Goals for a new Digital Offer Standard.

OK, so we need a standard. What should the design of this ecosystem set out to accomplish? What follows is a condensed version of my thoughts on this topic, evolved over the past ten years or so.

1. Standardized means for manufacturers (and retailers) to define and sponsor targeted digital offers.
The obvious point here is to enable manufacturers, retailers and their service providers to develop systems around a single technological standard (API) for offer management and execution. A larger point has to do with enabling manufacturers to sponsor digital discounts and to do so securely across retailers.

Outside of CPG, there is currently no way for manufacturers to directly sponsor digital discounts, period. Rebates are among the few tools available for manufacturer-led shaping of demand, but (to be polite) these are severely lacking in sophistication relative to what might reasonably be expected in the media climate of 2010.

Targeting can be understood in two ways in the context of digital offers; first, it connotes the selection of an individual to whom the offer will be presented. The standard should have nothing to say about targeting in this sense. What the standard should accommodate is the notion that a particular individual has become eligible for a discount as a result of having been presented with - and perhaps reacted to - an offer.

Enabling discounts to be directed to specific individuals greatly enhances the ability of marketers to cultivate relationships with individual shoppers, as many retailers well know, and provides more precise demand management than is possible with mass-market tools. I would expect any digital offer standard to extend these capabilities to manufacturers and, by means of an optional universal shopper identity, to retailers that have not yet found sufficient reason to do so.

2. Electronically bridge targeted online promotions and retail checkout transactions, both online and offline.
From the shopper's perspective, it is vital that the experience of redeeming digital coupons be friction-free and seamless, regardless of the channel selected for the associated shopping event. The shopper (and the sponsor) will also expect that the offer redemption requirements and rewards operate consistently online or offline (in-store), from one retailer to the next, regardless of POS infrastructure.

The net effect of this infrastructure will further be to 'bridge' online media of all stripes to offline checkout transactions; connecting the media of choice for the shopper to 'conveyance of value' in the store.

For higher value purchases, the in-store availability of discounts comparable to online deals will enable more shoppers to buy the items they desire immediately and in person. For many retailers who see their store personnel as a competitive advantage, this will be a doubly welcome outcome.

3. Protect sponsors from fraudulent redemption.
Within CPG, the few Grocery retailers capable of accepting digital manufacturer coupons do so in proprietary systems whose security won't pass muster for anything but comparatively low value CPG discounts. CPG manufacturers have been conditioned to live with a certain amount of mis- and mal-redemption of paper coupons, but if digital discounts are ever to have relevance outside of CPG, better control over who becomes eligible for discounts as well as redemption requirement validation will need to be assured.

To this end, a trusted, neutral third party should control and certify the coupon redemption logic that determines when rewards have been earned and issues them. The same system needs to be deployed to retract discounts when the product(s) constituting the purchase requirement of the offer is(are) returned. This will require at participating merchants that the checkout process be integrated with a checkout redemption API that provides the necessary functionality.

The infrastructure also needs to validate the source of offers and customer eligibility assignments to be sure they are authorized to commit the associated offer sponsor to the expense of the offer face value should the shopper validly redeem the offer.

Finally, a complete audit trail needs to be maintained such that any and all expenses incurred by the sponsor of an offer can be fully explained and justified.

4. Provide retailers with a system that delivers compelling reasons to participate.
Recognizing that, without the participation of a large number of retailers, there can be no standard, the benefits of participation need to be compelling. What follows is an abridged list of the positives that can be expected.

First and foremost, one hopes that retailers recognize that the biggest winners in all of this are shoppers, who get to receive all the love marketers want to bestow upon them over the media of their choice. Coincident with this is the fact that participating retailers get access to all those manufacturer consumer promotion dollars for the benefit of their shoppers.

In their own targeted marketing efforts, retailers can choose digital marketing partners without regard to technology or IT integration restraints. They don't have to predict which mobile offer distribution application is going to win out when 'all of the above' is a workable choice.

For those merchants who have heretofore not seen a need for customer loyalty cards, a universal shopper ID maintained in conjunction with this standard will provide a cost-free alternative that they are welcome to utilize at their discretion. (Note that the universal ID would not be supported at retailers that do have loyalty cards.)

A further benefit to retailers is a truly scalable targeted offer execution platform. Many card-issuing retailers have discovered to their chagrin that their POS systems simply don't support targeting and individualized discounting at the level they will ultimately need.

Digital discounts eliminate in-lane delays associated with coupons, and spare the shopper the hassle and perceived social negatives of locating and handing over the paper.

