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CSI Meets FSI: Busting The Myth About The Quality Of Free Standing Insert Coupon Redemption By Valassis Marketing Intelligence Department

valassis.com January 2011

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Myth: Free Standing Inserts (FSIs) only reward current brand buyers. Reality: New and lapsed brand buyers make up the majority of FSI coupon redemption. Coupon distribution and redemption have experienced a resurgence in popularity with the economic downturn that started in Q3 2008, yet marketers still have misperceptions. Therefore, an in-depth analysis has been conducted; consider it a Coupon Success Investigation (CSI) of the Free Standing Insert (FSI). The following paper confirms through primary analytical findings by Valassis that coupon offers delivered through FSIs do not solely reward current brand buyers (a common belief of marketers), but also drive purchases among new and lapsed brand buyers. The study illustrates that 57% of FSI redeemers are either new or lapsed consumers of the promoted brand, which validates the FSI as an effective vehicle for generating trial and conversion.

WHAT IS THE FSI? For nearly 40 years, the Cooperative Free Standing Insert (FSI) has enabled advertisers to run four-color print ads and coupon offers delivered in the newspaper, or in some cases in the mail. Consumer Packaged Goods (CPG) manufacturers (i.e. Grocery, Health & Beauty), Grocery Retailers, Direct Marketers, Restaurants, Retail and many other industries have grown accustom to leveraging the FSI’s national and regional distribution flexibility to drive traffic and incremental sales for their brands. According to the 2010 NCH Topline Coupon Facts clearing and redemption study, the FSI represents 87.7% of all CPG coupon distribution1.

PERSISTENT MYTH In the last four decades, during every rise and fall in economic times, advertisers have leveraged the low-cost, mass-reach FSI to drive brand awareness and product trial as part of their overall marketing strategy. In classic form, during the most recent economic recession starting in 2008, brands increased distribution of coupons through the FSI in record breaking year-over-year numbers. Despite the trends, an age-old debate looms about the “quality of response” the FSI is generating among consumers. For years, CPG advertisers have wanted to understand if FSI redemption is only rewarding loyal (current) brand buyers, or is it also encouraging non-brand buyers (lapsed or new) to buy the product?

White Paper: CSI Meets FSI

3 White Paper: CSI Meets FSI

The ideal scenario for brands is to minimize rewarding customers that currently buy the brand (loyals), yet keep awareness top of mind while driving new customers to their featured products with enticing coupon offers. Until now, the challenge has been proving that the FSI is driving both current and non-buyers to the promoted brand. In the past, brands or retailers could only capture Point-of-Sale (POS) data and did not connect it to consumer purchase behavior tied to FSI redemption. The connection between coupon redeemers and prior purchase behavior could only be derived by qualitative studies – asking coupon users in the FSI drop zones how recently they have bought the brand and if they used a coupon to make the purchase. This leads to directional insights at best.

SOLVING THE MYTH FSI Redeemer Segmentation using Grocery Retail Frequent Shopper Card Data In 2007, through a collaboration among grocery retailers, CPGs and Valassis, a breakthrough in measurement methodology was conceived which now allows advertisers to measure the effectiveness of redemption driven by the FSI using POS driven Frequent Shopper Card (FSC) data. This enhanced data allows us to look at a broader spectrum of consumer behavior - their purchase habits and redemption tendencies. For approximately four years, Valassis has aggregated response data from over 420 FSI events amounting to nearly 17 billion in FSI circulation. The response data is mined through a proprietary data collection system which tracks FSI coupon redemption at specific grocery retailers that have FSC programs and identifies if the redeemer is either a new, lapsed or current brand buyer.

HOW IT WORKS Quality of Redemption Analysis Defined: Quality of Redemption (QOR) is essentially a redemption segmentation analysis that ties FSC purchase history to the FSI coupon transaction to enable marketers to understand whether the promotion is driving new, lapsed or current customers to the promoted brand. For a majority of the FSIs analyzed, the following redeemer type classifications are used, but there are some cases when a seasonal item may require a custom set of timeframes to define each segment.

4 White Paper: CSI Meets FSI

Redeemer Types Defined: Purchase history of the promoted brand drives the definition for whether a consumer that received the FSI coupon and redeemed it is either a new, lapsed or current buyer of the promoted brand.

New Brand Buyers: Have not bought the promoted brand in the 12 months prior to redeeming the FSI coupon.

Lapsed Brand Buyers: Have not bought the promoted brand in the 6 months prior to redeeming the FSI coupon, but did buy the promoted brand in the previous 6 months.

Current Brand Buyers: Have bought the promoted brand in the 6 months prior to redeeming the FSI coupon.

