FARE 2013: Rethinking Coupons

Smartphones set to rewrite how consumers use coupons

Jason Toews

SCHAUMBURG, Ill. -- Imagine the novelty of a huge, electronic billboard that has on display a live version of the old-school video game, "Pong." Now imagine that with your smartphone, you're able to play.

According to Jason Toews, co-founder of GasBuddy, Brooklyn Park, Minn., McDonald's did just that, where winners received prizes they picked up at participating restaurants.

That's the new coupon. It's another mindset. While newspaper circulars currently dominate the way coupons get distributed (87%), electronic coupons will become the norm, especially with the snowballing adoption rate of smartphones, Toews told a group of about 40 attendees at the recent CSP's Foodservice at Retail Exchange (FARE) in Schaumburg, Ill.

Addressing a morning session on digital coupons, Toews explained how the $400 billion business is quickly transitioning. Two big reasons are cost and effectiveness. Digital coupons cost almost nothing to produce vs. newspaper coupons, while achieving a 30% redemption rate. That's in stark contrast to the 0.5% rate for newspaper coupons.

Consumers are also starting to revisit coupons. In the instance of quick-serve restaurants, for instance, Toews said "combo meals" and dollar menus seem to be losing their attraction, with consumers less certain of the value they're receiving. On the other hand, people are seeing actual value with coupons.

And using coupons doesn't always mean a consumer is spending less. Toews said a more high-end box of tea may cost $2.50 but with a 75-cent coupon would be $1.75. And yet the same sized box of a more generic brand may only cost $1.25 to start.

The main reasons retailers would want to use coupons in the first place are mainly to expand their customer base and increase sales as well as entice customers to switch stores they shop. But before electronic coupons take off, several elements have to be in place.

First, technologies may need to settle out. Currently, people can obtain coupons in numerous ways, including general coupon websites, proprietary mobile apps, scanning of receipts, location-driven solutions (where passing by a retailer signals a coupon on a user's phone) and near-field communications (where a chip in the phone can handle the coupon process).

While one or even all of these modes may gain popularity, the trick is for the consumer to feel comfortable using that method.

Other challenges include visibility, or how a coupon appears and then fits into a consumer's life; security, or how effectively a retailer can manage coupon redemption to minimize fraud or misuse; and mutual benefit, where both retailers and suppliers get something out of the equation.

Fortunately, the age of "big data" helps, Toews said, as numerous data sources including social media, point-of-sale transactions and even U.S. Census  information can aid in creating relevant coupons.

In the end, retailers can benefit on numerous levels. They can gain customer insight through tracking where, when and by whom coupons are used. They can see campaign results. And hopefully boost the bottom line.