At CoolSavings.com, targeting online coupons serves up more than just sales
By Mary Wagner
Fresh from a previous job in new business development for Microsoft Corp.’s MSN that put him in the middle of the web’s fast-rising commercial development, Matthew Moog looked at CoolSavings Inc.’s business model and believed it could be a winner. His challenge on joining the marketing and promotions company as vice president of marketing in 1996 was convincing everybody else.
“My job at Microsoft had been to explain to companies how they could leverage the Internet to advance their own business,” says Moog, who became CEO in 2001. “The CoolSavings model made a lot of sense to me. It was a great convergence of Internet marketing with database marketing and promotional marketing, in a much better way to deliver promotional offers to consumers.”
Targeting
The way that CoolSavings had identified was to use the Internet to deliver targeted promotions on behalf of marketers, and it was a key departure from the mass mail distribution at the backbone of the couponing industry for decades. But there was a problem: In 1996, not a lot of people knew the Internet and even fewer recognized its promise.
“Retailers thought we were crazy,” Moog says. “Our focus initially was on coupons that you could print out and bring to stores. But the Internet had not yet become all that popular. And the people that it was popular with were thought to be young, geeky men.” In other words, the sort of consumer who might buy software and consumer electronics, but not the family staples and apparel that most of the retailers first approached by CoolSavings wanted to sell.
Moog saw the Internet as a perfect platform for collecting and using customer data to improve marketing performance by applying it to coupons, samples and promotional offers. The CoolSavings model combined a core expertise in database and direct marketing with a knowledge of personalization, modeling, and how coupons and special offers work for marketers.
But it took some wrangling on the part of Moog and his team in the first few years to convince coupon sponsors that the Internet would become a medium that women would use to find sales information and promotional offers, and that it could effectively augment their other marketing activities.
Ultimately, the Internet developed in ways that Moog and CoolSavings’ investors had foreseen. Moog joined a company that had four employees upon his arrival: today, he heads a staff of more than 100. Cash flow positive for the past five quarters, the company reported its first full year of net profitability last year: $700,000 on net revenues of $32.4 million, up from $26.4 million in 2002. Moog anticipates CoolSavings’ revenues will double this year from 2001’s $21 million, driven by new advertisers coming on board as well as increased spending by its major existing advertisers, who retain programs year to year at the rate of about 90%.
What happened between that can’t get-past-the-door launch year and the revenues that Moog projects at $40 million for 2004? New technologies, marketers’ increasing comfort level with the web and a rising online population, he says, all have made advertisers and consumers more receptive to CoolSavings’ message. Moog says CoolSavings’ success hinges equally on its acceptance by both audiences.
“We really serve two masters,” says Moog. “We generate our revenue directly from advertisers, who pay us to reach consumers that are a part of our service. But if we ever lose site of that fact that it’s the consumers who make this business possible, we won’t get far.”
Tripling volume
Growth was not on a straight upward trajectory, though. In 2000, just before the recession which killed advertising of all kinds, CoolSavings had revenue of $39.9 million. The following year, its revenue plummeted to $22.2 million. The recession slowed the demand for advertising, pushed down advertising prices and constrained CoolSavings’ marketing ability.
From an initial focus on retailers such as J.C. Penney Co. Inc. and Toys R Us Inc., the company’s client list today has broadened to include major CPG brand manufacturers as well as service and media companies. Chicago-based CoolSavings has spent hundreds of millions to get to this point, including $50-$60 million in marketing and tens of millions on technology. A full time sales staff of 50 combs the ranks of new and existing advertisers for promotions that will attract more shoppers to CoolSavings.com.
Last year, consumers downloaded three times as many coupons as they did the year before and the company expects coupon downloads to triple again this year. It won’t say how many coupons that is.
6 billion data points
While it’s deals that bring consumers to CoolSavings.com, the core of the company’s value proposition for clients is its targeted, interactive marketing platform. CoolSavings’ database now contains 6 billion data points on 32 million households, and its active users number about 12 million. “We are more a company that provides targeting, insights and relationship marketing with our consumer database than we are just a simple way to distribute coupons,” Moog says. “A lot of offline businesses can do targeting but it’s very difficult for them to track the response in real time to follow up with the consumer, and personalize for their next interaction with that consumer.”
The difficulty of replicating the Internet’s speed and control in offline coupon programs is one factor encouraging growth in Internet coupon distribution. Other attributes of the online environment are limiting factors in the eyes of some coupon sponsors. For one thing, though the number of Americans online continues to climb—about 75% of Amercans now have Internet access at home, according to Nielsen/NetRatings — Internet access isn’t yet universal.
And the Internet landscape is much more fragmented when it comes to coupon distribution than the traditional Sunday newspaper FSI—free-standing insert. “You are talking about a coupon on a site reaching thousands of people, versus hundreds of thousands, which is what you often find with a Sunday newspaper drop,” says Forrester Research Inc. analyst Christine Spivey Overby. “If you compare them on an apples-to-apples basis, you’ve got some marketers who don’t see why they should be doing Internet couponing.”
