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/