Proper Coupon Validation Fixing a Dysfunctional Family (Code) Ralph Maresco The Procter & Gamble Company

Presentation Overview Today’s Realities and “Case for Change” Problem Statement Social Media Impacts What are we doing about it? Recommendations and Alternative Solutions Family Code is not an “all or nothing” solution

“Family Codes 101” – A Refresher 3-digit number that identifies product or family of products Assigned by MFRs based on how they want to issue coupons A collection of UPC numbers Resides within: 1) MFR’s family code database 2) Within the coupon barcode 3) In retailer POS systems

Specific wording on the coupon The coupon’s barcode Remember, there is a 3-way match that should occur when a coupon is redeemed… Specific wording on the coupon The coupon’s barcode The retailer’s POS system – and how it validates the coupon against the product being purchased

Sample Family Code Hierarchy Universal Super Summary Summary Family 000 ALL PRODUCTS for CP 100 Hair Care 200 Lotion & Body Wash 210 Lotion 120 SpaCare Brand 220 Body Wash 110 ProCare Brand Not a handout 211 10oz Lotion 212 20oz Lotion 221 14oz BdyWsh 222 28oz BdyWsh 111 ProCare Shampoo 112 ProCare Conditioner 121 SpaCare Shampoo 122 SpaCare Conditioner

Family Code Table Example Pantene Brand Group Code 580 Shampoos/Conditioners 581 Stylers/Treatments 583 Premium (Expert Series) 585 Hair Re-Growth 586 Not a handout

Paper Coupon Validation Case for Change

Paper Coupons dying a very slow death… ~98% of coupons distributed >90% of coupons redeemed FSCI (Sunday paper) coupons: >50% of total redemptions Only declining 1-2% per year So we need to find solutions to issues driving paper coupon mis-redemption and fraud Not sure if these stats are totally accurate but they are close

Background The GS1 Coupon Databar debuted in 2007 Advantages vs. old UPC/EAN barcodes: 1) Enables validation at family code level 2) GS1 not human-readable (a subject for another day slide!)

“Some coupons are coded to give you a discount off your purchase of any item in the store!” “The bar code does not require you to purchase the item described on the coupon. You do not even need to purchase an item from the manufacturer listed on the coupon.” “QSeer tells you what products are required according to the coupon’s barcoding. What you do with that information is up to you!” (Wink, wink) “As with any product, there are a small percentage of users who navigate to a usage that is unintended and inappropriate…” “The fact that some write bad checks doesn’t condemn check printers, or that some assaults are made with hammers doesn’t mean that Home Depot should stop selling those important tools.”

Problem Statement Almost 10 years after GS1 adoption, many retailers still not scanning/ validating to the family code level

The “Real” Problem Statement Paper coupon fraud and mis-redemption could be as much as $1 Billion annually! I will show you a summary of a Market Basket study we did which is the source of my estimate

Why don’t some retailers validate coupons at family code? Belief that many CPGs’ family code tables are inaccurate Belief that CPGs will pay for all coupons submitted since they don’t know the underlying item purchased Company-level validation ensures most coupons will scan: 1) Fewer cashier interventions/conflicts 2) Check-Out lines move faster

The Problem is Getting Worse due to Social Media! Facebook – Closed and Secret Groups Instagram More to come…

Social Media  Coupon Fraud Social Media discussions driving coupon “glitchers” to retailers who only validate at Company-level “How to mis-redeem coupons” discussions shared with tens of thousands of members inside a Facebook group

Social Media  Coupon Fraud Those posting this content typically: 1) Don’t believe this activity is a crime (or if they know, they don’t care!) 2) Don’t fully understand retailer POS validation, how family codes work, etc.

A Typical Social Media Thread: “What products can I use the $5 Swiffer coupon on?” “Dawn, Bounty, Charmin…anything with a 37000 code!” “At which stores…?” “XXXXX, YYYYY, ZZZZZ, etc.” “What about Walmart?” “It won’t work at Walmart; they changed their system!” Or: “DG caught on and started saying NO!”

Do people really post pictures of this…YES!

Do people really post receipts of this…YES!

How bad is the problem? Coupon mis-redemption rises with higher coupon values…

What is P&G doing about this? Two major interventions in the past year Coupon payment denials for: 1) Coupons redeemed for items the retailer doesn’t carry 2) Coupons redeemed in excess of units sold (CRIES)

How does “CRIES” work? P&G drops $5 coupon with 2-week expiry Retailer X: 1) redeems 50,000 coupons 2) sells 10,000 units of promoted product Adjustment: (at least) 40,000 coupons over-redeemed x $5.00 = $200,000

The Retailer Landscape is changing… Estimated % of total coupon volume redeeming at the family code level: 3 Years ago : ~20-25% 1 Year ago: ~40-50% Next 3-6 Months: up to 80%? 

