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Rising coupon fraud weighs on marketers

Digital coupons help marketers boost brand loyalty at a time when consumers are more budget-conscious than ever. But coupon fraud is growing, making it difficult to make the most of these programs and potentially costing marketers money.?

“It is certainly a growing problem and something we’re focused on dealing with,” says Susan Stribling, spokesperson for Coca-Cola North America. ?

Coca-Cola withdrew a coupon for a free 12-pack of any Coca-Cola product in June due to widespread counterfeiting. Another marketer, Reynolds Consumer Products Co., pulled a coupon in June for a free roll of Reynolds Wrap aluminum foil. Last week, coupons for Nivea Body Wash and Breyer’s ice cream were flagged as counterfeits. ?

In the last 18 months, there have been?95 instances of verified counterfeits, according to Coupon Information Corp. (CIC), a nonprofit coupon industry organization. That compares with 14 verified fakes in 2007, and just two significant cases between 1986 and 2001.?

The trend shows no signs of stopping. “It’s going to get worse for awhile as the economy continues its downward trend,” says Bud Miller, executive director for CIC. ?

Kelly Hlavinka, a partner at loyalty agency Colloquy, agrees economics contribute to rising fraud. “Customers are looking for good value right now, and coupons – especially in the consumer packaged goods space – are the primary way customers can get value,” she explains.?

The danger is damage to a brand’s reputation and its bottom line.?

In a highly publicized case last year, Target pulled a coupon for $5 off a $25 or more toy purchase because of counterfeiting. The retailer sent the original coupon by e-mail to 85,000 customers. An altered version began circulating with an image and the word “toy” removed to make it apply to any purchase. ?

“Our goal is to always surprise and delight our guests with great values, and we are disappointed that some of our guests may be inconvenienced by our need to respond to this fraudulent tampering and transferring,” said Kathee Tesija, EVP of merchandising at Target, in a statement.?

To make it up to customers, those who originally received the e-mailed coupon received a $5 Target gift card by mail.?

Industry stakeholders agree prevention is the best strategy to combat coupon fraud.?

“Marketers need to put in better security at the beginning, and they need to examine the risk vs. the reward,” CIC’s Miller says. “It only takes one coupon to have a major financial impact on your company.” ?

Miller’s organization’s tips to help manage coupon fraud are below, and Coca-Cola and Target both have measures in place to combat the problem. “Coca Cola recognizes the potential for coupon fraud, and we’re continually working to increase the security and integrity of our coupons,” Stribling says.?

“We have extensive security measures in place to prevent fraud,” echoes Target spokesperson Leah Guimond. “However, we do not provide details to maintain the integrity of these measures.”?

Matt Wise, president of Q Interactive, a major electronic coupon distributor, says fraud may be stemmed by running coupons in a conservative manner and by giving coupons a unique barcode. ?

CIC also gives marketers anti-counterfeiting tools, including use of holograms that cannot be replicated. Miller estimates 50% of CIC’s membership is using the tool, including Procter & Gamble and Unilever.?

The vast majority of counterfeits are free product coupons or high-value coupons, Miller says, so marketers need to be vigilant with these offers in particular.?

Store loyalty programs might be an alternative to traditional coupons, since individuals can be tracked and are less likely to “game” the system, Hlavinka concludes.?

“[Fraud is less prevalent] because of the trackability of a loyalty program,” she explains. “If I see someone is earning 600 points in one day, I want that to trigger a fraud alert. It’s database marketing, and it can be tracked back to an individual.”

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