Coupon culture could spell curtains for marketers

Release Date: 09/16/2009

iMedia UK
Al Moffatt
September 15, 2009

One global agency head assesses the impact government intervention through 'discount marketing' could have on the role of marketers everywhere.

There are many different approaches to building a brand's success. Some marketing professionals believe it is to instill and advertise unique and indelible brand attributes (i.e. brand marketing). Others believe the best way is to offer an on-going slew of deals, incentives, discounts and coupons in order to continually entice people to buy their product (i.e. promotional marketing). And, of course, there are those marketers that believe a hybrid approach is best.

While the different approaches may each have their own merit, relying on a continuous string of promotions, incentives and coupons to get people to buy your product or service is extremely dangerous. Guess why? Because it becomes a self-fulfilling prophecy: people will wind up not buying your product unless they have a coupon or incentive to do so. You need to constantly feed them deals in order for them to buy your product. Once the deals stop, the purchases stop.

Unfortunately, this is exactly what is happening right now in the United States, and perhaps elsewhere, in light of the lingering recession. In order to try to stimulate consumer purchases and kick-start manufacturing and employment, the U.S. government has quickly become the promotional marketer of the year.

Taking a page from France and Germany, the U.S. just recently completed its $2 billion Cash for Clunkers automotive-incentive program, whereby the government gave up to $4,500 for people to trade in their old autos for ones that get better gas mileage. The good news is that over 700,000 new cars were sold in six weeks. The bad news is that the program artificially stimulated demand, and the government has only reimbursed 2 per cent of the auto dealers that extended the $4,500 discount to new-car purchasers. Now, car manufacturers are left what wondering what will happen to sales for the rest of the year. In the words of one San Francisco auto retailer, "We'll have to promote Labor Day (U.S. holiday) hard in order to continue the momentum of the Clunker program."

Also, as part of the earlier $780 billion U.S. stimulus packaged passed earlier this year, the government is embarking on a similar program for household appliances. That's right. Just kick that old washer, clothes dryer or freezer to the curb and the government will give you money back as part of their $300 million rebate pool. And on top of the Clunker and appliance deals, the government is already giving an $8,000 tax credit to first-time homebuyers to help jump-start the housing market. So if you buy an average priced home, car and refrigerator in 2009 the U.S. government will pay for nearly 6 per cent for all these goods; not a bad deal.

And to not be outdone, private-sector companies ranging from Tiffany to Wal-Mart are also becoming coupon crazy in the hopes of getting people to buy again.

But while taxpayer funded rebates and manufacturer discounts may help generate short-term sales, they run the risk of training consumers to only buy when they're getting a deal.

All in all, this is terrible news for marketers, ad agencies, digital shops, etc. If consumers do indeed become trained, even to the slightest degree, to only buy when the government or a store hands out a deal, we'll continue to see short-term spikes at the sacrifice of long-term recovery and stability.

Thus, sales numbers will be impossible to forecast. Marketing and advertising budgets will literally be week-to-week vs. the already insane practice of quarter to quarter. Creative-service employers will have no choice but to staff their ranks with freelancers and part-timers rather than full-time employees because of the inconsistent flow of work. And the advertising itself will all become promotional and retail in nature ('Buy now before the government program ends', which, by the way, is exactly what ad copy is saying now).

An unintended, longer-term consequence is that company revenues and profits will stagnate at-near historical lows. Since companies already allocate a relatively small percentage to advertising and marketing, the absolute amount of money dedicated to marketing will be substantially smaller than it is today because the budgets will be calculated from a much smaller base. This, in turn, will lead to a contraction in the marketing, advertising and creative-services industry. With this, we'll see consolidation among publically held agency networks and large social marketing firms. We're already seeing this, to some degree, with WPP's profits down 50 per cent thus far this year.

As marketing and advertising professionals it is our job to lobby our governments and our clients to get them to stop this discount delirium. Otherwise, the Couponing of America will soon become the Couponing of the World.

Al Moffatt is president and CEO of Worldwide Partners.