Any emergent digital offer standard will undoubtedly offer considerably more flexible and creative offer possibilities than most point of sale systems are capable of supporting, along with the benefit of a constant stream of innovation in this regard. A few examples: buy diapers, get a discount on wipes; buy a blu-ray player, get future discounts on movies; qualify for 3 offers, get a bonus discount; buy an mp3 player, get iTunes credit; shop on Wednesday mornings, get 5% off your order. Did I mention that different shoppers ought to be able to get different discount amounts under the same offer? I could go on...

As with paper coupons, retailers will undoubtedly receive offer handling fees, and benefit from manufacturer reimbursement time frames consistent with the auditability and digital nature of the infrastructure; read most likely overnight.

There is much to add that will be dealt with in a future post. Hopefully, these highlights provide some indication of what retailers can expect.

5. Make the system end-to-end digital so results are 100% measurable and immediate.
In this day and age, does this need any explanation? I can't imagine any serious new marketing infrastructure ever getting support absent the ability to precisely understand what its performance characteristics are.

Every point in the life cycle of an offer will be tracked for analysis, to include: Presentation (optional), Eligibility, Redemption, all the way through Clearing and Settlement.

Offer measurement results will also aid in the analysis of the effects of online marketing efforts on offline sales, a topic of some considerable interest.

6. Structured to capture network effects.
Once again, this is an objective that requires little clarification. A single API integration at each participant will enable all connected retailers to receive offers from all connected offer distributors, assuming the requisite authorizations are in place.

In this model, every new participant makes the network more valuable to all the other participants.
A central repository for all offers and results enables appropriate views of the data to be provided to all participants.

It will be important to achieve a widely accepted, hopefully simple legal framework between key participants, so that joining the network implies all the necessary assurances are in place with respect to the potentially significant financial obligations associated with participation. Short strokes; submitting an offer or shopper eligibility for same must warrant that the submitter is authorized to commit the sponsor to reimburse the retailer for valid redemptions and that all other standard conditions apply. Retailers will have the ability to choose which offer distributors they will support.

Lastly, with respect to encouraging participation, it is vital that the network infrastructure be totally content-neutral. In other words, it cannot be in competition with the ecosystem players that it brings together, nor can it have a vested interest in the performance of any of the offers it carries. It can't be both referee and a player in the game.

Conclusion.
The ultimate goal of all this is to improve the lot of shoppers in search of better value for money, which pretty much covers each and every one of us. Anyone reading this is likely all too aware of the intensity of that pursuit of late. As a consequence of providing that improved shopper experience, all of the participants in the ecosystem that supports this goal will be the beneficiaries of new and better tools with which to pursue their own particular brand of health and happiness. Doing well by doing good – what more can one ask?

Case in point: Procter & Gamble vs. Kroger.

The recent parting of eSaver digital coupon ways between Kroger and P&G serves up a great opportunity to highlight key aspects of what's wrong with the digital coupon status quo and what's needed to avoid this kind of zero-sum impasse going forward.

Background:
The reason for the split is summed up in the quote below from this MediaPost article: Kroger Ditches P&G E-Coupon Partnership.

"Rather than redirect shoppers to P&G's site "eSaver" Web site, where they could find e-coupons for Kroger stores, Kroger wanted shoppers to be able to perform this task on its Web site, which also let loyalty program members compile shopping lists."

Prior to the start of 2010, the Kroger website coupon page (current screenshot below) featured P&G's eSaver program alongside AOL's Shortcuts and Cellfire.

From a shopper's point of view, digital coupons are a real convenience and both Kroger and P&G are to be commended for their efforts to make these kinds of offers available. However, it's a real shame that these two giants of the industry are in a position where they don't agree it's in their mutual best interests to work together on this.

Given that no standards platform is currently available to Kroger, I will comment on the kind of policy they are espousing in general, rather than picking on them specifically. The point of the exercise is to show how things could be better, not to throw stones.

The Manufacturer's view:
From the perspective of a manufacturer such as P&G, it's easy to see what is problematic about a policy that requires all manufacturer-sponsored digital coupons to be distributed solely through a retailer's website:

• It's brand money that's being provided to these shoppers and ought to be just as portable among retailers as are paper coupons.
• It isn't targeted. For shoppers willing to be identified through loyalty cards, P&G can't take advantage of the individualized discounting capability to be more deliberate about which shoppers will be offered digital coupons.
• It inhibits nurturing of a relationship with the shopper. Suppose, for example, the shopper comes to P&G through an AdWords search for very specific product attributes; a hypoallergenic detergent that also works with newfangled green washing machines. P&G cannot through such a policy provide an introductory discount to that shopper within the context of the search click-through interaction, or maintain that relationship afterward.
• It limits media choices. The number of social and otherwise addressable media with the potential for presenting targeted coupons grows ever greater. Why should shoppers be limited to browsing the retailer's website in receiving digital coupons paid for by P&G?
• Shopper eligibility is beyond P&G's control. While the retailer as an institution may be entirely trustworthy, they can't guarantee the same of every individual who works there. It's a bad idea to enter into a relationship where the retailer can control 'who gets what' when it's not their money being doled out.
• Validation of purchase requirements at checkout is entirely in the hands of the retailer. While an audit regimen could secure this aspect of the relationship, it would be better to have logic managed and certified by a neutral third party.
• While the website distribution policy doesn't bear directly on clearing and settlement, this type of policy results in the need for P&G (or their agent, if they had one) to make retailer-specific arrangements for reimbursement, deal with retailer-specific offer and tracking codes, and do yet more work to align reporting and analysis data if the same coupon is to be available across retailers.

