The coupon bubble.

February 1, 2011

The day I received a Christmas card with a coupon from my automobile dealer, I knew the bubble was getting ready to burst. From now on, we should see a little more sanity among the horde of coupon ]]>

Last year, three billion coupons were redeemed out of the hundreds of billions that were printed. But that’s only the tip of the discount iceberg.

Not only is Retail America awash in coupons, it’s also awash in discounts, sales, doorbusters and loyalty programs.

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“Buy one. Get one free.”

Consider Burger King’s recent television commercials. Two chicken sandwiches for the ]]>

Or perhaps to position Burger King as a two-for-one place like Little Caesars did decades ago? Instead of “Pizza. Pizza,” perhaps we’ll see “Chickie. Chickie,” at some point in the future.

Even many high-end stores are joining the rush to slash prices.

• Lord & Taylor . . . “60%-80% off. Save big all over the store.”

• Saks Fifth Avenue . . . “50% off already reduced prices for a total of 65% to 70% off.”

• Brooks Brothers . . . “Savings up to 50% off regular retail prices.”

And what newspaper or magazine sells subscriptions at their full prices? As

The New York Times says, “Stay 100% informed, for 50% less.”

“Fifty-percent off” seems to be the magic number to catch the attention of consumers. Our local newspaper, The Atlanta Journal-Constitution, runs a weekly column under the heading “This week’s big deals.”

The vast majority of the deals are fifty-percent off. Or “buy one, get one free” in everything from soup to plastic surgery.

(One wonders if Geico will someday have to change its slogan: “15 minutes will save you 15 percent or more on car insurance.” Saving 15 percent is so yesterday.)

With the increasing volume of coupons, sales and special deals, the end is near. The consumer is getting the message, loud and clear.

“I’m seeing a trend,” said one shopper, “if something isn’t on sale, people aren’t buying. I think people just expect sales now.”

Even The Wall Street Journal carries a weekly insert called Smart Source magazine loaded with deals and coupons. The last insert I counted had 68 pages and 129 coupons.

Like most marketing fads, the coupon craze is typical of the follow-the-leader thinking rampant in the marketing community. “If everybody is using coupons, then coupons must be an effective marketing tool.”

And they are. In the short term. But not necessarily in the long term. It’s easy for a company to check sales and redeemed coupons to decide if its couponing program is financially successful or not. But that’s only in the short term.

What happens in the long term? How many customers will a company lose tomorrow because they stocked up on sale products today?

The beginning of the end.

The end of a bubble is often marked by a spectacular development. On October 17, 2006, the housing bubble reached a climax with the sale of Stuyvesant Town — Peter Cooper Village, a residential complex of 53 buildings and 11,250 apartments on the east side of Manhattan.

Bought by Tishman Speyer Properties and BlackRock for $5.4 billion, Stuyvesant Town lasted less than four years before the acquisition fell apart. On January 24, 2010, Tishman Speyer gave up control by handing the complex to creditors, thereby avoiding a bankruptcy of the site.

The coupon bubble reach a climax on December 3, 2010 when news began to circulate that Groupon had rejected a $6 billion buyout bid from Google.

Let’s see if I got the Groupon concept right, a concept the founders believe is going to revolutionize local retail marketing. A shade more than two years after its founding in November 2008, Groupon is worth in excess of $6 billion?

Or maybe the number is $15 billion, the figure quoted in a New York Times article about a planned Groupon initial public offering.

The Groupon concept? Give consumers the opportunity to buy coupons for something like 50-percent-off regular prices. Then split coupon sales fifty-fifty with local retailers.

Presumably, local retailers are happy to sell their products and services for 75-percent-off regular prices. Sounds like a great deal for Groupon, a lesser deal for consumers and a road-to-ruin deal for local retailers.

But hope springs eternal, of course. Presumably, all those consumers who bought products and services for 50 percent off are going to be happy to return to their local retailers and buy those same products and services at full prices.

That’s not going to happen. What is going to happen is that those same consumers are going to go back to Groupon and wait for the next 50-percent-off sale.

What the Retail Groupies forget is that consumers are not just shopping locally. They’re also using the Internet to shop nationwide.

If they find a local deal, they’ll go for it. Otherwise, they’ll go on the web to find an even better nationwide deal.

Everybody is getting sale crazy.

You see the same phenomenon happening across the retail spectrum. Macy’s, Kohl’s and most department stores seem to have totally ditched the idea of positioning their brands. Instead they are relying on discounts, sales and coupons to keep consumers coming back into their stores.

Nobody is more sale crazy than the folks at Jos. A. Bank. And creative, too. Every week or so, the clothing chain gives its discount strategy a different twist.

The latest Jos. A. Bank twist: “50% off entire site. 60% off any 2nd item. 70% off any 3rd item.”

When almost every store is having a sale, the sales tend to cancel each other out. Instead of attracting new customers, they’re really appealing to existing customers. After all, existing customers are better able to evaluate whether a sale is really a sale or just another pump-and-dump operation. (Like a stock promoter, a retail store will often pump up its regular prices in order to dump those same products later at huge mythical markdowns.)

Years ago, somebody in the supermarket industry invented the “double coupon” idea. A number of chains offered to redeem manufacturers’ coupons for twice the face value.

Fortunately, this ill-conceived concept died out before too many supermarket chains went bankrupt.

In marketing, the advantage is being different.

When everyone else is running sales, it’s hard to be different by running a sale. Today, a chain can be different by not running a sale. The biggest beneficiary of the coupon craze is Walmart which seldom runs sales or issues its own coupons.

A recent Walmart advertisement compared the prices of featured products at leading national drugstore chains with its own prices. Walmart prices were “20% less, on average, than the leading national drugstore chains.”

Someday, some leading consumer-packaged-goods brand will run an anti-coupon campaign that could shake up the industry. “No coupons. Never issued them. Never will.”

Notice how effective Southwest Airlines has been with its “No change fees” and “No baggage fees” campaigns.

As a matter of fact, Southwest has been enormously successful by doing almost everything just the opposite of the strategies employed by the big carriers. No first-class service. No international flights. No food. No pets. No advance seating reservations. No inter-airline baggage exchange. No corporate discounts.

One of the secrets of Zappos’ success is the absence of deals. Compared with most other sites, Zappos stands out as a paradigm of price stability. Consumers don’t have to worry that someone will buy the same shoes next week for 50 percent off.

The start of a trend?

As America becomes more monolithic, I think you’ll see the value of sales and coupons inevitably decline.

In the past, discount devices like coupons were effective in broadening a brand’s customer base, especially if a company could keep them out of the hands of its regular users.

With the advent of social media, that’s getting more difficult do. The word about deals can spread rapidly.

Look at a website called Coupon Sherpa, a source for online coupons, grocery coupons, printable coupons, restaurant coupons and coupon codes to over 5,000 stores. Slogan: “Never pay full price again!”

Is that the future of retailing in America? Only time will tell.