Can Kroger Clip Coupon Value without Harming Customer Relationships?

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Perhaps this story should be filed under the category “All Good Things Must Come to an End.” Kroger appears to be phasing out the doubling of manufacturers’ coupons. The practice gave coupon users an incentive to shop Kroger as the retailer would match a manufacturer’s coupon value, usually up to coupons with 50-cent face value. This week, Kroger’s Central Division announced it would no longer double coupons in its 136 stores, located mostly in Indiana and Illinois. It joins the Houston and Cincinnati divisions in honoring manufacturers’ coupons at face value only. Kroger officials said the reason for the change was that fewer shoppers are using manufacturers’ coupons as they get more offers online.

Not a Popular Move
As you might expect, some Kroger customers are unhappy that their purchasing power has been blunted with coupons no longer being doubled. Social media reactions to the ending of doubling coupons indicate that some customers are sad, some are mad, and some believe Kroger is making a big mistake. Kroger’s counterpoint to complaints about the end of coupon doubling is that it affects only a small percentage of their customers (about 7%). And, in place of forgoing revenue via coupon doubling the company will lower prices on “thousands of everyday grocery items.” Thus, all customers stand to benefit from Kroger’s policy shift, not just the 7% who were enjoying benefits of coupon doubling… at least that is the Kroger company line.

Overcoming Resistance to Change
A key to overcoming customer skepticism will be transparency. Kroger must make shoppers aware not only of the new lower prices, but the items with prices lowered must be communicated. One of the complaints from some shoppers in the markets in which coupon doubling has ended already in favor of lowering everyday prices is that they cannot see the impact of the new program. Perhaps most of the items with lower prices are not items these shoppers buy, but regardless Kroger must proactively show that they have permanently lowered prices on many items.

What Will Be the New Different?
Now that Kroger has decided to phase out coupon doubling in a third region and customers adjust to the new reality of no coupon doubling, what will the company focus on to differentiate itself in an increasingly competitive grocery market? Walmart and Target are aiming to take customers away from traditional supermarkets with low prices and a one-stop shopping experience. Publix has captured a position of best-in-class customer service. Kroger’s point of difference? Well, it is big and getting bigger. Kroger announced this week it is buying the Harris Teeter chain. Unfortunately, being the biggest company in any category is not a very meaningful position to those who matter most: Customers. It’s your move, Kroger. Show us the new different- how will you be remarkable? Kroger to Quit Double Coupons

Daily Deals are not a Bargain

The daily deals coupon market made popular by Groupon and copied by many others (with mixed results), reached a saturation point very quickly. Consumers are bombarded with offers from restaurants, spas, service providers, and retailers offering 50% off on a “hot deal.” The novelty of daily deals wore off as numerous competitors joined Groupon in vying for customers. Yesterday, Groupon’s stock price closed at $4.37, an all-time low. Groupon’s stock value today is a far cry from the $26.11 per share close on the day of its IPO last November.

In less than four years, Groupon has gone from start up to category creator to a troubled business. What happened? Reality has hit businesses using Groupon that the bargains consumers receive come at the expense of their profitability. Groupon’s revenue sharing model typically calls for a 50-50 split in revenues deals sold. Given that deals are usually a 50% discount off regular price, a business has effectively given away three-fourths of potential revenue for every Groupon-bearing customer walking through the door. It is hard for the math to work for low-margin businesses that forsake significant revenue to attract buyers.

Deep discounts like those offered by daily deals are detrimental to building brands. They are gifts to buyers, at least that is how I feel when I am able to get a 50% discount at a restaurant. But, it does little to foster long-term loyalty between customer and brand. In theory, coupons are an incentive that attracts buyers to sample a product. Assuming they see sufficient value, potential future purchases might occur without an incentive. Unfortunately, the glut of daily deals gives consumers leeway to shop around for the best deal rather than buy from brands because of a relationship anchored on something other than a discount.

