​What Does Growth in Digital Coupons Mean for FSI?

As annual digital coupon spending approaches the $1 billion dollar mark, we must examine whether the CPG industry is experiencing a shift away from free-standing insert (FSI) coupons to digital coupons. If the landscape is changing to digital, we also must ask whether digital move volume like trusty FSIs, and whether the ROI (Return on Investment) is similar.

FSI coupons still account for 90% of the total number of coupons in circulation. FSI has always had the advantages of “scale” and “low cost”, but FSI redemption rates are falling each year, partly because FSI vendors have more newspapers and bigger circulation lists. However, if Walmart’s acquisition of Jet.com is anything to go by, we may soon see more focus on digital incentives.

The problem is that a direct comparison between FSI coupons and prints of digital coupons is hopelessly inaccurate when we try to express the impact of digital coupons on the landscape. The accurate way to measure and compare differences in ROI between FSI and digital coupons is to convert the values to actual dollars.

Digital Coupon Spending Trends

In Marx Promotion Intelligence’s recent 2015 annual CPG industry report on FSIs, they converted coupons to dollars for an accurate view.

  • Digital coupon spending rose by 18%, and this expenditure was at the expense of traditional FSIs. FSI spending was funneled into digital.
  • FSI spending dropped by 10% – the most substantial decline in FSI spending ever.
  • FSI retail co-op programs traditionally run adjacent to FSI coupons, and feature retailer outlets with a deep price point. FSI retail co-op programs have decreased by 24% and Walmart’s move to reduce advertising played a significant role in this shift.

Comparing ROI between Digital and FSI

When evaluating the ROI, we must calculate the Cost Per Unit Redeemed (CPUR) to accurately compare different coupon programs. We can also calculate different values for the same items. According to the 2015 figures, the CPUR per FSI is $2.52, versus $2.93 for digital. Customers are more likely to use digital coupons because they are readily available, which increases the cost incurred by the company per redemption. The higher CPUR is a result of having to honor more coupons per product than the allocated coupon budget. 

On the Eve of Significant Changes

Walmart is the world’s largest retailer, and they have adopted a new focus on e-commerce with the acquisition of the successful e-commerce company, Jet.com. They are reducing advertising spend, refocusing on price, and seem intent on competing with the Amazon model.

Will the Walmart shopper be ready for this massive shift in focus, and will Walmart be successful in bringing upscale online shoppers into the fold? The industry is at a pivot point, and grocers will need to decipher which method of sale works best for their demographic

Cautious Moves

Digital is certainly here to stay, and redemption of digital vouchers are higher than FSIs, but the actual impact of digital vouchers is not yet clear. In fact, according to the Inmar annual “Coupon Trends” report, the redemption of digital coupons are declining and not increasing.

FSIs are still a dominant factor and are proven to move volume, especially when used in tandem with trade merchandising. Digital vouchers may appear to be the ultimate solution, but it would be precipitous to transfer from FSI to digital before we know more.