Clipping Coupons

April 1, 2004
Stephen J. Smith

Stephen J. Smith (ssmith@optas.com) is president and CEO Optas, a healthcare marketing company. They can be reached at (781) 937-9400.

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Paul Buta

Paul Buta is COO of Optas, a provider of privacy-safe marketing solutions.

Pharmaceutical Executive

Pharmaceutical Executive, Pharmaceutical Executive-04-01-2004,

In 1894, a druggist named Asa Candler created coupons for Coca-Cola, a new "healthcare" product with "valuable tonic and nerve stimulant properties." After that early start in medical products, coupons developed as a marketing medium and were widely adopted by the consumer packaged goods industry. According to the Promotion Marketing Association's Coupon Council, 336 billion coupons were distributed in 2002, which were redeemed for approximately $3 billion in consumer discounts. Now, more than a hundred years after their debut, consumers are clipping coupons for prescription pharmaceutical products.

In 1894, a druggist named Asa Candler created coupons for Coca-Cola, a new "healthcare" product with "valuable tonic and nerve stimulant properties." After that early start in medical products, coupons developed as a marketing medium and were widely adopted by the consumer packaged goods industry. According to the Promotion Marketing Association's Coupon Council, 336 billion coupons were distributed in 2002, which were redeemed for approximately $3 billion in consumer discounts. Now, more than a hundred years after their debut, consumers are clipping coupons for prescription pharmaceutical products.

This article discusses how pharma companies can benefit from coupon initiatives, explains the regulatory and privacy issues that must be addressed, and outlines the steps involved in developing an effective coupon outreach program.

Cashing In

Consumers today are taking greater financial responsibility for their healthcare at the same time drug manufacturers are facing skyrocketing costs for detailing physicians. Coupons for prescription products address both those issue and benefit the industry in several ways:

Reduced sampling costs. By replacing samples with free trial vouchers, manufacturers can reduce or eliminate sample inventories, thus saving money by minimizing the:

  • amount of wasted or expired product

  • cost of shipping and stocking

  • valuable time sales reps spend stocking shelves rather than detailing physicians.

Closed-loop marketing. Coupons, rebates, and vouchers enable marketers to track redemptions though sales reps, physicians, pharmacies, and consumers. Redemption data can provide a solid foundation for proving a program's return on investment.

Improved insight. Coupons provide a simple mechanism for pharma companies and physicians to collect patient feedback through embedded surveys. Consumer redemption data can be merged with demographic information to deliver additional insights into patient behavior.

Coupon Campaigns

Incentives. Coupons give cost-conscious consumers a compelling incentive to try new brands by reducing price as an obstacle to trial. They can also be used to encourage compliance and build brand loyalty by rewarding consumers who refill their medications.

Coupons aren't a good fit for all brands. For therapeutic categories in which the patient has little input into the Rx decision or categories with episodic conditions such as infections, coupons are less likely to generate a significant effect on sales and market share. Furthermore, coupons are most effectively deployed as part of a comprehensive relationship marketing strategy in which marketers use customer information to tailor coupon offers so that they match specific consumer needs and preferences.

Rx Complexity

The first coupons were handwritten tickets that entitled the bearer to a free sample of an exotic new product and entitled the retailer to free product as compensation. As time progressed, coupons expanded into many different forms, but at their core is the incentive to buy or try a product. For consumer packaged goods, distribution and fulfillment is fairly straightforward. But for pharma products, wide variations in campaign structure, distribution channels, and fulfillment creates a process that is considerably more complex and variable. (See "Coupon Redemption.")

Here are some examples of real campaigns :

  • a compliance program that provides a $5 discount for each refill and $20 discount for every fifth refill

  • a voucher program that replaces the physician's closet full of samples with a stack of free trial certificates

  • a 30-day free trial offer delivered via e-mail to a targeted population of recently diagnosed patients who had opted-in at a disease-specific website

  • starter kits provided by the physician that include seven-day free trial certificates with an opt-in form on the certificate for future market research and ongoing support.

Legal Issues

Pharmaceutical marketers must execute coupon campaigns like others—in the context of government regulation. Without attempting to serve as a complete treatment of the legal issues, the following guidelines help illustrate regulatory and privacy concerns:

  • Print a nominal face value on the coupon. Coupons are often regulated by state trading stamp statutes that may require it.

  • State that the customer is responsible for paying sales tax on the full price of the product.

  • Specify an expiration date to avoid redemption years in the future.

  • Be sure you send coupons via e-mail or postal mail only to consumers who have opted to receive that information.

