By: Ken Fenyo

Advisor, Executive, Entrepreneur | Expert in Digital Coupons, Retail Loyalty Programs, E-Commerce, Customer Analytics

Digital paperless coupons have continued to grow quickly and now are the most popular way to get savings from the Internet or mobile devices.

The market for digital paperless coupons, primarily load to card offers, is still young. My team and I at Kroger launched the industry’s first digital paperless coupon program in partnership with P&G in November 2007 but the industry didn’t really begin to take off until 2010 when YOU Technology, where I was CEO, launched retailer-branded digital paperless coupon sites at Kroger, Giant Eagle, and other retailers. Since then, digital paperless coupons have grown at a compound annual growth rate of 150%.

Based on my analysis of data from NCH, U.S. shoppers downloaded over 1.3 billion digital paperless coupons in 2014. Digital paperless downloads were up 27% after more than doubling in 2013. Overall, digital paperless coupon downloads have grown by over 20x since 2010 (see chart below).

Source: NCH Annual Topline View CPG Coupon Facts for Year-End 2014 (download based on total redemptions divided by est. redemption rates)

In contrast, the number of coupons shoppers printed at home actually shrank by about 7% in 2014 to 1.2 billion prints. Based on these numbers, digital paperless coupon downloads surpassed coupon prints for the first time (see chart below).

Source: NCH Annual Topline View CPG Coupon Facts for Year-End 2014 (downloads/prints based on total redemptions divided by est. redemption rates for each vehicle)

This trend will only accelerate over time as retailers and CPGs continue to shift marketing budgets to digital paperless coupons. Indeed, even Coupons.com, the dominant player in print at home coupons, is focusing increasingly on Retailer iQ, its digital paperless coupon platform.

In total, shoppers downloaded or printed 2.5 billion digital coupons in 2014, which was still less than 1% of total coupons distributed, implying that the digital paperless coupon market has a substantial amount of headroom to grow.

Digital paperless coupons are revolutionizing how retailers and engage shoppers for several reasons:

• Provide a seamless way to deliver incentives via digital devices, in particular mobile phones (mobile already makes up over 50% of digital paperless coupon downloads);
• Largely eliminates fraud and mis-redemption risk for CPGs and retailers;
• Provides a robust platform for retailer-CPG collaboration.

Eight of the top 10 and 15 of the top 20 food/mass/drug retailers provide digital paperless coupons in one form or another. Kroger and Safeway continue to have the largest programs in terms of downloads although Target with its Cartwheel program has been generating significant consumer traction. The biggest hold out remains Walmart, which is by far the largest redeemer of paper coupons. Walmart purportedly shelved the rollout of a digital paperless coupon program earlier this year as part of a broader move to re-emphasize EDLP.

The digital paperless coupon market is largely shopper marketing driven. Unlike the FSI or print-at-home coupons, CPGs don’t have a national distribution vehicle to support national brand marketing campaigns. Instead, almost all digital paperless coupon downloads in 2014 were made from a retailer website or mobile app. The reason for this is simple: retailers want to drive traffic to their own digital properties and so make it difficult for shoppers to download digital paperless coupons from third party consumer websites or apps (such as Facebook, Google, Coupons.com, and Yahoo) or via CPG CRM programs.  As a result, CPGs primarily use digital paperless to support their retailer-specific shopper marketing initiatives, not national brand programs.

Looking ahead, I expect the digital coupon market will grow to 25% of total U.S. coupon redemptions within the next 3-5 years, up from 10% today (with digital paperless coupons accounting for 80% or more of this amount). This estimate assumes several key catalysts will emerge to drive future growth:

• The remaining large food/mass/drug retailers launch their own digital paperless coupon programs, in particular Walmart;
• Key retailers and CPGs agree to create a national distribution platform for digital paperless coupons that enables CPGs to reach a national audience of consumers with national brand dollars;
• In-store proximity marketing goes from testing to full roll out as retailers deploy beacons, augmented reality, NFC and other technologies to deliver relevant offers to shoppers as they are shopping.

Please contact me Ken Fenyo  if you are interested in a more detailed analysis of the market including vendor and pricing trends.