For the Retailers NOT validating to family code level… The “coupon fraudsters” will figure things out Updates will be shared on social media and the fraudsters will head to your stores This group of people is generally bad for business – both the retailer and the CPG

Why “Coupon Fraudsters” are bad for business… Argue for cashier overrides for any coupons that don’t scan Create a scene at check-out that is bad for other shoppers to see Slow down the check-out line – not only by arguing with the cashier, but simply due to the fact that they will hand in a fistful of coupons that have to be scanned

Continued: Why “Coupon Fraudsters” are bad for business… Return the products they purchased with coupons at a later time, especially if retailer policy refunds full value of the item If they intentionally mis-redeem coupons, they are also likely to do other fraudulent activities in your store, such as shoplifting Refuse to pay full price and will likely only “cherry-pick” your deals

Don’t believe me!!!??? Perhaps you’d like to buy a t-shirt with this logo on the front 

Recommendations – For Manufacturers Ensure your Family Code structure and tables are accurate! Who maintains your Family Code tables? How often do you update your tables? How complex are your tables? Anecdotes – Panera Coffee, Ken’s Salad Dressing

Recommendations – For Retailers Full scan/validation of the GS1 Databar Validate to the Family Code level; not MIN/Company Prefix Recognize that Family Code accuracy has greatly improved over the past few years

Family Code Accuracy Today’s Reality Accuracy reported as high as 99.8% Retailers scanning to this level has tripled in last 4 years If errors detected on live offer, can back-end fix with use of second family code

Are there alternatives? Yes!

Alternative Option for Manufacturers: Purchase a new MIN/Company Prefix When should this be considered? When you want to issue high-value coupons on premium-priced items When the MIN of these premium-priced items is shared with lower-priced items If you’re willing to incur the costs and issues associated with a hard conversion

The Crest White Strips Story Premium-priced item High-value coupons drive merchandising Coupon Mis-Redemption extremely high Social Media accelerating the level of Mis-Redemption

Over-Redemption Example: Crest White Strips Over-Redemption Example: “$5 off 1” coupon -- July, 2015 Retailer moved 10,000 units of this item nationally during 2-week offer period They redeemed 50,000 coupons (coupon scans on any of the items shown to the right) Overpayment: >40,000 x $5 = >$200K

Crest Brand Purchased New Company Prefix for Crest Whitestrips (CWS) Former (P&G legacy) MIN = 037000 New CWS MIN = 889714 First “New MIN” coupon dropped on 11/1/2015 Significant reduction in mis-redemption P&G reached out to media (CITN) to publicize and explain the change

Headline: ”Glitchers in Mourning: Crest Whitestrips Coupons Now Only Work on Crest Whitestrips” P&G’s Statement: “P&G’s objective is to ensure that the coupons we issue are used on the products for which they are intended…coupon misredemption is a growing issue across the industry and this is just one of many steps we are taking to rectify the situation.”

http://couponsinthenews.com/2015/11/17/glitchers-in-mourning-crest-whitestrips-coupons-now-only-work-on-crest-whitestrips/

Alternative Option for Retailers: POS Interventions/Parameters Controls on cashier overrides Manager intervention required Some level of validation beyond MIN

Examples of POS Parameters: 1) Number of coupons can’t exceed number of items in basket for a specific MIN 2) Sum of MFR coupon value can’t exceed value of items purchased 3) Single MFR coupon can’t be higher than value of items in basket

1) Number of coupons can’t exceed number of items in basket for a specific MIN Shopper purchases 3 P&G products (Bottle of Dawn, Box of Puffs, Roll of Bounty) Shopper attempts to redeem 4 P&G coupons 4th coupon triggers manager intervention

2) Sum of MFR coupon value can’t exceed value of items purchased Shopper purchases 3 P&G products (bottle of Dawn, box of Puffs, roll of Bounty) Total retail value = $6.00 Shopper attempts to redeem 3 P&G coupons Total Coupon value = $7.00 3rd coupon triggers manager intervention

3) Single MFR coupon can’t be higher than value of items in basket Shopper purchases 3 P&G products (bottle of Dawn, box of Puffs, roll of Bounty) Each item is $2.00; total retail value = $6.00 Shopper attempts to redeem $5.00 P&G coupon $5.00 coupon triggers manager intervention

Other/Simpler POS Options No >2 coupon overrides per transaction No overrides for coupons $3.00 or higher Manager intervention after the 10th coupon Family code validate “high-value” coupons only Family code validate for those Manufacturers whose family code tables are “reliable”

In general, limiting/controlling cashier overrides is a good idea Cashier overrides enable…

Egregious Coupon Mis-Redemption…

Gang cuts and tears, mint condition and violation of “4 like coupons per day” policy

Gang-cuts of high-value offers are biggest issue…

And the activity on the previous slide is enabled by this…

In Summary… Paper coupon fraud and mis-redemption represents up to a $1 Billion industry problem Most can be eliminated if both sides collaborate There is more than just a “one size fits all” solution (although we fully support family code!) We are all partners in the war on…Drugs Crime Coupon Fraud!!!