Reynolds Wants to Get in Sync with Digital Coupons

Source from:  Winston-Salem Journal 11/30/2015

Reynolds American Inc.'s strategy for "transforming tobacco" through internal innovations isn't just about electronic cigarettes and nicotine-replacement therapy products.

Reynolds is testing a digital marketing platform - called Spot You More - that it claims offers consumers "a simple, intuitive experience" while providing the company and retailers with real-time redemption data and lowering the potential for redemption fraud.

Reynolds discussed the platform during its recent investor day presentations in New York and London.

Spot You More is a scanning hardware device that can be placed on a retail checkout counter. It requires a power connection and is wireless capable.

The consumer places the digital coupon display on their smartphone under the scanning site for redemption.

Test markets began in July and August in a combined 64 retail stores in Columbus, Ohio, and Des Moines, Iowa. Reynolds said there have been more than 14,000 digital coupons redeemed in the first three months.

Brice O'Brien, Reynolds' executive vice president for consumer marketing, told investors that Spot You More is aimed at consumers who are becoming more accustomed to receiving digital coupon offers on their smartphones and mobile apps.

Reynolds declined to discuss the platform or provide images beyond the presentation. It said Spot You More is patent pending.

"Digital marketing and couponing have great potential for eliminating paper, printing, postage and energy costs associated with delivering the mail," O'Brien said. "It serves to make our products more relevant to the mobile consumer."

Simplicity of paper

Reynolds rolled out its first try at digital coupons in 2012.

"What we learned (at that time) was that the platform we used wasn't going to work," O'Brien said.

"It wasn't easy or convenient for consumers or retailers. The platform created a two- to three-minute headache for consumers to log in and out of mobile apps when all they wanted to do was simply redeem a coupon.

"The fact is that paper coupons were not broken and were really simple to use," O'Brien said.

O'Brien said Spot You More offers digital coupon delivery to consumers with the simplicity of a paper coupon. The coupon can be received by text, email, mobile apps and social media.

"It's a system that is a win for our brands and our retail customers," O'Brien said.

For example, O'Brien said retailers experienced a 6 percent increase in Camel brand sales through digital couponing, as well as a 10 percent increase in store traffic.

"Ninety-nine percent of consumers have said they are 'satisfied' with the experience, 94 percent said redeeming a digital coupon is the same as or easier than a paper coupon, and 90 percent said they 'definitely will' redeem future digital promotions," O'Brien said.

O'Brien said test market retailers have benefited from an increase in impulse purchases.

He said there are plans to broaden Reynolds' digital coupon relationship with retailers to feature in-house "flash specials" on other items, such as milk, soft drinks, pizza and candy.

"This could give retailers the ability to tailor their offers to regular customers in real time with maximum freshness on food items," O'Brien said. "It can give retailers inventory alerts to avoid short stock supplies."

Lowering risk of fraud

Mailing coupons and providing downloadable coupons for free or discount products to adult consumers are two of the few marketing exemptions that manufacturers were allowed in the landmark 1998 Master Settlement Agreement.

As a result, couponing became a source of intense competition between Reynolds and Philip Morris USA to get adult consumers to try and/or switch to their brands, as well as promote loyalty to their brand.

Cigarette prices by the pack and carton tend to be less expense in North Carolina and the Southeast than the rest of the country because of lower state tobacco-excise taxes.

As a result, manufacturers and retailers became more susceptible to fraudulent coupon offers and redemptions.

For example, a convenience-store operator in Beckley, W.Va., was sentenced in May 2004 to more than three years in prison for his role in a coupon scam that cost R.J. Reynolds Tobacco Co. more than $957,000. Danny Tilson obtained several hundred thousand tobacco coupons from a Reynolds sales representative.

Tilson redeemed them by falsifying sales instead of using them to promote the company's products, according to a U.S. Attorney Office statement. Tilson gave the Reynolds representative one-third of each coupon's value.

O'Brien said Spot You More's platform helps to lower the risk of fraud from using coupons when connected to limited redemption.

Getting comfortable with digital

Stephen Pope, managing partner of research firm Spotlight Ideas of London, said it is a "sign of credibility for Reynolds that they do not simply suggest they can dominate the contemporary market; they explicitly mention the need to be innovative."

Pope cautioned that the introduction of digital coupons and real-time mobile app offers "has given consumers more money-saving options to plow through."
"But the offers aren't necessarily doing a better job connecting them with retailers, and vice versa."

Spot You More may face early challenges in getting consumer adoption, according to CreditCards.com.

"Despite all of the technology available to today's consumers, Americans still prefer paper coupons - even millennials," according to the website.

About 63 percent of U.S. credit/debit cardholders who use coupons say they most frequently present coupons from newspapers, mailings and other paper products.

Entering a discount code online is a distant second at 17 percent, followed by presenting a coupon or discount code on one's phone at 15 percent.

CreditCards.com said the potential market for digital coupons is huge, given that 85 percent of Americans say they use coupons at least occasionally.

"Dead trees aren't dead when it comes to coupons," said Matt Schulz, CreditCards.com's senior industry analyst. "Plenty of Americans are still opening their snail mail and reading the Sunday paper.

Schulz said the digital technology most sought by cardholders is having coupons and discounts automatically applied to their payment cards. American Express, Discover and Bank of America Corp. are providing card-linked offers.

"I expect paper coupons to lose some market share, though, as consumers and brands get even more comfortable using them electronically," Schulz said. Enditem