Online coupons are proving to be a hit with consumers—but they present challenges to retailers in controlling distribution and fraud.
In the quest for new customers, marketers online and off have been using Internet-distributed coupons to attract shoppers. It’s an increasingly popular marketing strategy: last year, consumers downloaded 242 million grocery coupons alone, a 111% increase over the previous year, says Forrester Research Inc. According to The Dieringer Research Group Inc., 37% of all online shoppers, or 39 million consumers, have downloaded Internet coupons.
Some 28% to 30% of those who download coupons use the coupons they print at home to make offline purchases, according to the Dieringer Group. As the Internet has created that new channel for coupon distribution, however, so has it created a new avenue for coupon fraud.
While no one has hard numbers yet, the Coupon Information Center, a manufacturer-funded group that monitors coupon fraud, is developing an estimate of the cost to business of fraudulently redeemed home-printed Internet coupons. CIC executive director Bud Miller says that not long ago he would have been happy to say that virtually all coupons are legitimate. But that was before the Coupon Information Center last year began gathering up examples of counterfeit Internet coupons for store redemption.
In communicating with manufacturers and coupon processors since then, Miller has encountered a manufacturer whose fraudulent redemption rate on one Internet home-printed coupon was 76% of all redemptions. A second company estimated that fraudulent redemption of a coupon available for printing from the Internet for only two days cost it $1 million.
Beyond the scope
“The manufacturer realized almost immediately it had a problem, so it pulled its legitimate coupon off the Internet in two days,” Miller says. But during the 48 hours it was online, someone reproduced and distributed the coupon far beyond the scope of the manufacturer’s intended program-a problem that distributors of paper coupons don’t usually encounter.
Miller says the Coupon Information Center over the past several months has obtained copies of about 50 counterfeit coupons from various Internet outlets. Those with expiration dates or codes altered post-distribution are patently fraudulent while the status of those scanned in from an offline source by individuals and then distributed via the Internet for home printing has been less clear. Recently, eBay indicated it will suspend online auctions of coupons that are scanned and delivered by e-mail.
According to Forrester, some brand manufacturers have resisted Internet coupons as a promotion strategy due to fears of fraud and unintended distribution. But “security has come a long way,” says the research firm, which cites new technology that can enable coupon providers to both target distribution and limit redemption of the coupons.
Online coupon aggregators such as CoolSavings Inc. and Coupons Inc., a provider of printed coupon marketing and technology solutions for CPG manufacturers and others, use sophisticated technology to police online coupons distribution so as to ensure that redemption meets the coupon sponsor’s program criteria. Both companies claim that the rate of fraudulent redemption from coupons they’ve distributed online is less than 1%.
Technology and best practices
Such assurances were enough to persuade Circle K convenience stores, a division of Canadian c-store giant Alimentation Couche-Tard Inc., to make its first online coupon offer-a free beverage-with the help of Coupons Inc. late last year. For Circle K, the online coupon’s job is to give people a reason to visit the web site, which it hopes will, in turn, drive them into the stores. “Duplication fraud is certainly a concern. But we felt confident enough that between the technology offered to us by Coupons Inc. and their systems for monitoring fraud and our own ability to review our accounting systems, we’d be able to identify it and shut the program down if there was a problem,” says web services director Brad Baranek. Baranek also likes the idea of technology that tracks the open, print and redemption rates, as well as the opportunity to learn more about customers as the coupons are redeemed and processed. “We felt the positives outweighed the risk,” he says.
Miller says he has yet to see online coupon distribution that is 100% risk free. That said, however, along with new technology, best practices have emerged from sponsors’ growing experience with online incentives that can minimize the danger that Internet coupons go astray.
As in the offline world, coupons are distributed by marketers online to attract new customers, reactivate lapsed customers, and cross-sell or upsell existing customers. They’re also used to reward loyal purchasers. And they can be very effective in delivering results. “Typically, if you try a coupon or a discount offer it will double or triple your response and conversion rate as opposed to another kind of ad for a given campaign,” says Matthew Moog, CEO of CoolSavings Inc.
That’s good news for the coupon sponsors, as long as the response is from the targeted group. “If there is not a lot of targeting in how you distribute the offer, or security, it can lead to problems,” Moog says. “You may be making coupons available to people who are already customers or the coupons may be implemented in a way that potentially leads to multiple redemptions.”
Indeed, making a coupon too appealing can attract fraud artists, as in the case of coupons for a significant dollar value that don’t have requirements for redemption, such as the purchase of another product. “The biggest risk is when retailers and marketers use a coupon that does not have a minimum purchase required. That is a huge mistake; it’s basically like printing money,” says Moog. “If you have a $5 or $10 coupon with no minimum purchase required, a small segment of the population will take advantage of that and look to purchase items that fall right at the threshold.”
And while the same risk applies to paper coupons, the risk is magnified by the ability of some tech-savvy fraudsters to manipulate Internet-based data. “Their incentive is pretty high to figure out ways to get around your fraud detection system so as to use it multiple times or to pass it on to friends who will do the same thing,” Moog says.