Manufacturers are cranking out coupons by the billions
Open a newspaper, a magazine, a box of cereal, or a bag of dog food, and you'll find them: cents-off coupons, dollar-off coupons, ads for double-coupon savings, stories about ''coupon queens'' who buy over $100 worth of groceries for a few dollars and a wad of coupons.
The sheer volume of coupons is staggering: 119.5 billion issued in 1982, an increase of 65 percent over four years earlier, says A.C. Nielson Company, which tracks their use. And more are on the way, as marketing managers discover that, in the words of Malcolm C. Douglas, sales promotion director for Pillsbury Company's Consumer Foods Group, ''It works.''
Manufacturers use the gimmick to promote three types of sales: getting people to try a new product, keeping old customers, and taking customers away from competitors.
''Let's say you're selling dog food - an industry that uses lots of coupons, '' says Dr. David Reibstein, marketing professor at the Wharton School of Management in Pennsylvania. ''First, you want to target only the people who own dogs and send them a coupon,'' he says. ''The easiest, most effective way is to put one in the box of dog food, because that way you're guaranteed an audience interested in your product.''
The manufacturer might also send coupons through the mail to known dog owners , he says, or put one in the newspaper - the least effective marketing method, since it reaches ''many people who don't have dogs and aren't interested in the product at all.''
But consumer advocates complain that the targets for these coupons are selected not on the basis of need, but income. They say that coupons tend to be sent to middle- and upper-middle income groups, ignoring the people at the bottom end of the scale who could use them the most.
Says Pillsbury's Mr. Douglas, ''That's not true for us - we aim generally for households with children, with incomes over $7,000.''
And Dr. Reibstein believes that intelligent targeting of coupons is based, not on need or income, but on the likelihood that the customer will use the coupon. ''If they're sending it out only to upper-income people, who tend to be less price sensitive, chances are it won't get used,'' he says - ''not an intelligent marketing plan.''
Some consumer advocates and retail grocers suggest that the customers would be better off without coupons altogether. Says Audrey McCafferty, spokeswoman for Kroger Company, the second-largest grocery chain in the United States, next to Safeway: ''We've told manufacturers that we'd rather have the lower list prices to begin with. Some have agreed, and we've experimented with it. We know we're selling more of their product.''
But Dr. Reibstein doubts that simply lowering the prices will bring as many customers as a coupon: ''When you have a coupon, you feel like you're making a savings. Simply paying a lower price doesn't give you that same sense.''
There is some question as to whether the consumer actually does pay a lower price with a coupon. ''(Manufacturers) raise their prices, and then offer coupons,'' Ms. McCafferty says. ''We'd rather have the lower list prices year round.''
Mr. Douglas says the cost of coupons is figured into Pillsbury's marketing budget each year and doesn't affect the price of products directly. ''Of course, we charge the wholesale price and have no way of controlling what retailers charge,'' he explains.
Dr. Reibstein says that what Ms. McCafferty claims may ''occur here and there , but I don't think it's prevalent.'' He says that the same argument is often raised about brands that do a great deal of advertising, ''and then their competitors charge lower prices in response, so the brand names wind up costing more.''
Consumer advocate Barbara Salsbury also says brand names tend to be more expensive, noting that even with a cents-off coupon a brand-name product may cost more than a house brand of similar quality - and thus be a worse buy for the consumer. Even the so-called coupon queens know that using a coupon to buy a product your family cannot use is no bargain.
But Dr. Reibstein says coupons can be effective in lowering costs, ''if you're willing to take on the hassle of cutting them out, sorting them, and keeping track of them.'' He suggests that the ones who really pay for the coupons are retailers.
Ms. McCafferty implies this as well: ''(Coupons) require special handling, which is expensive, and then we sometimes don't get reimbursed for four to six weeks.''
Robert Grottke, the partner in charge of retailing for Arthur Andersen & Co., headed a recent study on this very issue. In it he concludes that the money manufacturers give to retailers to reimburse them for the cost of handling coupons should be increased from 7 cents to 8 cents a coupon - which he says would take into account the waiting period.
''With about 5 billion coupons redeemed each year,'' Mr. Grottke says, ''you can see why the retailers are interested in this - that's $400 million.''
In fact, experts are starting to complain about the number of coupons issued, which they say has grown to unreasonable heights.
''Now everybody's doing it, says Mr. Douglas, of Pillsbury, ''and there are a lot of people out there who shouldn't be couponing. What good is a 10-cent coupon for Morton salt?'' Manufacturers with few competitors have hopped on the coupon bandwagon, he suggests, just because everyone else is doing it.
Still, with studies like Dr. Reibstein's showing that redemption rates go as high as 20 percent if the targeted group is narrow enough, manufacturers cannot resist using coupons. And it's not just the grocery-store trade that's interested anymore: Wrangler has offered rebates on jeans in Sunday newspapers, and other marketers are now allowed to offer cents-off refunds or rebates in 33 states.
About half of all the offers now made by Pillsbury are coupons, Mr. Douglas says - and for a simple reason: ''It's a very viable tool.''