Was Lacking Packaged Goods Buy In

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Print-at-home coupon service LLC's demise last week is another indication that consumer packaged goods companies have yet to buy completely into Internet couponing.

Investors led by Valassis Communications Inc., which owns more than 50 percent of, refused to further finance the Culver City, CA, coupon service. "The combination of the difficult marketing environment and investment climate created the situation where they couldn't get enough advertisers to get to critical mass, and they couldn't get enough funding to sustain their business model until they got to a critical mass," Lynn Liddle, vice president of investor relations and communications center at Valassis, Livonia, MI.

Two-year-old joins coupon-category casualties and

Valassis, a market leader with revenue of more than $800 million, claims its free-standing insert business is still strong. Newspaper coupon inserts are part of packaged goods companies' marketing plans and built into their base line sales, Liddle said.

"It's something that [packaged goods marketers] know moves product for them, and when they are in a situation where marketing budgets are being cut and they're under siege to a certain extent, then something as ancillary as Internet couponing becomes less important to them," she said.

An estimated 248 billion paper coupons were distributed nationwide in 2000. Of that, 4.5 billion were redeemed at a consumer savings of $3.6 billion.

Even with Valassis pulling the plug on, online coupon technology provider Coupons Inc. claims that the Internet market still shows promise.

For example, while offline coupon redemption rates average 1 percent, claims for online hover around 10 percent, said Steven R. Boal, president/CEO of Coupons Inc., Palo Alto, CA.

"We're actually seeing brand managers take their marketing dollars from offline media and moving them online," Boal said. "They're seeing a drop in newspaper circulation as more people migrate to reading their news online."'s problem was that Internet users had to go to the site to get the coupons, he said.

"The online couponing model is one that must rival the offline world in that you need distribution," Boal said. "Building a destination and helping people land there to print coupons is not the way to address the market."

With that in mind, online coupon firm Nuvisio serves coupons at other sites. Once redeemed at a store, the value of a Nuvisio NestEggz coupon is deposited in an online savings account that earns 15 percent interest. Consumers can withdraw cash at any time.

"The biggest challenge is to give a reason to the consumer packaged goods companies ... to use the Internet as a medium," said Dani Birnbaum, president/CEO of Nuvisio.

The most cited obstacles to online couponing are potential fraud and lack of distribution.

But the online fraud issue is probably overblown. Offline, manufacturers are known to budget about 20 percent for fraud associated with FSI coupons. The comparable rate for online is less than 1 percent, a figure that few will confirm.

Meanwhile, the distribution muscle is offline. FSI leaders Valassis and News Corp.-owned News America Marketing each distribute an estimated 60 million coupon books per week through newspaper inserts.

For its part, Coupons Inc. has been cementing ties with these offline players.

In March it agreed to license technology to Valassis of Canada. Valassis is also a small investor in Coupons Inc.

And on Aug. 14, Coupons Inc. announced a partnership with News America Marketing's SmartSource iGroup.

Using Coupons Inc.'s Web-printable coupons technology, SmartSource will distribute consumer promotions across its savings network. Formed recently, the SmartSource network comprises and Coupons Inc.'s and other sites, banner advertisements and e-mail efforts.

Meanwhile, online holdout recently reported a net loss of $6.4 million on sales of $5.3 million for the second quarter.

Online coupons may be more targeted and promise higher redemptions. But they still do not deliver the universal access of newspapers -- a known quantity to consumer packaged good marketers.

"[An] obstacle has been providing a broad enough reach that would actually make a difference to my business if I'm a brand marketer and move cases off the shelf in the supermarket," Birnbaum said. "In that area, the industry has not been successful."


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