Coupons and Customer Loyalty? It’s not what you think!

We're talking about customer loyalty with clients and prospects a lot these days. Everyone wants it – some are working strategically to achieve it. Many more seem to be focused on short-term demand generation tactics, which can have surprising results from a loyalty standpoint.

Coupons are a great example of how a tactic aimed at generating demand for one participant in the value chain may build loyalty for another. Coupons are generally top-of-the-funnel tactics that convert consumers from considering to trying a product. Loyalty comes later – and brands work hard earn it. In general, the product usage experience is most important in building repeat purchase and loyalty.

According to research by IRI and Platform A that was conducted in late 2008 and reported on last month, “More than 90 million US consumers (78% of retail shoppers) currently use newspaper coupons, and 40 million (40% of shoppers) say they are likely to use coupons accessed online.”

No wonder newspapers are stuffed with all those inserts and circulars. In addition to being one of the only remaining revenue sources for newspaper publishers, most shoppers report that they actually use them. Who are these shoppers? The same IRI study found that nearly one out of every four newspaper-coupon clippers is likely to be age 65+. That means three of every four are under 65!

For a whole variety of reasons, coupons are shifting online. Q Interactive found that as the recession has worn on and as more people are more comfortable online, online coupon usage has increased significantly:

“From July to October 2008, consumers printed an average of 477,000 coupons per month at Q Interactive's online coupon site Cool­Savings.com, a 33% increase over the first six months of 2008, and a 124% increase compared to the monthly average for the full year of 2007.”

According to Q Interactive, Google has an application that lets the user scan a barcode in a store into their phone, press a button and search for comparison prices at nearby stores. This app would seem to work best for categories that people are willing to shop around for - more expensive goods or where the risk of getting it wrong is high. In other words, not groceries, where we know people tend to go to the same store(s) for the vast majority of their purchases. Rarely is a coupon worth an extra trip to another, less familiar grocery store.

Cellfire is a new digital coupon service that works on consumers' Smartphones and computers and is relevant to grocery and specialty retail. Kroger frequent shoppers can link their grocery savings card to their Cellfire account, and the coupons they select are immediately loaded to their grocery savings card. The coupons are applied automatically on qualifying items and reflected on the receipt at checkout when the card is presented. Once a coupon is used or expires, it's automatically removed from the Cellfire account. Sounds a lot more complicated than Safeway's program - all a shopper needs is to sign up, have a phone number, and purchase anything the retailer has on special for its loyalty program members.

For groceries, some time soon, we’ll be able to retrieve coupons on our Smartphones and have scanners read them at checkout just like they read paper coupons today. In this scenario, where does the equity flow – to the brand whose coupon I just redeemed so easily? To the retailer who accepted the digital coupon? Or to the app or the device that brought me the coupon and allowed me to avoid having to cut it out or remember to bring it with me to the store?

Each player in this story has its own customer purchase funnel at work. Online and newspaper based coupons are effective at driving trial for food and CPG brands (including store brands). New services related to digital coupons may build loyalty for the device and application developers, not the product or store.

IRI speculates that "we’ll be seeing CPG manufacturers using online coupons to court a new generation of consumers and build loyalty during these cost-conscious times.” I suspect online coupons will build awareness and trial among a new generation of consumers, and increase their loyalty to their Smartphones!