Paper coupons suffer from analogues to several of these issues and I would bet that P&G is not anxious to perpetuate any of those drawbacks in digital form. This sentiment will be magnified outside of Grocery, where coupon values might be 10X or even 100X the approximate $1 value of most CPG coupons.

Let's pretend:
So, what kind of arrangement would make it possible for P&G and the many retailers that sell their products to do better for shoppers?

In this case study, P&G is distributing coupons directly to shoppers via the eSaver program, but let's assume that they also want to distribute digital coupons through other distribution partners that are better positioned to reach shoppers in some special circumstance, like Milo.com, or because they own a media channel, such as TiVo.

Consumer responses (clicks or taps or thumbs up or whatever) establish offer eligibility at retailers where the digital coupon is available to be redeemed, associated with shopper card (or universal) ID's collected on a strictly voluntary, opt-in basis, as P&G does currently for eSaver.

Postulate a central repository and interchange to which offer distributors and retailers are connected. Offer eligibility transactions are securely transmitted by certified distributors to a published Offer Management API. A single technical integration effort connects all distributors to all retailers.

Redemption is controlled by a centralized engine integrated into the POS checkout process by another secure, Checkout Services API.

Once all the digital coupon eligibility data is in a centralized database, all ecosystem players can be given access to it in a way that makes sense for them and their customers.
Shoppers can see their offers in various settings;

• on the the retailer's site, they see all offers available to be redeemed at that retailer.
• at each distributor, all offers received there and where they can be redeemed.
• third parties acting on behalf of distributors or retailers, such as an in-store kiosk operator.

Retailers see all offers redeemable in their stores and who is eligible for them.

Distributors see all offers and eligibility they have submitted.

Redemption qualification is verified by central, certified logic in a universally consistent way that includes deal stacking avoidance controls.

Clearing and settlement occur centrally, using universally understood offer, store and sponsor ID's. Crucially, because it's end-to-end digital, the performance metrics produced by this ecosystem will be without parallel. No mystery about 'which half' here.

I have glossed over much of the detail needed; contracts, for example, but the overall architecture of the network ecosystem described provides the widest possible array of options for shoppers to receive manufacturer-sponsored offers, while protecting the interests of the manufacturer from a security and redemption validation standpoint.

The Retailer's view:
The motivation for retailers to forgo the understandable impulse to exert complete control over what happens in their stores and to participate in a standardized digital offer ecosystem is a subject too broad for this post.

Recognizing that there is no network without significant retailer participation, suffice it to say that I believe I can make the case convincingly and will do so in a subsequent entry.

Conclusion:
Most importantly, the policy in question here is not shopper-friendly. At the end of the day, it's shoppers that are in charge in today's world, not retailers or manufacturers. ShopSavvy and Milo.com are potent examples of the new instruments of shopper empowerment and my bet is that they and their ilk are here to stay. While neither currently distributes offers, it seems a rather obvious route for both to take, given the point in the purchasing decision process at which the shopper uses their services.

Circumscribing customer access to manufacturer promotional discounts is ultimately incompatible with engendering customer loyalty. Retailers who strive to earn loyalty, then, ought to seek to enable the broadest possible array of consumer options to receive digital coupons.

The fastest and most efficient way to enable all retailers to facilitate the broadest array of digital coupon presentation possibilities is to create an ecosystem based upon open, de facto standards. All parties do a single technical integration to the interchange and reap the benefits of the resulting network effects.

Some entity needs to establish a trusted, content-neutral, third party interchange and to create a set of API's that the community can all adopt to join it. The set of companies with the requisite technical chops, trust bona fides, and market power to step up and put this in place is not large; but it is not empty.

Anyone come to mind?



Notes:

• In an ironic and probably unrelated development, the new Kroger system is powered by SoftCoin, now called You Technology Brand Services, while P&G has switched from SoftCoin to Valassis' RedPlum infrastructure.
• It's unclear as yet whether Cellfire coupons will continue to be distributed to Kroger shoppers via mobile phones, or only via the Kroger website.

Additional press accounts:
http://www.boston.com/
http://blogs.ajc.com/
http://supermarketnews.com/
http://cincinnati.bizjournals.com/