Digital Coupon Market Executive Overview

STRATEGIC
WHITE PAPER
CHALLENGES
Digital
Coupon • Fraud Prevention
• Analysis & Data
Market • Multiple Platforms
by Jay Johnson
TAKEAWAYS
and Patrick Seaman
January 2013 • Huge market changes in
print circulation
numbers & ad revenue
• Domestic &
International Trends
• Mobile

Topics in this White Paper
 Digital Coupon Market 3  International Market 30

 What is a Coupon 6  Feature Comparison 40

 Demographics 7  Fraud Prevention 44

 History of Digital Coupons 8  Summary & Conclusions 47

 Market Entrants 10  Table of Figures 52

 Number of Adult Online Coupon  References 53
Users 12
 About the Authors 56
 Newspapers and Coupons 14
 About Pepperwood Partners 58
 Mobile 24

 Total CPG Market Size 26

Pepperwood Partners© All Rights Reserved January 2013 Page 2

Digital Coupon Market

―More than $1.2 billion in digital coupons
savings were issued in 2010,
representing a 41 percent growth over
the year before‖

-- coupons.com



Coupons are a huge staple of life In contrast, traditional distribution
in the United States, and, of printed coupons in freestanding
increasingly, around the world1, inserts decreased 6.5%.
such as the 629% growth seen in Spending on newspaper inserts
India in 20112. Online and mobile declined 12% to $1.3 billion.
coupons lead the growth. Kantar
Media reports3 reported that
domestic digital coupon
distribution in 2011 increased over
12% versus 2010.

Figure 1: Digital coupon distribution growing (source:
kantar, 2011 -vs- 2010)



Looking at the total coupon  Coupons.com reports that ―3.5
market, including traditional billion coupons (saving
newspaper and other coupons as consumers $4.6 billion) were
well as digital, the Federal Trade redeemed in 2011, up 6.1
Commission estimates that U.S. percent over 2010.‖5
businesses distribute more than
330 billion coupons per year worth  Digital Coupons account for
about $280 billion4, with $4.7 10% of all coupons redeemed,
billion of that for grocery coupons with 15% of that being mobile6.
alone.
 Booz & Co reports that 32% of
grocery shoppers use online
digital coupons.


What is a coupon?

The Groceries Manufacturers
Association defines a coupon to be:

 A form of legal tender (like a
check)

 Treated as revenue by the
retailer

 Is taxable revenue Coupon Example, courtesy CVS Pharmacy / Coca-Cola

 Is auditable

 Affects the manufacturer’s
accounts payable

 Affects the retailer’s accounts
receivable


Demographics

 Over 49 million Americans (16% of
population) — now use digital
coupons.

 Digital coupon users average
Over 49 million
household income is $105,000 — Americans (16% of
26% higher than the U.S. average.
population) — now
 36% are degreed college graduates,
compared to 28% of print newspaper use digital coupons.
coupon users and 26% of the general
population.

 Nearly one-third of these say they
haven’t read or looked into the
Sunday newspaper in the last 6
months.8


History of Digital Coupons

Paralleling the rise of eCommerce and digital media on the web, as well
as the decline in newspapers9 around the United States, the digital
coupon industry was an early target of Internet entrepreneurs.

Digital coupons were part of the early growth of the Internet.
Downloadable / printable coupons and websites grew in the 1990’s,
though these were plagued by problems.

There were no fraud prevention controls in place and couponers could
print as many coupons for a single product that they wanted – irritating
retailers and manufacturers alike. Many retailers refused to accept
printable coupons. The situation created a demand for more secure
coupons.


History of Digital Coupons

An early entrant into the space was coupons.com, founded in 1998.
Coupons.com was successful in its efforts to change the negative image of
online coupons. In 2001, coupons.com launched its first client-website-based
online coupon, and set the stage for other market entrants.

Interestingly, the first modern coupon is generally attributed10 to Coca Cola in
1888, 110 years prior to the launch of Coupons.com11.

As discussed in the next section, many coupon technology and aggregation
sites expanded with the growing market. From mobile to advanced fraud
prevention to never before available analytics and the ability to target even
regulated verticals like alcohol, tobacco and pharma, more and more new
companies took up the challenge.


History: Market Entrants
Competitors in the digital / online coupon space continue to explore and build their
own niche submarkets. Coupons.com is by far the largest, in terms of overall
distribution numbers. Others players in the field concentrate on aggregation and
distribution, such as RedPlum. Qples.com focuses on expanded data and analytics
and mobile and very aggressive fraud prevention.

