The Emerging Digital Coupon Industry

Ross Ely, VP Marketing

ProLogic Overview

• ProLogic is one of the leading coupon clearinghouses in the industry

– Over 40 years experience in the coupon processing business

• ProLogic processed over 1.1 billion coupons in 2009, which equates to about 35% market share

– We manage over $1.5 billion in transactions for our customers

• The only coupon clearinghouse exclusively dedicated to retailers and wholesalers

– Not a “manufacturer’s agent”– Singularly focused on the success of the retailer

• An early adopter in digital coupon clearing– Launched one of the industry’s first digital coupon

programs with Shop ‘n Save over a year ago

– ProLogic has processed over one million digital coupons

Digital Coupon Definitions

• Internet coupons– Consumers can download coupons from Internet and print at home– Redeemed and processed just like any other paper coupon– Technology ensures that coupons printed only once, protects against fraud– Accepted at most retailers today– Not really considered “digital” since they must be printed in order to be redeemed

• Digital coupons redeemed via grocery loyalty card– Consumers select coupons on a web site which are loaded onto their grocery loyalty card– Discounts are automatically applied when consumer uses loyalty card at retailer (coupons

never exist in paper form)

• Digital coupons redeemed via a mobile device (cell phone, key fob, etc.)– Consumers select coupons on a web site which are loaded onto a mobile device such as a

cell phone or a key fob– Mobile device is scanned at checkout counter to activate coupon– Potential issues with reliable scanning of non-standard interfaces such as cell phone

screens

The Growth of Digital Couponing

• Digital coupon redemption grew over 100% in 1H 2010 vs. 1H 2009

• Digital coupons now account for ~3% of all coupon redemptions

• 200 manufacturers distributed digital coupon offers in 1H 2010, up from 152 in 1H 2009

• > 45 million Americans are now using digital coupons, up from 40 million in 2008

• Characteristics of digital coupon users– Consumers with an average household income of $96,000 (annually)

– 33% of consumers with college degrees

– Consumers who have an annual household income of $100,000 and who have college degrees are twice as likely to use digital coupons

Digital Coupon Statistics & Myths

• Estimates of 2009 growth range from 25% to 300% depending on definitions– “Internet” coupons: “print-at-home” coupons downloaded from the web

– “Paperless” coupons: no paper involved; redeemed via loyalty card or mobile device

• Myth #1: Digital coupons are rapidly replacing paper

Fact: Digital coupons represent about 3% of all redemptions, on the order of 70-80 million redemptions per year

• Myth #2: Consumers will redeem digital coupons in supermarkets with cell phones or other mobile electronic devices

Fact: In supermarkets, digital coupons are being redeemed via loyalty cards or other personal identifiers

• Myth #3: No one is seeing any volume at all from digital coupons

Fact: Most retailers are actively engaged with deploying or piloting digital coupon programs

Benefits of Digital Couponing

• A new way to deliver discounts to consumers– How, when and where they want to receive them

• More convenient for consumers– No need to clip, save, remember, file, etc.

• Reach a younger generation of consumers– 60% of Cellfire’s users are under age 35

• Faster reimbursements from manufacturers– Reduced processing time compared to paper coupons, fewer denials and mis-redemptions

• Potentially more information available through digital coupon redemption compared to paper coupons

– Page views of digital coupons (impressions)– “Clips” of digital coupons (interaction and selection)– Redemptions of digital coupons

• Better for the environment (paperless)– Eliminates printing, shipping, and waste disposal of paper coupons

Life Cycle of a Digital Coupon

Digital coupon

publisher

Retailer

Wholesaler or State

AssnRetailer

Clearinghouse

Manufacturer Agent

Manufacturer

Consumer

Who’s Who in the Digital Coupon Market

Retailer

Integration with loyalty card or POS system,retailer oriented, no offers

Content providers that bring digital coupon offers, manufacturer-focused

Manufacturer

Safeway Website Implementation

P&G e-saversAOL Shortcuts Cellfire

Print-at-home

How Does Digital Coupon Clearing Work?

• No paper involved for coupons loaded onto loyalty cards or cell phones

• Digital coupon publisher provides offer information to retailer and retail clearinghouse

• Retailer provides redemption information to retail clearinghouse

• Clearinghouse validates offers and generates invoices to manufacturers based on redemption files

• Clearinghouse provides reporting back to retailer

Benefits of Paper Clearing Process

• Independent of both retailers and manufacturers

• Well-understood & documented processes

• Externally-audited processes (SAS 70 reports, ISO 9001 certification)

• Detailed reporting

• Able to handle huge volumes

• Efficient and cost-effective

• Established relationships throughout the process enable rapid resolution of disputes

The Digital Coupon Clearing Process

Digital coupon publisher

Retailer

Manufacturer Agent

Sends offer codes

Returns offer code status

Sends redemption files

Validates redemption files

Sends invoices

Sends payments or denials

Digital Coupon Reporting

Shop ‘n Save Case Study

• 70-store chain based in western PA

• Wholesale & coupon program agreement with SuperValu

• Selected YOU Technology to implement digital coupon program

• YOU Technology hosts the digital coupon website and therefore provides ProLogic with both the offer files and the redemption files

• YOU Technology aggregates offers from other digital coupon providers including Cellfire, AOL Shortcuts, and NewsAmerica/SmartSource

SuperValu/Shop ‘n Save Milestones

Sept 2009 Program launched with YOU Technology

Oct 2009 File formats for offer files and redemption files agreed upon

Nov 2009 ProLogic signs contract addendum with SuperValu around digital coupon clearing

Jan 2010 Reached agreement with NCH and CMS about EDI invoice formats

Feb 2010 Final testing completed and program moved into production

Economics of Digital Coupons

• No shipping or HTH fees for digital coupons

• Fewer denials and issues with manufacturers?

• Manufacturers continuing to pay the 8¢ per coupon, for the time being

• Clearinghouse costs are a function of IT investments as opposed to facilities, labor and freight

• Will mis-redemption and fraud increase or decrease?– Basket contents must match offer exactly– No potential for cashier override