Customers are the lifeblood of a business. But, attracting them with unprofitable daily deals will cause bleeding that harms a business. Instead, explore how to strengthen relationships with your best customers by rewarding their patronage. It likely does not require a 50% discount, and they will reciprocate your gesture with continued support of your business.

Winning with Social Coupons

Consumers flocked to coupon offers in the past two years as the recession put a dent in our buying power. But, coupons really are not for us; they are ultimately for the gain of marketers that offer them. This small but significant point has been lost on many businesses that have experimented with social couponing services like Groupon. Many businesses have gotten burned because the revenue hit taken and expenses incurred to offer deep discounts to attract customers is not always recouped.

A recent study from Rice University found that nearly one-third of businesses running an offer through Groupon say that lost money on their promotion. More than 40% of businesses surveyed said they would not run an offer on Groupon again. These figures are alarming for the future of social couponing. The medium holds great promise because information about coupon offers can be transmitted through permission marketing and word-of-mouth, channels that are much more cost efficient than traditional channels used to deliver coupons.

Rather than shy away from social coupons because of a bad experience or because of hearing about bad experiences other businesses have had, marketers should take the following steps to manage a social coupon campaign:
1. Do the Math – The expenses associated with a coupon offer can be calculated on a per unit basis when evaluating an opportunity. Revenue sharing with a service like Groupon, cost of goods sold or given away, and any additional labor costs to handle increased demand must be considered when making a decision to participate in social couponing. Realistically, Return on Investment should be based on incremental profit, not revenues. What is the additional profit a promotion brings in once all expenses are deducted? Social coupon offers can be capped; set a maximum number of offers to sell to manage profitability of the promotion.

2. Prepare Employees – One of the problems businesses have had with demand generated by a Groupon offer is that employees can become overmatched in meeting the influx of customers. And, in the case of service businesses, many employees have found that Groupon customers are not always the best tippers, basing tips on the deeply discounted price rather than regular price. Companies should take steps to increase service coverage, train employees on handling service encounters with new customers attracted by a coupon , and monitoring employee satisfaction during peak business periods.

3.Think Long-Term – A coupon can get customers in the door, but other factors will determine if they return. A great customer experience, which is highly related to #2, can demonstrate the value offered and persuade customers to return without the incentive of a coupon. If employees can be persuaded to view these customers more like a new friend than a nuisance, the initial service encounter can set the stage for repeat customer visits. Also, businesses should seize the opportunity of a visit by first-time customers to invite them to expand the relationship by opting in for permission-based marketing in the form of email or by friending a brand in social media.

Social coupons may fall under the category of “spend money to make money,” but when properly executed and managed they should not lose money and hopefully set the stage for developing repeat customers.

Promo – “Groupon Social Coupons Unprofitable for One-Third of Marketers: Study”

Should Customer Acquisition be Painful?

Retailers and service providers use coupons to attract new customers to their businesses. The all important trial that an incentive like a coupon can provide is crucial for creating relationships. A new genre of couponing that has emerged is known as “social couponing,” driven by social media’s capability to spread information quickly from person to person. The leader in social couponing today is Groupon, the Chicago-based company that has become a $350 million dollar company in annual revenue in less than two years. The basic premise of Groupon is that a retailer or service provider offers a coupon at a deep discount (e.g., $10 worth of food at a restaurant for $5) as a carrot to create traffic. Groupon’s cut is up to 50% of the coupon sales. Most Groupon offers are local in scope, but it executed its first nationwide offer this week for Gap.

Deep discounting like that required by Groupon can succeed in adding new customers and revenues. My family found a great restaurant in Nashville, The Local Taco, which we would have never visited had it not been for a Groupon offer. We have been back once at regular price since using our Groupon, and we will go back again in the future. But, for all of the stories like mine, there are many other stories of failure to establish customer connection that will bring them back for future visits without the deep discount.

Businesses considering a Groupon program should be prepared to hold their noses while giving away about 75% in the transaction. Groupon may bring customers in to visit, but the experience they have once they arrive and marketers’ efforts to engage them (e.g., encourage sign up to receive emails to continue the relationship) will ultimately determine if the short term pain actually leads to long term gain.