In addition to the core providers of platforms and services for businesses, are
literally hundreds of websites devoted to marketing coupons to consumers. So
called ―Daily Deal‖ sites, such as Groupon focus on a different market and very
different business model12, which is not addressed in this report.


History: Market Entrants

Figure 2: Notable Online Coupon Market Entrants (source: respective websites)


Number of Adult Online Coupon Users

Coupons and daily deals accounted
for 5% of overall online newspaper
digital revenue in 2011. This is up
from 0% to 1% in 2010.
-- Journalism.org


Number of Adult Online Coupon Users

eMarketer reports a steady increase in the number of online coupon users,
projected to reach over 96 million by 2013.

Figure 3: Adult Online Coupon Users (source: eMarketer, 2011)


Newspapers & Coupons

"There's no doubt we're going out of
business right now."

– Newspaper executives in
2012 Journalism.org Survey


Newspaper coupon inserts are how most
people have historically discovered
preprinted coupons. Pre-printed newspaper
inserts are still the lion’s share of the market,
however, newspaper circulations and ad
revenue have taken a dive in recent years.

The Los Angeles Times reports13 that
preprinted advertising and coupon inserts
are one of the few major revenue sources for
the newspaper industry, which has
experienced 20 consecutive quarters of
Illustration: Newspaper coupon
advertising revenue declines. That was in inserts (HotCouponWorld ©)
Q1 2011, so the number would now be 26
consecutive quarters of decline. A recent
survey of newspaper executives by
Journalism.org reported executives saying
―There’s no doubt we’re going out of
business right now.14‖


Newspaper coupon inserts are how most people have historically
discovered As the newspaper industry has struggled with plummeting
circulation and ad revenues, hopes have been pinned on the online
incarnations of their institutions. Online newspapers have implemented
both online coupons as well as daily deals.



Daily deals and coupons accounted for
Daily deals
5% of overall online newspaper revenue in and coupons
accounted for
201115.

While this is a small percentage, the
technology to support these offerings is
5% of online
evolving rapidly, improving both newspaper
revenue by
redemptions as well as offering new levels
of data and analytics to brands and
manufacturers.
2011
15



For many online newspapers, the
Online
introduction of coupons or daily deal
coupons was nonexistent or nearly so,
prior to 2011. In that context, going from
0% or 1% in 2010 to 5% in 2011 is coupon
significant. redemption
The redemption rate of traditional coupons rates have
is dropping. In 1999, the redemption rate
(and subsequently, how much they can grown from
charge coupon issuers) was 1.6%. By
2010, the number had dropped to 0.6%.
5% in 2005 to
In contrast, online coupons (coupons.com) 18% in 2010
had a reported redemption rate of 5% in
2005, and 18%16 by 2010.



Newspapers are loosing $7 in print
advertising for every $1 gained in new
digital revenue.

–Journalism.org Survey



Newspapers are
loosing $7 in print
advertising for every
$1 gained in new
digital revenue. So,
while the total digital
advertising revenues
rose on average 19% in
2011, this did not come
close to making up for
the rapid decline in print
advertising .
Figure 4: Newspaper Advertising Revenue 1950-2012 (Newspaper
Association of America)



The chart that follows
looks at the same data
as the one above, but
drills down with focus on
the more recent move of
newspapers to an online
format in the period from
2003 to 2012, including
the web, mobile and
tablet.

Figure 5: Focus Online: Newspaper Advertising Revenue 2003 to 2012
(source: Newspaper Association of America)



25 Million Americans use
mobile coupon
applications each month

–Journalism.org



Mobile advertising revenue is also a
component in the data, but currently
represents only 1% of digital revenue.
Newspaper executives believe mobile
phones, particularly, could, in the long run,
be more important to mobile revenue than
tablets. This may be a sign of anxiety over
the increase overhead costs and growth
potential related to tablet apps .

Illustration: Mobile coupon
(Mobile Marketing News © )


Mobile

79% of smartphone
users would like to
download money-off
coupons to their phones

– Netsize, Factbrowser.com


Mobile
While digital coupons may have started on PCs, like so many other activities,
users are moving to mobile.

