A recent page one story in Supermarket News ("Test of Coupon System Promises a evolution") talks about newly found answers to clearing coupons electronically.
This story, prompted by Catalina's announcing it had developed such a system, has raised a number of questions. By explaining the issues perhaps we can answer a few.
Typically today, coupons are accepted by a retailer, bagged and sent to the retailer's coupon-processing plant, which is usually across the border in Mexico. At this plant, the coupons are sorted by a manufacturer and counted on behalf of the retailer.
The retailer's clearinghouse then bills the manufacturer and sends the coupons to another coupon processor, functioning on behalf of the manufacturer. The coupons are then counted again, and the "offer code" information is entered. This information tells the manufacturers when the coupon was dropped, in conjunction with what promotion, in what markets, etc.
When retailers started scanning coupons, electronic clearing became possible, based on scanner data. Only two obstacles existed: first, the basic lack of trust between retailers and manufacturers, and second, the inability of in-store scanner systems to read the secondary code.
With no answers in sight, Quick Pay was developed as an interim solution to motivate retailers to scan and validate coupons based on the promise of earlier payment. Validation promised to save manufacturers more than $250 million per year in misredemption costs. Several manufacturers and a few retailers are involved with Quick Pay testing. But with Quick Pay, coupons still follow their traditional path of manual sorting and counting, after the electronic totals have been sent.
Catalina's recent announcement is an agreement with Spectra-Physics involving scanners that can read the secondary code at the front end of the store (addressing obstacle No. 1), and Catalina collects the information directly from the store "loop." It then forwards the information directly to manufacturers, taking care of the trust issue (obstacle No. 2).
Catalina wasn't the first to develop these solutions. Advanced Promotion Technologies several years ago tested a system it called the Coupon Eater at a Kroger in Nashville, Tenn. The test was discontinued after a year, primarily, Kroger said, because the manufacturers' number system 5 codes had too many errors, so coupon scanning slowed up the front end. APT had this product on the back burner, but the company just announced that it's been issued a patent for an updated version of the electronic coupon redemption and validation network.
More recently, Comark Merchandising purchased an auto-discriminating scanner from CSX Railroad, which Comark Technologies has been testing in a Safeway store in Phoenix. This system looks very promising but to date has not been expanded beyond the Safeway installation.
The reason the Catalina announcement received so much attention is that it is implementing the product on a very broad scale, which it is able to do because of an extensive installed base. This does not, however, mean that Catalina will necessarily dominate the market. Comark is continuing to expand its product. Some of the coupon processors will undoubtedly develop their own electronic clearing systems.
The good news is we now have momentum for electronic coupon clearing, in general. The joint industry coupon committee is expected to approve a standard offer ("extended") code in the near future, which will make it easier for other vendors to enter the market, and the inefficient manual process will slowly become a thing of the past.
