Digital Growing Pains
The ability to better understand shopper behavior and drive sales is fueling digital promotion growth, while cost concerns and skepticism linger.
The reasons for going digital abound: You can now trace shoppers' movements from their home computers or smartphones to the digital offers they redeem in-store. By tying the information to loyalty card and other direct marketing data, it's possible to make a direct correlation to the content that influenced purchase behavior in ways marketers could only dream about decades earlier.
"Coupons are about more than the savings," says Cali Tran, president of Valassis Digital in San Francisco. "When weighing the return on investment, you must also look at the marketers' objective—using digital to drive in-store traffic, driving website traffic, increasing brand awareness, and social sharing." Besides digital coupons sent to phones, print-at-home coupons also are growing, according to Tran.
Coupons play an undeniable role in influencing consumer behavior, yet for all the buzz around digital and its potential in the world of food and consumer goods, the impact among retailers and brands has been uneven. Some consumers simply aren't interested in participating, according to Kurt Jetta, CEO of TABS Analytics.
"Digital coupons really don't resonate all that well with consumers," says Jetta. "There's this whole mass market that is not adopting in ways people think in their head they are."
For example, when Mondelez International partnered with Ahold last year on a digital campaign for Oreo Thins designed to attract women ages 25 to 54, it didn't reach the older portion of the target market. The campaign did encourage shoppers younger than 35 to try the new line extension, Anne Martin, Mondelez' customer director for shopper marketing, said at the recent Path to Purchase Expo.
"Coupons are about more than the savings."
WHAT'S THE ROI?
Another factor is that the time and money involved in going digital doesn't always pay off at the register, and when costs are subtracted, the benefits are even less clear, leading to the question of whether digital leads to higher performance for retailers.
The answer largely depends on the market served and how the brand or retailer has positioned itself in the omnichannel arena. Nielsen insights from 2015 suggest 14 percent of global respondents download retailer apps to receive offers or information, and one in 10 use in-store Wi Fi to receive offers. Online and mobile coupons have the highest penetration at 18 percent of global respondents.
To Jetta, numbers like that justify waiting for the digital market to mature before making a large investment. Jetta calls the hype over digital "a bubble economy" driven by a small slice of the population who are early adopters and by aggressive marketers. "There are economic incentives for retailers who want to push these things. The discount is 100 percent subsidized by the manufacturer," he says.
The digital share of Mondelez International's total marketing budget grew to 43 percent in 2015 from 30 percent in 2011, said Mindy Rickert, customer director for shopper marketing, value and convenience at Mondelez. Rickert considers digital more efficient than traditional marketing tactics while acknowledging it doesn't hit the entire market.
Large CPG companies' growing use of digital is tempting other brands and retailers to jump on the bandwagon. "The predicament is you believe there's some big demand and you're losing shoppers [if you're missing out]. But there's no evidence," Jetta says. The rationale for holding off becomes even more strategic when you consider digital lends itself to comparison shopping and could encourage more price-sensitive consumers.
"Mobile wallets and the whole payment process need to make it an easier solution than cash or debit or credit."
When consumers engage with brands using their smartphones, most want savings or rewards, says Danielle Brown, vice president of marketing at Points, a research firm. In a survey of consumers who use smartphones and were familiar with mobile wallets, 94 percent said they would use a mobile wallet more frequently if it came with rewards, and 71 percent said they redeem coupons on their smartphones. But it also has to be easy to use.
"Mobile wallets and the whole payment process need to make it an easier solution than cash or debit or credit," Brown says. "Until they start offering consumers what they want, that adoption rate is going to be low."
Coupons and promotional campaigns also were the most effective type of mobile creative for driving sales on a dollar-per-thousand basis, compared with equity branding, interactive, usage, or other approaches, according to a May 2016 study from 4INFO/Catalina/Nielsen Catalina Solutions.
Without mobile apps or send-to-card offers, digital coupons haven't performed well. In the past, consumers often were challenged to get back to the coupon when they were checking out, says Chuck Moxley, chief marketing officer at 4INFO.
Mobile apps, mobile wallets and offers tied to loyalty cards have brought improvement, while more sophisticated data analytics means marketers can connect offline transaction data to a mobile impression for more precise measurement. "What we've been able to do is tie a mobile device to a physical street address," Moxley says, then use household internet usage and purchase data for more precise targeting. "I'm still shocked at how many people still don't know you can actually tie offline transaction data to a mobile impression," he says.