 Today, 25 Million Americans use mobile coupon applications each month
 36% of smartphone owners have redeemed a mobile coupon.
 11% tablet owners have done so
 Mobile coupons are redeemed 10 times as often as traditional coupons
 48% of smartphone users downloaded a coupon from PCs
 79% of smartphone users would like to download money-off coupons to
their phones
 Younger Smartphone Moms download coupons and make direct
purchases mostly through their phones
 57% of Smartphone Moms use coupons every time they shop


Total CPG Market Size

CPG coupons (consumer-packaged-
goods) are the 800-pound gorilla in the 300 Billion
coupon market. Over 300 billion coupons
are distributed in the US26. The vast
CPG coupons
majority of CPG coupons are still are
distributed in
traditional printed ―insert‖ or magazine
coupons.
the United
The following chart maps the overall
growth through 2011 in CPG coupon States
distribution.



Figure 6: CPG Coupons Distributed, 2000-2011 (sources: Kantar Media, Valassis,
University of Virginia, NCH Marketing)



 Valassis27 reports that $470 billion of CPG
coupon value was offered in 2011, a 26%
increase over the pre-recession period of
2007.
 Consumers redeemed $4.6 billion in
savings, an increase of 12.2%, and 58.6%
higher than five years ago.
 3.5 billion coupons were redeemed, up
6.1% from 2010, and 34.6% since 2007.



By 2011 3.5 billion CPG
coupons were redeemed,
up 6.1% from 2010 and
up 34.6% since 2007

– Valassis


International Market

By September 2011, over
9.5 million Europeans
used online coupons or
voucher sites – up 22%
since April 2011.

– nchmarketing.com



The Nielsen Global Online Survey reports that the
percentage of use of coupons is28:

 North America: 65%

 United States: 66%

 Asia Pacific: 55%

 China: 67%

 Hong Kong: 65%



Figure 7: Coupon Sites by Global Region (Source: Comscore29)



 Online coupon use in Europe is growing
quickly, by 162% in 2010

 Italy, France, and the UK led, with Italy
showing the highest gain at a 15% growth30

 By September 2011, over 9.5 million people
used online coupon or voucher sites – up
22% since April 201131



Figure 8: Europe Coupon Site Growth (Source: Comscore)



 India: In June 2011 4.6 million India Internet
users used online coupons, reaching 10.4%
of the entire online population33, 34.

 Latin America: Over 11 million Latin
Americans visited a coupon website in April
2012 -- nearly 10% of the total online
audience for the region35.



Coupon Website Visit Statistics:

 Brazil: 6.7m consumers (16%)

 Argentina: 1.8m consumers (13.9%)

 Chile: 751k consumers (10%)

 Mexico: 1.2m consumers (6.6%)



Global redemption value
of mobile coupons is
projected to reach
$43+ billion by 2016.

– Juniper Research36



Figure 9: Projected Global Growth of Mobile Coupons (source: Juniper
Research37)

eMarketer reports38 a corresponding rise in the number of adult mobile coupon
users, rising from 13.3m in 2010 to 28.7m in 2012 and 35.6m projected for 2013.

Figure 10: Estimated number of adult mobile coupon users in the United States
(source: eMarketer)39

Feature Comparison
At the time of this writing, the companies discussed are all privately held. The
availability of information on product features, services, terms and pricing varies
from company to company. The table that follows looks at 4 companies.

Some companies focus on different markets and services, so the availability of a
particular service or feature may or may not be relevant in comparing it to other
companies. The table lists features that have been discussed on company
websites, press releases and other sources.

Some features may be substantially the same, but are described with different
terminology between companies. If an answer was not found, it is left blank and
does not imply a yes or a no.


Feature Comparison (part 1)

Figure 11: PART 1: Feature comparison for 4 digital coupon platform companies


Fraud Prevention
As with the above table comparing general features, the table that
follows lists various fraud prevention features that the example
companies list or describe on their websites, press releases or are
described elsewhere.

The availability of information varies from company to company.
Some features may be substantially the same, but are described
with different terminology between companies.

If an answer was not found, it is left blank and does not imply a yes
or a no.


Fraud Prevention (part 1)

Figure 12: Part 1: Fraud prevention feature comparison of 4 digital coupon platform providers


Fraud Prevention (part 2)

Figure 12: Part 2: Fraud prevention feature comparison of 4 digital coupon platform providers


Summary & Conclusions

While institutional inertia keeps many long-standing industry
processes and practices intact, the coupon industry is typical of
many areas of the economy that have radically transformed due to
the pressure of evolving technology. Not surprising given the 330
billion coupons issued annually in the USA alone40.

Traditional media continues to struggle to redefine itself – whether it
is print or broadcast or music and entertainment. Print newspaper
and magazine circulations plummet while trying to decide whether to
cannibalize print content to promote online versions – and how to
monetize distribution to multiple platforms such as to PC, tablet or
mobile devices.



