March 24, 2002

A shift in the mix of media for coupon distribution and reduced frequency of coupon events, combined with suppressed consumer incentives, affected greatly the total number of coupons redeemed in the U.S. during 2001.

The number of manufacturer coupons printed and distributed in 2001 totaled 239 billion,a minor decline of 3.6 % percent over the previous year's volume. Although the total annual quantity printed did not change considerably, a significant 27% reduction in the number of brand events per day meant consumers had fewer opportunities to clip a coupon in 2001.

The events which did run had larger distribution quantities on average and were more national in scale, reflective of the increased use of Sunday Free Standing Inserts, now 84% of all coupons distributed, up from 82% in 2000. While the more targeted media, such as Handouts,Magazines and In & On-Pack, with higher redemption rates per coupon distributed, saw fewer total coupons offered, contributing to the significant decline in coupon redemption volume, down11% to 4.0 billion total coupons redeemed in the U.S., compared to 4.5 billion in 2000.

Also contributing to the decline in redemption was continued suppression of incentive attributes, which made coupons less attractive to consumers. For example, the average face value offered on coupons rose to 83 cents, however, the consumer must now purchase more items to get that savings, thus, the average savings offered per item is really only 72 cents. As result, for the first time since NCH has been tracking coupon trends, the average face value redeemed dropped, now only 74 cents compared to 79 cents last year.

The marketer's strategy of requiring a consumer to buy two or more items in order to receive the face value of the coupon has been growing in recent years. In 2001 multiple purchase requirements were carried on one in every four coupons distributed in the U.S., or 25%of all coupons offered, compared to only 13% of all offers in 1995.

In the past, printing and distributing multiple purchase coupons could be efficient for the marketer, in that only one coupon had to be issued to net two (or more) product purchases. Even with a lower average redemption rate for a multiple purchase coupon event, and the resulting fewer total coupons redeemed, the effect was an improved ROI for the marketer compared to the cost of single purchase offers, because more total products were sold in past years' strategies.

In 2001, however, the marketers¡¦ strategy backfired. Consumers redeemed far fewer coupons, resulting in nearly a billion fewer products moved last year with coupons, down 15%from the prior year. Again, this decline was a first time ever trend noted by NCH, where the total products moved with coupons declined. The benefit of improved ROI was lost due to the mere 1% share increase in coupons offered with buy two or more requirements, issued within low redeeming media and with less event frequency.

"Failure occurred for that strategy, as measured in total products moved, when its usage exceeded the breaking point for consumer response," said Charles Brown vice president of marketing for NCH, "And I'm certain that the cost constrained marketers didn't intend to exceed that breaking point. Hopefully, they'll quickly re-evaluate their individual brand and category strategies, to ensure their own coupons remain profitable, and consumer sentiment positive toward their future offers."

NCH's surveys of consumer attitudes and behaviors toward coupons have been showing for many years a growing dissatisfaction with the values offered on coupons. Last year, a low of only 51% of consumers said that coupons "save them a lot of money," and 70% of coupon users say they skip coupons requiring them to buy more than they normally would.

Overall, coupon usage was reported by 76% of shoppers during 2001, and that portion of the population has remained constant, but the frequency of usage has dropped with declined availability and suppressed attractiveness of the offers. For example, the consumers who report they always use coupons while shopping has dropped to 21% of the population last year,compared to 22% in 2000, and 25% in 1999.

Economic uncertainty may drive more consumers to use coupons more frequently, which was an opportunity for marketers last year. NCH commissioned a consumer survey in January2002 and found that nearly 10% of the population said they had increased their use of coupons since the recession started. NCH noted, however, that the downturn of 2001 was mild and unlike any previously studied recession periods where multi-quarter declines occurred in GrossDomestic Product, such as in recessions of the 70's and 80's, when both distribution and redemption grew.

"2001 was a year of unique trends for coupons, with perhaps some influence of recessionary perception upon consumers, but the year's total results were an anomaly. The data shows decreased savings value, decreased redemption, and decreased products moved with coupons, so one might ask why? The answer lies in the influences upon the marketer," saidBrown.

Like the previous year, several large CPG companies consolidated via merger, impacting promotional spending. As well, several consolidations begun in 2000 took longer than expected for FTC approvals, contributing to the coupon spending decline. "Consolidation strategies often net temporary reductions in promotional spending, due to numerous short-term business distractions," said Brown.

Another influence upon the cost-conscious marketer, especially for the small to mid-size manufacturer, has been some rather dramatic changes in retailer invoicing practices for coupons. The resulting perception of inefficiencies and inequalities to the product manufacturer caused them to eliminate some events and reduce consumer attractiveness of their offers.

The outlook for the future is not without optimism, according to NCH. "Some in the industry will have to take a step back, based on these reported results, and evaluate thereupon strategies to maintain viability for consumer motivation. The shopper's willingness to use less coupons remains very strong. What's needed is a basic evaluation of marketing mix allocations and appropriate redemption incentives for each brand's promotion objective. And not everyone went over-board last year, many marketers continue to get it right," noted Brown.

Additionally, NCH has seen evidence of post-consolidated companies returning to greater levels of coupon distribution. "The first quarter of 2002 appears to be a highlight for couponing this year," added Brown.

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