Online Coupons Can Reward Sellers, Too

Consumers have increased their use of coupons as a way to stretch buying power. The use of coupons has been aided in part by the ease of distributing coupon offers through digital channels. Yes, coupons benefit buyers by enabling them to save money, but payoffs from coupons extend to the sellers that offer them according to the Online Shopper Intelligence study. Findings from the recent study revealed that 57% of online shoppers that made a purchase online would not have made the purchase had they not had a coupon they received online.

It is not surprising that coupons might influence consumers’ decision to buy. A rather unexpected outcome from online coupons is that consumers apparently are willing to spend more money when they use a coupon. In the same study, the average amount spent by consumers with a coupon was $216 compared to $122 for shoppers that did not have a coupon. The upside of the expense a marketer incurs to offer an incentive to buyers may be rewards that come in the form of a higher dollar transaction.

The potential payoffs of online coupons suggest three situations to leverage through digital coupon distribution:

1. Attract new customers – Buyers conducting searches using general product category keywords may be unaware of individual brands. Reaching first-time buyers with online offers is a way to introduce them to your brand with reduced risk to them.

2. Gain competitive advantage – Placing coupons online is a wise strategy given their importance to many buyers. Make access to coupons easier for buyers and more rewarding for you by PPC and SEO strategies that bring attention to online coupon offers. Connecting couponing with search marketing strategies is a way to set a brand apart from competitors that have a less integrated approach to their digital marketing campaigns.

3. Influence product sales – Whether the aim is to introduce new products, sell complementary products, or achieve a higher average transaction, results from the recent Online Shopper Intelligence study suggest coupons empower consumers to spend. A strategic approach to couponing should be adopted. Rather than simply giving consumers a price break in the hopes they will buy, structure coupon offers to achieve broader marketing objectives. Some examples: a) offering a discount for buying multiple items can influence unit sales, b) offering a discount on an item when a complementary item is bought at regular price stimulates sales of both items, and c) mining your customer database to appeal to customers who have not bought in a specified time period can be done efficiently in an attempt to bring them back into the fold.

Adoption of online coupons has a long way to go to match the impact of coupons delivered through traditional media. But, many online shoppers seek coupons when making purchases; why not meet their need and possibly be rewarded by higher spending and brand loyalty? – “Coupons Are Good for the Bottom Line”

Affluent People Like Deals, Too… Maybe That’s Why They’re Affluent!

The country’s economic recession tightened the purse strings of many households. In some cases it was out of necessity as job layoffs or reductions meant less money coming in. In other cases, consumers were being more cautious with expenditures knowing that there was much economic pain being felt by other people. In response to the recession and accompanying consumer pullback, a surge in coupon usage and offers was observed. Consumers sought to save money, and marketers wanted to offer incentives to nudge buyers to take action.

It is tempting to generalize that coupon usage is a practice found mainly in middle and lower income households. After all, they need to save money more than high income households. It turns out that such an assumption is incorrect. A recent study done by Harris Interactive found that a higher percentage of persons with household income of $100,000-$149,999 reported using coupons from newspapers, Internet, and magazines than persons with incomes below $100,000. The most interesting finding was the use of the Internet as a source for obtaining coupons. Two groups of affluent consumers, incomes of $100,000-$149,999 and $150,000-plus, reported greater use of online coupons than the overall population (51% and 53%, respectively versus 40% overall).

Marketers targeting affluent segments should realize that just because these customers have more money does not mean they are less interested in saving money or receiving added benefits via coupon offers. It seems there is greater potential in targeting this audience with coupons in terms of coupon redemption as well as buying power. In particular, these consumers look to the Web for incentives to buy. Affluents are affluent for a reason: they understand spending less money than you take in builds weatlth. Thus, it is not surprising that many of them are coupon users. Respond to them with offers that compel them to buy!

eMarketer – “Web Coupons a Hit for the Affluent”