Journalism.org41 reports that by 2012, US newspapers had
experienced 26 consecutive quarters of advertising revenue decline.
The Newspaper Association of America reports42 that overall
circulation has dropped from 55,578,000 in 2001 to 44,421,000 in
2011. Publishers know they are in trouble and are aggressively
pursuing digital platforms and technologies – including digital
coupons.

Publishers and advertisers must evolve business models that make
sense with today’s technologies. For example, do pricing models
that include long lead times and setup charges that were required
for print ads make sense in digital publications? This is very
relevant in the coupon market as many digital coupon providers still
use the ―print model‖ in their digital services.



Digital coupons are a small percentage of total coupon distribution,
under 1%, however, they represent over 5% of redeemed coupons .
With the up trend of digital and the down trend of print, digital
coupons43 are increasingly a tool of choice for brands and
manufacturers. Juniper Research projects that the Global
redemption rate will reach 8% by 201644.

For example, between 2011 and 2012, there was a 15.2% increase
in the number of manufacturers distributing digital coupons.45



Figure 13: Increase in Manufacturers Distributing Digital Coupons (source: Kantar Media)


Whether delivered via PC and printed or on mobile devices, the use
of digital coupons is unquestionably on the rise. While traditional
print isn’t exactly dead, to paraphrase the saying, traditional print
newspapers and magazines have experienced significant declines
in circulation and ad revenue. The vast, vast majority of coupons
are still delivered using traditional methods, however, brands and
retailers are embracing Digital.

With ever-improving fraud prevention, rapidly evolving delivery
methods, and high consumer demand, Digital Coupons are a bright
shining beacon of hope for both publishers and brands.


Table of Figures

Figure 1: Digital coupon distribution growing (source: kantar, 2011 -vs- 2010)……………………………………………………………………… 4
Figure 2: Notable Online Coupon Market Entrants (source: respective websites) ………………………………………………………………….. 11
Figure 3: Adult Online Coupon Users (source: eMarketer, 2011) ……………………………………………………………………….…………………… 13
Figure 4: Newspaper Advertising Revenue 1950-2012 (Newspaper Association of America) ………………………………………………….. 20
Figure 5: Focus Online: Newspaper Advertising Revenue 2003 to 2012 (source: Newspaper Association of America)…………….. 21
Figure 6: CPG Coupons Distributed, 2000-2011 (sources: Kantar Media, Valassis, University of Virginia, NCH Marketing)………. 27
Figure 7: Coupon Sites by Global Region (Source: Comscore) …………………………………………………………………………………………………. 32
Figure 8: Europe Coupon Site Growth (Source: Comscore) …………………………………………………………………………. ………………………… 34
Figure 9: Projected Global Growth of Mobile Coupons (source: Juniper Research) ………………………………………………………………… 38
Figure 10: Estimated number of adult mobile coupon users in the United States (source: eMarketer) …………………………………... 39
Figure 11: Feature comparison for 4 digital coupon platform companies…………………………………………………………………………..41, 42, 43
Figure 12: Fraud prevention feature comparison of 4 digital coupon platform providers…………………………………………………………45, 46
Figure 13: Increase in Manufacturers Distributing Digital Coupons (source: Kantar Media) …………………………………………………… 50


References
1. http://www.plunkettresearch.com/retailing-stores-market-research/industry-trends
2. http://www.onlinemarketing-trends.com/2012/02/online-coupons-see-629-growth-in-india.html
3. http://www.mediapost.com/publications/article/167071/fsis-challenged-by-digital-coupons.html#axzz2EwylVq8U
4. http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv06.shtm
5. http://www.couponsinc.com/corporate/OurCompany/AboutUs.aspx
6. http://www.businesswire.com/news/home/20120118006260/en/Research-Markets-Mobiles-Share-Digital-Coupon-Market
7. http://www.booz.com/media/uploads/BoozCo_Four-Forces-Shaping-Competition-in-Grocery-Retailing.pdf
8. http://www.text-board.com/marketing/research-study-shows-digital-coupon-users-are-more-affluent-and-educated/
9. http://en.wikipedia.org/wiki/List_of_defunct_newspapers_of_the_United_States
10. http://www.wired.com/magazine/2010/10/pl_protoype_cocacola/
11. http://www.couponsinc.com/corporate/OurCompany/AboutUs.aspx
12. http://en.wikipedia.org/wiki/Groupon#Business_model
13. http://latimesblogs.latimes.com/technology/2011/09/associated-press-la-times-and-39-others-bring-sunday-coupons-to-phones-
tablets.html
14. http://www.journalism.org/analysis_report/press_release_0
16. http://articles.businessinsider.com/2011-10-27/tech/30327471_1_ceo-steven-boal-coupons-com-share-buybacks
19. http://www.factbrowser.com/facts/8087/
20. http://www.factbrowser.com/facts/7521/