Getting market info
That raises the subject of the purpose of couponing in either environment. Because promotions give away margin, Overby adds, marketers sometimes paint coupons as a necessary evil, and manufacturers have had something of a love-hate relationship with coupons as a result. But online couponing can deliver something more than sales: customer data.
“Where Internet couponing is effective is in the measurement capabilities it supplies,” Overby says. “In the offline environment you know basically what your impressions were and what your redemption rate is. But you have no way to test if you would have gotten a better redemption rate by increasing the offer by 25 cents. The cycle is longer to plan, and you don’t have that direct information on a household basis on who used the coupons.”
While grocery coupons are its biggest category, about 22% of CoolSavings’ coupons are redeemed at mass merchandise stores such as Wal-Mart, Kmart and Target, an increase of four percentage points from last year. Both supermarkets and mass merchandisers are interested not only in selling to but in learning more about the consumers that now constitute a sizeable chunk of CoolSavings’ database. According to Moog, “Nearly 80% of our customers are female, and we have a very strong bias toward the woman who has children, is a homeowner, has a pet and a household income in the $50,000 to $70,000 range. Nearly everything we do is with that profile in mind.”
While that means CoolSavings won’t be looking to the likes of Neiman-Marcus for growth, there’s plenty of potential upside among marketers looking to target consumers within the CoolSavings profile. By Moog’s own estimation, the biggest challenge in realizing that potential is persuading advertisers to shift money away from traditional media such as direct mail, TV, print and radio to the Internet.
To make that case to prospects, CoolSavings points out that in contrast to those other media and even to other online advertising, Internet promotion distribution can quickly demonstrate sell-through in the brick-and-mortar channel as well as online. “It’s unusual for an Internet company to be able to show sell-through in different channels. What makes it possible is that the coupon is a trackable mechanism,” Moog says.
Leveraging the database
Moog also emphasizes CoolSavings’ ability to target different offers to different types of customers, arguing that offline coupon distribution to a mass audience is less efficient. “You might be giving a valuable customer who already would have shopped at your store the wrong kind of discount. And you might be giving a shopper who spends a lot, but just not at your store, too low a value. So to the extent that you can vary the value of the offer based on what you know about the consumer, you can not only make the campaign more effective, but more strategic,” he says.
To give retailers, CPG manufacturers and other marketers more reasons to shift promotional dollars online, CoolSavings finds more ways to leverage its customer database. On that broad set of services, it competes with other promotion services providers on a category-by-category basis. Coupons Inc., for example, is another major provider of Internet-delivered, printable coupons, but under a different model. Rather than providing marketers with access to a customer database like CoolSavings’, it licenses its technology to an online component of SmartSource, the offline distributor of grocery coupons, to compete directly with CoolSavings on its printable grocery coupon business. In other lines of business CoolSavings competes with providers of targeted sampling, lead generation, e-mail and even offline direct mail promotion services.
With coupons figuring large in its offering, CoolSavings has expanded beyond printed and Internet-printed coupon formats. With the recent acquisition of Targeted Marketing Services—a company it once sued for patent infringement under its former name of PlanetU.com and settled with in 2000—it acquired the ability to deliver paperless coupons at the point of sale in grocery stores, as well as the grocery retailer and CPG manufacturer relationships TMS had developed to support it. The first time a consumer using the technology selects an offer presented online, she’s asked to type in her grocery-store frequent shopper card number. If the grocer is participating in the program, the shopper is able to use the card at the store without printing or clipping any coupons to receive the discount automatically.
For the rest of its growth strategy, CoolSavings is working to advance its targeting and personalization technology to fine-tune offers to consumers. It’s launched a distribution and syndication network for its customers’ promotional offers that allows it to serve and track those offers not just on CoolSavings.com but also on partner sites. In a bid to build consumer loyalty to CoolSavings.com, it’s planning a cash back awards program that will record customers’ purchases both online and offline to allow them to build up a rewards account more quickly.
A hedge
With multiple services on offer or in development, CoolSavings has a hedge against what some see as a drawback to sites that do no more than aggregate coupon deals. “There are a couple of ways manufacturers and brands use online couponing and I would say the aggregate sites are not going to be the most effective in the long term,” says Overby. “They tend to attract people who are more discount minded. That is not always the type of consumer a company goes after. But if you take an Internet coupon and use it as a means to get people to register for your e-mail newsletter, for example, it’s the first step in a loyalty program. That becomes more attractive for the brand because then it’s not giving away margin just to get someone to buy once.”
The factor most critical to CoolSavings’s future is also one of the most basic: putting up more online offers to pull in more shoppers—and more customer data. Moog calls it “the single most important thing.
“At any given time, we have hundreds of offers to push out there,” he says. “We want thousands and thousands, so we can pick the ones that are the most appropriate for each consumer. We think we have barely scratched the surface on services we can offer at CoolSavings.com.”
mary@verticalwebmedia.com