GAME THEORY IN ACTION
The more marketers know about consumers, the more relevant their offers can be. "It's the whole game theory. It's a fair exchange. People are willing to give you information or download your app or interact with you if they feel they are getting value for that exchange," says Cheryl Black, CEO of YOU Technology, a San Francisco-based digital coupon technology provider owned by Kroger. "CPGs are interested in getting that direct connection."
The next big thing in digital couponing is "variable value" coupons, according to Black.
"So it's the same offer but the value that gets delivered is dependent on what someone needs to make the purchase," she says.
It's likely to increase redemption, which is about 5.8 percent for all digital coupons, compared with 0.4 percent for mass market free-standing-insert coupons, according to YOU Technology's data. However, digital coupons comprise just 1 percent of the roughly 381 billion coupons distributed annually, while print-at-home coupons add another 10 percent, and FSIs still dominate at 89 percent of the market.
YOU Technology's data indicates basket size increases among digital coupon users and can boost overall spending, but not revenue per item. "It's a slightly lower per-product spend, but I think it's because they're using coupons," Black says.
Her research shows men are more likely to use digital coupons than paper because the tech gadget image of presenting their smartphones at checkout instead of rifling through a paper coupon wallet is much more attractive to them.
"It's the whole game theory. It's a fair exchange. People are willing to give you information or download your app or interact with you if they feel they are getting value for that exchange."
Encouraging shoppers to use digital has been half the battle. During a Big Brand Bash event held last February, ShopRite achieved a 260 percent increase in digital coupon use in the event's two-week duration compared with the previous June, Donna Zambo, director of eCommerce at Wakefern Food Corp., said at the Path to Purchase Expo.
However, achieving that growth rate required an integrated approach with usage of print marketing and in-store signage. "Importantly, we featured events across four pages of our print circular," Zambo says. "I would say we were aggressive and unapologetic on the number of touchpoints."
More than half of the redeemers were millennials and Gen X shoppers, Zambo says. The larger your millennial business is, the more a grocery retailer can justify investing in digital coupons, mobile apps, and other consumer-facing digital technology. Because millennials are the future family shopper, experts will tell you, you're wise to meet them where they spend much of their time now—on their smartphones.
Whether consumers who shop online with their phones today are likely to end up a friend or foe to grocery retailers in the years to come remains to be seen. Millennials can be fickle, and they're increasingly likely to order a meal from GrubHub or DoorDash, a meal kit from Blue Apron or a large grocery order from Amazon. Given that most grocery retailers have major investments in the store experience, the potential exists to overshoot on the digital front.
For example, click-and-collect might lure shoppers to a physical location, but as Larry Levin, executive vice president of consumer and shopper marketing and thought leadership at IRI, said at the Path to Purchase Expo, "what I wonder is how many people actually pick up their bags and walk the store, versus how many people pick up their bags and walk out of the store."
Grocers are still testing the online waters, but digital contrarian Jetta doubts the bullish forecasts some marketers are making.
"You win a case for being online if there's overwhelming evidence you are missing out," Jetta says. "That's not clear, so it is counterproductive for retailers to be moving resources to these e-commerce activities."
Three Rules for Navigating the Digital Future
Digital has already changed shopper behavior in dramatic ways. As brands and retailers develop and execute longer-term strategies, three foundational principles are influencing the digital roadmap:
Invest in your brand: Digital makes it easier for consumers to comparison shop, but brand equity can boost loyalty. Wakefern has moved away from national coupons to banner-specific digital offers over the past six years, says Donna Zambo, director of e-commerce at Wakefern Food Corp., which owns ShopRite, Price Rite, the Fresh Grocer and Dearborn Markets.
Consider the numbers: Grocery remains largely a mass-market business, so consider the cost of a million one-on-one marketing conversations compared with a well-executed mass campaign. "P&G came out and said they're no longer doing targeted Facebook advertising, because they don't want to limit themselves to a certain segment of the population, because they need scale," said Larry Levin of IRI, speaking at the Path to Purchase Expo. "I would argue that's one way to look at it, but again you can personalize your messaging."
Know your target: Millennials want digital information, but many other segments don't use it regularly. Aiming a digital campaign at a target that doesn't use mobile can backfire, particularly if shoppers feel it's an intrusion. Target, which offers a proprietary mobile app, also is maintaining its mass reach while catering to consumers who like the convenience of digital by allowing them to deliver a print coupon from a free standing insert to their smartphone by texting a code word, such as Drink, to TARGET (827438).