Small Step for Kroger May Be E-Coupon's Giant Leap

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Internet couponing took another step toward marketing's big leagues last week when grocery giant The Kroger Co. announced it has launched an experiment on its Web site.


Cincinnati-based Kroger is the country's largest grocery retailer with close to 1,400 stores and $26.6 billion in annual sales last year. For about three weeks, the company has been offering to send discount coupons on house-brand products through the mail to visitors to its Web site at www.kroger.com.


"We're doing it to see if people are interested in obtaining coupons this way and how that translates into sales," said Kroger spokesman Paul Bernish, who declined to offer more details. "So far, so good is about all I can tell you."


Consumer packaged-goods manufacturers are mum about their plans for Internet coupons, but the concept provides one possible solution to a problem that has been vexing them for years.


"Coupons reward switching behavior," said Bob Egan, vice president of marketing and information services at PlanetU Inc., San Francisco, the company managing Kroger's online coupon efforts. "What manufacturers hate about them is the lack of targeting and the fact that you're pretty much rewarding heavy coupon clippers who switch back and forth between heavy volume offers."


Eliminating coupons, however, is all but impossible. Eighty-five percent of consumers use them to buy groceries and health and beauty care products, according to a study released last week by Cox Direct, Largo, FL. And at least one attempt to move away from traditional coupons was a public-relations disaster.


A year ago, Wegmans Markets, Rochester, NY, and 10 consumer-goods manufacturers reached a $4.2 million settlement with New York State Attorney General Dennis C. Vacco after he filed suit saying the firms conspired to eliminate coupons. The suit stemmed from an investigation after a 1996 experiment in which Procter & Gamble tried a zero-coupon/everyday-low-price strategy.


Enter Internet coupons. Their promise of delivering personalized offers might allow manufacturers to use coupons to build brand and attack the switching-behavior problem without drawing consumer ire.


"The Internet offers marketers the ability to hit the right people with the right offer at the right time," Egan said.


Case in point: In February, another PlanetU client, Dick's Supermarket, Platteville, WI, began offering personalized discount offers to Savings Club cardholders who enter their profiles on the company's Web site at www.dickssupermarket.com.


Unlike other Internet coupon programs, Dick's is paperless. Members log onto its site with a pass code and select offers. The discounts are tallied automatically during checkout on products in the members' shopping carts when they swipe their cards. To promote with coupons and still avoid rewarding switchers, Dick's can offer nonusers of a product an aggressive trial offer, while heavy users get discount coupons on a large purchase of the same product.


Dick's also has timing options unheard of in traditional couponing. The grocer took advantage of a snowstorm report last winter to offer Savings Club members discounts on hot-chocolate mix purchases three days before the storm hit.


"We could never have put a Sunday-insert coupon into the paper that quickly," said Ken Robb, senior vice president of marketing at Dick's, but he declined to give response rates for the hot chocolate effort.


Savings Club members are redeeming 20 percent of the offers they select on the grocer's Web site, usually within a week, Robb said.


"The implication is that the consumer has a higher sense of ownership and a higher propensity to buy the product," he said.


There are a slew of online coupon efforts under way, but PlanetU's main competitor in the consumer packaged goods arena is SuperMarkets Online Inc., Greenwich, CT, the Internet arm of in-store marketer Catalina Marketing Corp. Supermarkets Online launched a Web coupon program called ValuPage in January and has signed on 40 manufacturers, including Nabisco and General Mills.


To participate in ValuPage promotions, consumers enter their ZIP codes at www.supermarkets.com to get a list of participating local retailers. Once the consumer chooses a retailer, Supermarkets.com returns a "ValuPage" with single bar code and a series of offers valid for the current week using "Web Bucks" as the reward (as in "Buy any package of Huggies diapers and earn $1.50 in Web Bucks").


Consumers print the ValuPages on their home printers and give them to cashiers during checkout. When the bar code is scanned, a printer attached to the cash register produces a corresponding number of Web Bucks for each ValuPage product in the cart. The Web Bucks are redeemable for discounts on any purchase made -- excluding milk, liquor and tobacco -- on the next visit to the store. SuperMarkets Online says 8,000 stores accept Web bucks.


Two weeks ago, more than 186,000 people downloaded ValuPage shopping lists and bought more than 100,000 products, according to SuperMarkets Online president David Rochon.


"That's a terrific conversion rate," he said.
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