In addition to these three primary redeemer types, a fourth redeemer type emerges called Switchers. This group represents redeemers who are new to the brand but were already buying in the category. Data Collection: The purchase history of redeemers is aggregated using grocery retail frequent shopper card data. Valassis established proprietary partnerships with several grocery retailers that offer FSC programs which now make up a standard network of data providers for QOR measurement. Leveraging these partnerships with retailers using opt-in consumer purchase data provides CPGs a consumer-centric and non-invasive method of accurately measuring the quality of FSI redemption. Quality control measures are also applied to the data to ensure that store cashiers’ and managers’ cards are excluded. Projection of the Data: To insure the data can be projected to the U.S., only nationally covered programs are evaluated. The minimum circulation is typically 30MM while the maximum reach is around 60MM. The minimum level of coupons analyzed per event is 1,000 redemptions across the entire retailer network. Additionally, the demographic make up of FSC users within the retailer network has been examined through BIGresearch via the Simultaneous Media Usage Survey and is confirmed to be demographically similar to total U.S. grocery shoppers.

5 White Paper: CSI Meets FSI

PROVEN REALITY FSI Redeemers Are New Or Lapsed Brand Buyers The most recent data, aggregated over the last 4 years, clearly shows that the FSI drives trial and awareness of the promoted products with 57% of FSI coupon redeemers classified as new or lapsed to the promoted brand. Further, the FSI also builds the promoted brand’s category where 29% of redeemers are new or lapsed to the category2. In more detail, 46.8% of redeemers are new brand buyers and 10.1% are lapsed brand buyers. Brand switchers make up 27.4% of FSI redeemers; these are households who have purchased the category but not the promoted brand2.

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Key Measures Edible Frozen HBC Non-

Edible *Other

Total Number of Events 218 49 61 78 14 420

Average % New/Lapsed - Brand 56.7% 58.9% 63.0% 51.9%

56.9%

Average % New/Lapsed - Category 26.1% 31.6% 42.4% 25.2%

29.0%

Average Brand Switchers 29.5% 28.0% 22.7% 25.4% 27.4%

White Paper: CSI Meets FSI

Quality Of Redemption: By Department Among departments tracked that have sufficient sample sizes to report, Health and Beauty Care (HBC) ranks highest with 63% of redeemers being new or lapsed to the brand, followed closely by Frozen (59%), Edible (57%), and Non-Edible (52%)2. Edible has the highest percentage of brand switchers (29.5%), followed closely by Frozen (28%)2. *Other departments tracked including Dairy (13 events) and General Merchandise (1 event) will be reported in future releases once a sufficient sample size is established. Loyalty Churn: Where Have My Loyal Shoppers Gone? Quality of redemption analysis not only proves that the FSI is engaging with new and lapsed brand buyers, but deeper analysis also shows that among loyal brand buyers (defined as the top 30% of customers in terms of brand spend) only 34% are still in that top 30% one year later. Furthermore, 22% of loyal brand buyers switched to competitive brands one year later (i.e category only shoppers).2 This downward shift in spend among loyals is known as “loyalty churn,” a spending migration measure that identifies when a loyal brand buyer (the top 30% in spending for the brand) becomes non-loyal after a one year period. The buyer either drops below the top 30% in brand spend, becomes a competitive brand buyer, no longer shops the category, or simply is no longer shopping at the store.

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White Paper: CSI Meets FSI

To improve your coupon success or further investigate the QOR analysis and the additional benchmarks tracked for the FSI, please contact Valassis at 1-877-529-5001 or valassis@valassis.com.

ABOUT VALASSIS Valassis is one of the nation’s leading media and marketing services companies, offering unparalleled reach and scale to more than 15,000 advertisers. Its RedPlum™ media portfolio delivers value on a weekly basis to over 100 million shoppers across a multi-media platform – in-home, in-store and in-motion. Through its digital offerings, including redplum.com and save.com, consumers can find compelling national and local deals. Headquartered in Livonia, Michigan with approximately 7,000 associates in 28 states and eight countries, Valassis is widely recognized for its associate and corporate citizenship programs, including its America’s Looking for Its Missing Children® program. Valassis companies include Valassis Direct Mail, Inc., Valassis Canada, Promotion Watch, Valassis Relationship Marketing Systems, LLC and NCH Marketing Services, Inc. For more information, visit: http://www.valassis.com, http://www.redplum.com or http://www.save.com. Sources: 1NCH, a global leader in business solutions for redemption, settlement and promotional analysis. 2Valassis, a leading U.S. media and marketing firm that designed the proprietary data collection methodology for FSI Quality of Redemption Analysis using FSC transaction data presented in this paper.