Print `Em Up

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.”

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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.

Not only does Coupons Inc. recommend against offering coupons for free product, it no longer will distribute such coupons online for manufacturers. “It introduces too much risk for our clients,” says CEO Steve Boal.

In response to fraudulent use, supermarket chains Albertson’s Inc. and Publix Supermarkets in September said they would curtail their acceptance of coupons printed from the Internet. Albertson’s rejects Internet coupons that offer free products rather than discounts while Publix rejects any kind of coupon printed from the Internet.

Other top recommendations for skirting fraudulent redemption include shortening both the coupon’s expiration date and the campaign. “Don’t print a coupon that represents a nice value off a product and make it valid for a year,” says Boal. “Make it valid for 14 to 30 days. Push the consumer into making a product purchase. It works for the manufacturers and for the consumers.” Boal also strongly recommends that retailers and other sponsors of coupons put some kind of identifying information, such as the consumer’s name, on the face of the coupon, similar to personalized coupons that come in the mail.

CoolSavings recommends the same. “We require advertisers to print a household name on the coupon. That way, the store cashier can check ID, which goes a long way toward preventing or discouraging reproduction and distribution of the coupons to households that weren’t intended to receive them,” Moog says. “If you can limit availability to a particular credit card number or household address, you have a better chance of limiting the application of that offer.”

That’s not to say fraudsters haven’t tried to alter that identifying information. Standard FSI coupons distributed in newspapers or via mail are printed on glossy paper and carry information on both sides; coupons printed from the Internet are one-sided, appear on printer paper and are therefore easier to reproduce and easier to get past store cashiers.

A technology solution

Coupons Inc. tackles that problem with technology that prevents an Internet coupon from being printed out on anything but a true home printer, reducing the likelihood the original data on the coupon will be tampered with. It attaches code to the coupons it distributes over the Internet that detects and stops attempts to print coupons through other interfaces that could allow a coupon to be edited-—for instance, by changing the expiration date—before printing.

Coupons Inc. in August launched its Veri-Fi system, designed to help retailers identify counterfeit or altered coupons in the store. Store personnel can check coupons against criteria posted and accessible free at veri-fi.com by visiting the site and typing in a three-number code that appears on the face of the coupon. In addition to listing the physical features that constitute a real coupon, typing in the code also brings up information on the face value of the coupon being checked, the product, the summary information on the coupon’s face, the correct bar code and expiration date that should be on the coupon, and the time of day it was printed. Any differences between the printed coupon and the coupon as posted on veri-fi.com are readily apparent.

Some stores say such verification encumbers checkout, but Boal says the system isn’t meant to be used in-lane, but only where a problem is suspected. “In practical terms, the issue a retailer might have is when they start to see multiples of a coupon; or they might have questions about a coupon’s value,” he says. “Typically a retailer will not reject a customer at the point of sale, but a store manager can visit the site and determine whether or not there is an issue.”

Coupon providers are working on other security measures as well. CoolSavings, for example, plans to roll out initiatives this year, including functionality that will automatically offer online coupons only to consumers not already in the advertiser’s database. Scheduled for release later in the year is technology on the back end that verifies whether the coupon user qualifies for the offer and reverses discounts on purchases where that’s not the case.

Shorter lead times

Properly executed, online coupons have unique benefits to offer their sponsors, especially in flexibility. “The big divide is the lead time,” Boal says. “The lead time associated with delivering coupons in newspapers is quite long. You have to schedule dates well in advance and manage exclusivity of categories so you are not bumping up against a competitor in the same publication. Online, you can deliver a higher or lower offer depending on who you are trying to reach. You can manage your redemption budget and track performance in real time.” In addition, he notes, going online reaches the growing segment of the population that does not buy a newspaper.

For those reasons, sponsors’ concerns aside, providers such as CoolSavings and Coupons Inc. report no slowdown of their business as manufacturer participation and the level of redemptions continue to rise.

And as the popularity of this marketing strategy grows, they have advice for consumers as well. Faced with an increasing number of coupon purveyors, consumers must be sure they are dealing with coupon companies that will actually give them value. “Be careful not to land on a site that purports to deliver coupons, but collects too much information about you without giving you an adequate reward,” says Boal.

mary@verticalwebmedia.com