References

21. Mobile Marketer, http://www.factbrowser.com/facts/7225/
22. Netsize, http://www.factbrowser.com/facts/4941/
23. Netsize, http://www.factbrowser.com/facts/4940/
24. Smartphone Moms Insights, http://www.greystripe.com//wp-content/uploads/2011/05/Greystripe-AIR-Moms-0511-4.pdf
25. Smartphone Moms Insights, http://www.greystripe.com//wp-content/uploads/2011/05/Greystripe-AIR-Moms-0511-4.pdf
27. https://www2.nchmarketing.com
28. http://www.marketingcharts.com/wp/direct/value-slightly-trumps-price-in-retailer-selection-19656/
29. http://www.onlinemarketing-trends.com/2011/03/coupon-sites-in-europe-grow-by-162.html
30. http://www.comscore.com/Insights/Press_Releases/2011/2/comScore_Releases_The_2010_Europe_Digital_Year_in_Review
31. http://www.comscoredatamine.com/2011/11/in-september-2011-9-5-million-people-used-coupon-sites-in-the-uk/
32. http://www.onlinemarketing-trends.com/2011/03/coupon-sites-in-europe-grow-by-162.html
33. http://www.comscoredatamine.com/2011/07/snapdeal-com-leads-coupon-category-in-india/
34. http://www.comscore.com/Insights/Press_Releases/2011/7/1_in_10_Internet_Users_in_India_Accessed_Coupon_Sites_in_June
35. http://www.bizreport.com/2011/06/latin-americans-hitting-coupondeal-sites-hard.html#
36. http://www.retailcustomerexperience.com/article/186491/Juniper-Research-predicts-43B-mobile-coupon-market-by-2016
37. http://www.retailcustomerexperience.com/article/186491/Juniper-Research-predicts-43B-mobile-coupon-market-by-2016
38. http://www.statista.com/statistics/201372/mobile-coupon-users-in-the-united-states/
39. http://www.statista.com/statistics/201372/mobile-coupon-users-in-the-united-states/


References

41. Mhttp://www.journalism.org/analysis_report/press_release_0
42. http://www.naa.org/Trends-and-Numbers/Circulation/Newspaper-Circulation-Volume.aspx
43. http://www.cpgmatters.com/Coupons1112.html
44. http://www.juniperresearch.com/viewpressrelease.php?pr=280
45. http://kantarmediana.com/marx/press/kantar-media-reports-digital-coupon-events-leading-websites-increased-305-percent-first-n


About the Authors

Jay Johnson is CTO of Qples.com, a next-
generation digital coupon platform with
industry leading security and analytics. Mr.
Johnson founded Thunderduck Social
Hatchery in 2000 as a web development and
web marketing company. Thunderduck was
rebranded as Qples – ―Coupons People
Share‖ and expanded operations to include
both the USA and India. Contact Jay at
jay@qples.com, and
www.linkedin.com/in/jayjohnsonqples.


About the Authors

Patrick Seaman is Chief Technology
Advisor to Pepperwood Partners and COO
of the social publishing platform company
WhichBox Media. Seaman is the former
COO of the video eCommerce company
Cinsay, and former Director of Technology at
Broadcast.com. Patrick serves on the
Advisory Board of Kraftwurx Inc, and Qples,
Inc. and on the UT Dallas School of Natural
Sciences & Mathematics Advisory Council,
and is an IEEE member. Contact Patrick at
patrick@pepperwoodpartners.com,
patrick@patrickseaman.com and
www.linkedin.com/in/patrickseaman/.

About Pepperwood Partners

Pepperwood Partners is a boutique
investment banking advisory firm
headquartered in Dallas, Texas.
Pepperwood provides a suite of
investment banking advisory
services to businesses in the Two Lincoln Centre
technology, media, telecom, 5420 LBJ Freeway, Suite 535
nanotechnology, energy and Dallas, Texas 75240 USA
+1 214.442.6056
alternative asset sectors. With a info@pepperwoodpartners.com
strong focus on institutional
relationships in the Russian, Learn more at:
European, and CIS regions, www.PepperwoodPartners.com
Pepperwood works with businesses
to achieve capitalization and growth
objectives.


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