In the same way the Tin Man won his heart, mobile apps and digital rewards may help tobacco and convenience retailers build higher affinity rates—but only if they can overcome a number of technical and operational hurdles.
Convenience-store retailers can run the gamut of sophistication regarding technology, but the connection between tobacco and loyalty has emerged as a growing opportunity, especially as major manufacturers awaken to the value of retailers’ transaction data.
Tobacco is the No. 1 category in convenience for coupon redemption, says Jeannie Amerson, a former retailer who in January joined Coconut Creek, Fla.-based Zipline as its new director of consumer engagement.
“Tobacco coupons have reached customers for years through direct-mail efforts,” she says. “It’s only natural that customers would now expect them to be delivered through [digital and] mobile.”
Obstacles exist, however. Amerson says Cupertino, Calif.-based Apple now has a policy for its apps that prohibits discounts on tobacco or promoting the sale of tobacco. A major tobacco manufacturer’s app was pulled from the Apple App Store a few months ago.
“We will need to watch how Apple enforces their new policy relative to coupon distribution for tobacco and alcohol,” she says.
Lawmakers also have tobacco coupons in their sights. New York City, for instance, banned cigarette coupons in 2014. Today, a proposal moving through the New York state Senate and Assembly also seeks to ban coupons. Lawmakers say the coupons and discounts undermine the state’s effort to deter smoking by raising taxes. It’s a “way for big tobacco companies to get around the high prices of cigarettes,” said Assemblywoman Shelley Mayer (D-Yonkers).
Opposition aside, Amerson says that when properly targeted, coupons can provide multiple benefits:
> Build mobile engagement by driving in-store purchases.
> Promote loyalty for retailers’ locations and individual brands, because mobile coupons are valid only at specific stores.
> Reduce fraud related to paper coupons.
> Provide valuable data for suppliers and insight into the customer’s market basket.
During the past two years, major cigarette makers have begun writing contracts requiring retailers to provide their point-of-sale (POS) transaction data, with specific formatting guidelines, according to a source who used to work for a tobacco manufacturer.
Because of the Master Settlement Agreement, which the government implemented with major tobacco manufacturers in 1998, wholesalers and distributors have had to comply with strict reporting practices. So they have had automated shipment data for some time, says the source, who spoke to CSP magazine on condition of anonymity.
“They’re now trying to close the loop to get the [POS] transaction data,” the source says. “So retailers who can provide data in the format requested get compensated for that.”
“Things have picked up [for tobacco companies] in the past two years, but it’s entering a heavy time of sophistication,” says Brad Van Otterloo, chief revenue officer for Koupon Media, Dallas. “And yes, they’re absolutely gaining a great deal of momentum within convenience.”
Fortunately, some of the complexity Amerson experienced is evaporating today as third-party providers fill in the gaps. Take coupons, for instance. Jim Nevill, president of Midax Inc., Cape Charles, Va., says one of the biggest issues for a retailer that takes coupons is getting paid.
“To execute that transaction, you have to integrate with the loyalty program in that POS [register],” Nevill says. “The other part is understanding how the accounting [for all parties] works and getting money through in a timely manner—you have to connect the dots on every piece.”
For Van Otterloo, the process of offering digital coupons to convenience stores evolved over time. In 2011, when Koupon Media started, few c-stores were even scanning. Coupons came either on paper or on customers’ phones with price look-up or PLU codes. Cashiers would type the code into the POS to accept the coupon.
As scanning became commonplace, digital coupons that cashiers could scan became more popular. Leading-edge chains are now moving to generating coupons made specifically for an individual customer, essentially offering a unique barcode.
All these technological developments solve issues of processing coupons, including validating expiration dates, obtaining age verification and keeping people from reusing the same coupon, Van Otterloo says.
Prior to digital, coupons were rarely used at c-stores, primarily because paper was too inefficient for operators in this channel, Van Otterloo says. With digital, that inefficiency goes away.
“Knowing the industry and how tobacco is 36% of inside sales, it’s [now] an important community of offers,” he says.
While the opportunity to offer tobacco coupons has obvious appeal, some in the loyalty space warn of a new digital disruption. Much in the way Uber disrupted the taxi business with ride sharing, coupons and other digital offers may radically reshape the supply chain.
Web services such as goPuff already offer convenience items through online ordering and home delivery, but the major consumer packaged goods (CPG) brands have the potential to circumvent the retailer as well. Anton Bakker, president and CEO of Outsite Networks, Norfolk, Va., calls the process “retail bypass surgery.” In that scenario, brands build their own database of loyal customers and market directly to them, spending trade dollars that could have gone to retailers.
“What I call the ‘go economy’ cannot be stopped,” Bakker says. “It’s not, ‘Do I join or not?’ You have to join them. If you let them go alone, you’ll be bypassed.”
Companies such as Richmond, Va.-based Altria Group Distributing Co. are in the midst of getting consumers to download and use their apps, offering coupons as a lure. New York-based Seeking Alpha reports that the effort is a steppingstone in the release of Philip Morris’ new heat-not-burn product iQOS.
What’s critical is the data, Bakker says. That’s where retailers have a bargaining chip. Organizations with the scale of major brands have the resources to do complex analytics. “But they are nothing if they don’t have the data to go into predictive models, and beyond the data, the ability … to communicate with the consumer in a relevant manner,” he says.
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