when times are hard, consumers react more positively to a money-off coupon than the chance to win, say, a luxury holiday.
Coupons - whether they be money off next purchase (MONP), instant win or gift with purchase - also represent an easy way to achieve the two main objectives: rewarding customer loyalty and growing sales.
Word of warning
But brands and agencies seduced by such simplicity ignore the usual risk management procedures at their peril, say the specialists.
The danger with this approach in the current economic climate is that redemption levels are often much higher than expected as shoppers make a conscious effort to save pennies wherever they can.
Even in more predictable times, redemption rates on coupons can vary from between one and 15 per cent, depending on the distribution channel and the value of the coupon. In fact, the more straightforward the promotion, such as a money-off coupon, the more likely a larger percentage of consumers - many of whom would not usually redeem coupons - will take advantage.
For reasons like these then, many brand owners do cover coupon and token activity. According to Brian Gibb, director of risk management company VCG, 30 per cent of his business now comes from covering coupon promotions, up from 20 per cent in 2007.
He says manufacturers are replacing the expensive BOGOF and 'twofer' promotions with extra-value offers such as MONP and gift with purchase. Nigel Ashdown, commercial and finance director at Umbrella, has also noticed increased interest from clients in gift-with-purchase promotions. A successful recent campaign for Flora Proactive gave consumers a free cholesterol and heart check at any of Lloydspharmacy's 650 branches for people who bought two promotional packs.
VCG's Gibb cites a recent added-value campaign on Velvet toilet tissue as an example of what risk management can bring to a push. Shoppers collected three tokens from promotional packs to claim a cuddly panda, with a donation made to the World Wildlife Fund.
"Even with a mechanic as simple as this, things can go wrong," says Gibb. "The brand has to ensure there are enough pandas in stock, for example. A fixed-fee company can manage the process, which may involve secondary orders with air-freight implications and other uncertain costs."
This campaign coincided with a simultaneous retailer-led promotion on the same Velvet packs, negotiated by the national accounts team. It meant consumers could buy six rolls for the price of four and receive a free panda. Although such a double promotion appears more complex, VCG just covered the gift promotion with a fixed fee while guaranteeing a minimal amount of funds for the WWF.
There are definitely politics being played out between manufacturers and retailers when it comes to coupons.
When food manufacturer Lyons wanted to offer Sun readers a free cake, it asked VCG how to limit the redemption risks. The newspaper is read by more than three million people a day, so VCG's advice was to exclude Tesco and Sainsbury's from the offer. "We must make a promotion affordable for the brand so we worked with agency Chemistry to limit any potential damage," says Gibb. "Tesco and Sainsbury's were supported by the brand in other ways."
Rival risk management companies report a similar rise in the number of coupon promotions they are being asked to quote on.
Fixed Fee UK, which says it has had a 40 per cent increase in this type of business, has launched a division called Coupon Solutions specifically to cover the growth in online, on-pack, experiential and media-led coupon offers. "A few brands do want to go it alone and others decide to do so after talking to us," says sales director Dan Westwood. "We are effectively giving free advice, but we want people to trust us and this builds stronger relationships with our clients."
It's good to talk
Nevertheless, Westwood adds that brands should always take precautions to avoid any coupon disasters. "One in seven coupon promotions will be over-redeemed, and companies need to realise that their seventh offer could be the one which costs them thousands of pounds if they don't talk to us," he asserts.
Fixed Fee client Sara Lee includes Douwe Egberts and Ambi-Pur in its brand portfolio. Its senior brand manager, Oliver Dawes, says brands should always talk to risk management companies. "These conversations help to get the mechanic spot on because we tap into their knowledge and insight of a particular market," says Dawes. "Coupons work very well in a downturn because they are what the consumer wants. It is our aim to pre-empt any decisions regarding stock levels that a retailer might be thinking of making by demonstrating to them that we are supporting their customers with good offers."
Stuart Selby, managing partner at Grass Roots One Fee, part of the Grass Roots group, says companies like his provide brands with a valuable second pair of eyes.
"Brands that go it alone are missing out on a lot," claims Selby. "Clients are using coupons to try and hold their market position in a downturn, and we have access to valuable historical data on similar promotions."
He says brands can save money elsewhere by using promotion specialists as a one-stop shop. For a promotion this month for Muller in an Irish supermarket chain, Grass Roots not only provided a fixed-fee contract for an SMS shortcode promotion, but also sourced prizes and organised the printing.
Many of the coupon promotions running now were planned long before the recent banking crisis battered consumer confidence. Philip Penlington, director at risk management company Fotorama, says clients have benefited from this state of affairs because "much of the work was priced and assessed much earlier in the year, so clients are getting great value; the risk management companies are the ones who might possibly lose out".
The right price
For campaigns being assessed now, the risk criteria will include how the credit crunch has affected behaviour. Penlington says: "When it comes to pricing work, we must be aware of the downturn and the likelihood that coupon redemption levels will rise by 10 to 20 per cent. Fixed fees must reflect that."
That should not be a reason for brand owners to cut cover from their marketing equation, argues Penlington. He believes they should always seek advice rather than trying to go it alone. "There are a lot of factors to consider. Offering 50p off rather than 30p will drive participation, but it must be affordable and a marketing team's redemption forecasts accurate," he says. "Or a brand will have to find the extra money elsewhere."
Ultimately, risk management is all about removing uncertainty to ensure any unit sales increase is not wiped out by unforeseen costs of the promotion. When consumers are sniffing out the bargains, and the pressure to deliver return on marketing budgets intensifies, avoiding as much risk as possible is more important than ever.