Sunday, February 17, 2008

Retail Memo: A Tale of Fraud, Larceny and Deceit in the Coupon Industry Points to the Urgent Need to Reform the Entire Product Coupon Process


The product coupon marketing and redemption business has always been somewhat bizzare. Grocery product manufacturers and marketers spend millions of dollars to place the paper "cents off" coupons in newspapers, magazines and slick, free-standing, full-color inserts which arrive at peoples' homes each Sunday in their weekend newspaper.

About 98% of consumers don't bother to take any of their time to cut these product savings' coupons out of the newspaper and magazine pages. Additionally, when they bring their newpaper stuffed with the free-standing coupon inserts in from the porch on Sunday morning, one of the first things many do, is to seperate the coupon inserts from the newspaper and toss the coupon pages in the trash or (hopefully) the recycling bin.
Despite the low redemption rate of 1% -to- 2%, the coupon industry is still a huge business. In 2006, the latest figures available, American consumers redeemed about three billion coupons, which represented around $2.6 dollars in discounts. All of these billions of coupons are processed by middle-men.

Today, when more and more consumers are getting their news from online, internet publications, many have been predicting the demise of the ubiquitous paper "cents off" coupon. However, it certainly hasn't happened yet. In fact, many grocery product marketers place their coupons on internet websites of all sorts. However, in order to use and redeem the coupons for a product discount at the grocery store, consumers still must print the coupons out at home and bring them into the store, just like they do with paper coupons from magazines, newspapers and inserts.

Most grocers hate dealing with the paper coupons as well. They cost money to handle, slow-up the front-end checkout process, and are a drain on store cash flow, as the coupon discounts are deducted immediatly off of the total cost of a shopper's grocery order at the point-of-sale.

Paper coupons also are a huge corporate back-office headache for grocers. They must sort them, bundle them, and ship them off to a coupon redemtion center for processing and to recieve payment. It can easily take 60 -to- 90 days from the time a grocer mails the coupons to the coupon redemption center, and when the retailer recieves a check. This too plays havock on cash flow, especially for large, multi-store chains.

Despite the fact the paper coupon marketing and processing system is a pain for all concerned--consumer, grocer, manufacturer and even the coupon redemption center operator--it continues to flourish. Some attempts are being made to create electronic coupon systems, but such systems are in their infancy stages.

Ironically, one of the people who detested the entire product coupon marketing and redemption process and business the most, was also the best at it from the redemption side of the industry. His name is Chris Balsiger, who for years ran the U.S.'s biggest clearing house for coupons, International Outsourcing Services, LLC.

"It's a lying, cheating, dirty business," Balsiger told Wall Street Journal reporter David Kesmodel, in an intreging story of fear, loathing, intrigue and larceny in the coupon marketing and clearing house industry, published in yesterday's Journal.

Balsiger, 54, is facing a 27-count federal indictment, charged with masterminding a scheme that bilked many of the nation's largest coupon-issuing marketing companies out of at least $250 million dollars, according to the Journal piece.

Among the grocery product companies multi-millionaire Balsiger and seven others are accused in the multi-count indictments of defrauding include Kimberly-Clark Company and cheese-maker Sargento Foods, Inc. If convicted, Balsiger faces many years in federal prison.

This tale of coupon corruption detailed in the Wall Street Journal piece by reporter Kesmodel should at the least lead to massive reforms across the board in the industry.

It also should serve as a red flag to food and grocery industry manufacturers/marketers and retailers to evaluate the entire "cents off" coupon concept from top to bottom, and perhaps either revap it significantly or junk it all together.

Of course, if retailers stopped excepting coupons, manufacturers and marketers would likely stop issuing them. The probelm with that solution thus far has been there will likely always be some retailers who don't stop taking the discount pieces of paper. Like coupons or not, they do bring in some additional business at retail.

Additionally, there's a small but vocal segment of consumers who love their coupons. These people exchange them among one another, write blogs about coupon use, and the hard core uses are even able to save as much as 50% on their grocery orders by mastering the art of coupon use.

We doubt if the grocery industry will stop using coupons even though all are aware of the rampid fraud in the industry. However, hopefully all involved can learn from tales of fraud and larceny like the one Chris Balsiger was in the center of, and reform the industry and the coupon clearing house process so that such cases of fraud and larceny can be minimized.

1 comment:

Marge said...

You write very well.