A quick look at three start-ups offering high-tech answers to inefficiencies created by discount coupon use.
Ever since Coca-Cola pioneered the concept of discount coupons, in the early 1890s (offering one free drink at a soda fountain, a 5¢ value), they have been part of Americana, for better or worse. Last year consumer-product manufacturers showered nearly 300 billion coupons, worth an estimated $179 billion, on shoppers. Despite their pervasiveness -- an estimated three-quarters of the population has been known to clip them -- coupons are still an expensive way for consumer-product manufacturers to buy customers. That's because of their low redemption rate, typically less than 3%, and high "misredemption" rate (when retailers "gang clip" and redeem coupons that have not been turned in by consumers as part of a sale -- a problem estimated to cost companies more than $500 million annually). Spotting opportunity in those inefficiencies, entrepreneurs are beginning to enter the coupon fray, armed with a high-tech arsenal of electronics, databases, and interactive media.
Some of the new coupon experimenters:
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In Store Media Systems Aurora, Colo.
Fourteen years in the electronic-coupon field taught Everett Schulze that a successful coupon program must satisfy three constituencies: the consumers, the grocers, and the consumer-product manufacturer. Schulze's product, which he plans to roll out by the end of the year (in Phoenix/Tucson, Salt Lake City, Chicago, and Atlanta), will supposedly do just that. Called the Coupon Exchange Center, it is an electronic point-of-purchase coupon-distribution system that pays shoppers cash (in the form of an electronically generated check at the checkout counter) and prizes for buying selected products.
Manufacturers will pay Schulze's privately funded start-up, In Store Media Systems (ISMS), $20 a month for product exclusivity in a store, plus a commission for redeemed coupons. In return, they will receive radio, print, and round-the-clock kiosk advertising from ISMS, as well as monthly reports detailing their products' performance on a region-by-region or store-by-store basis.
There is no charge for participating stores: ISMS will handle kiosk installation and service, and claims its system will eliminate for stores the hassles of coupon handling and float (the amount of money they have to cover for redeemed coupons while they wait for manufacturers' checks to arrive in the mail). And for manufacturers, misredemption will no longer be a problem.
Schulze projects that ISMS will break even within its first six months of operation and will have revenues of $660 million at the end of three years.
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Advanced Promotion Technologies Pompano Beach, Fla.
"When we pull this off, we will totally change the face of marketing," predicts Cathy Amann, communications director of electronic-marketing start-up Advanced Promotion Technologies. APT's system, called the Vision Value Network, combines electronic marketing, financial services, and a frequent-shopper program in a single unit at the checkout counter. Interactive terminals deliver individually tailored coupons and instant cash-off discounts, provide recipes, show video promotions, conduct marketing surveys, generate sweepstakes and games, and allow customers to pay for their purchases.
The company spent its first five years in research and development and market testing after being founded in 1987 as a joint venture between Procter & Gamble, Dun & Bradstreet, and others. Since May 1993, when it began rolling out the system nationwide, APT has installed its network in 200 supermarkets. It has contracts with 880 more (including all 350 Vons stores). Participating consumer-product manufacturers pay APT an average of 6¢ per promotion delivered to a shopper. APT, a public company that lost nearly $21 million last year on revenues of $1.6 million, projects 1996 revenues in excess of $200 million, based on a rollout schedule of 1,000 stores a year, says CEO H. Robert Wientzen.
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Trakart Framingham, Mass.
Ron Guerriero concedes that customer interest in high-tech electronic-marketing schemes is still "intellectual as opposed to practical," and that may explain why he found his first client in the bookish city of Cambridge, Mass. With $500,000 worth of venture-capital funds, Guerriero started Trakart in September 1993 to capitalize on a unique coding, printing, and mailing technology that enables promotional materials to be tracked -- identifying for advertisers shoppers and their specific purchases.
Trakart is marketing its trackable promotions to discount and department-store chains, malls, and fast-food outlets. The company is also conducting several direct mailings designed to generate a detailed customer database for Cambridge's Harvard Coop. Trakart projects it will break even by year-end and post revenues of $2 million in 1995, Guerriero says.