  • Ensure that distribution and fulfillment vendors can securely process and transmit consumer data. Many vendors are not versed in the unique consumer sensitivities and ongoing government regulations involved in managing healthcare data.

  • Regulatory issues concerning coupons vary by state, so work with a vendor that has healthcare-specific experience.

Recipe for Success

In such a complex environment, pharmaceutical marketers must satisfy a number of requirements in order to produce a successful coupon campaign. Whatever the offer, clarity in communicating it is essential to avoid confusion about details, such as the product formulations covered in the offer, whether or not the coupon is transferable, and whether or not it can be redeemed multiple times. It is crucial to anticipate all possible ways that the offer might be misunderstood or abused and to develop messages and systems that address them. Following is a simple set of steps marketers can use to ensure that their coupon program is successful:

Prevent Online Fraud

Set a program goal. Keep in mind that with a coupon program, the company is spending real dollars to increase business. Marketers must ensure that they have real business goals for their program and can measure its success.

Determine the channel. Will the coupon be distributed through physicians' offices, managed care organizations, or through consumer media channels? For DTC promotions, will the coupons be delivered online or already printed?

Establish the infrastructure. To measure a program's effectiveness, marketers must implement a technology infrastructure that tracks both distribution and fulfillment. In many cases, pharma companies may want to engage outside partners with coupon expertise.

Determine messages and values. Coupons and rebates may have several goals, therefore they may have several different messages and values. For instance, the message and dollar value of coupons aimed at getting patients to try a product will be different than the message and value of those targeted at coupon clippers (people who buy based on the coupon of the week) and different yet from those intended to reward loyalty or up-sell to a higher revenue or profit product.

Coupon Redemption: Consumer vs. Pharmaceutical Goods

For example, a manufacturer of a prescription allergy medication might segment its audience into chronic, seasonal, and trial users. The company would provide a $10 rebate for the 30-count package for the intermittent and trial users but only a $5 rebate for heavy users purchasing the 90-count package. The company has the most to gain from trial users, because those consumers are unlikely to purchase the larger package. However, heavy users are likely to buy that volume with or without the coupon.

Review fraud prevention plans. Before embarking on a coupon campaign, marketers should determine how they will detect fraud—such as tracking unique IDs embedded in each of the coupons or looking for unusually high redemption rates in certain segments. Even with all of the latest online coupon technology, consumers can still print out one copy and use a copy machine to make more, so it's important to determine the risk of abuse and take steps to prevent it. (See "Prevent Online Fraud.")

Set up targeted segments. The next step in creating a coupon program is to consider which customer segments are the best to target. After all, coupons are not a panacea for all customers. Marketers must be careful not to turn a loyal customer into one that now needs coupons to continue to use their product. They should also determine which health-related websites and quality opt-in e-mail lists to target and which messages to use for which demographic group. When using e-mail for coupon delivery, marketers can quickly conduct message/value tests to see which demographic segments respond best to certain combinations.

Execute the program. Marketers can often execute an online coupon program through their in-house customer relationship management (CRM) system or through their agency's system.

Measure results. The easiest way to measure a coupon program's success is by looking at the fraction of coupons that are fulfilled versus the total number of coupons presented. Offline, that number is calculated by dividing the redemptions by the number printed and circulated. For online coupons, the number of impressions, or people who see the offer, can be measured. However, the most important metric is calculated by dividing the redemptions by the number of coupon prints or the number of consumers who register for the coupon.

Pharma coupon programs, of course, are different from consumer packaged goods in that they are more of a "need to have." They also require precise targeting of the right audience at the right time. For these reasons, Rx redemption rates can vary widely: 1.5–4.5 percent for online coupons for OTC products, and 2.5–3 percent for prescription medications. Again, the caveat is that a lot can depend on the offer, the audience, and the timing.

Online Benefits

Much of the growth in coupon distribution has been on the internet. Information Resources and Forrester Research show 38 percent of US households with internet access use online coupons—either printing them out or using them directly for web shopping. That's because, in general, the internet has several advantages over pre-printed coupons:

Reduced cost. Electronic coupons cost less than paper-based ones to distribute. E-coupons can cost from a fraction of a penny to 25 cents depending on the sophistication of the software and tracking and fraud prevention technology used. Another cost saving stems from online coupon services that often only charge if the coupon is printed out. There is no charge if the coupon is viewed but not printed, and the actual printing costs of paper and ink are borne by the user, not the marketer.

Information gathering. Online coupons allow for the easy collection of additional information about the user's profile and product usage information.

Fraud resistant. Internet coupons can be printed out in ways that are even more fraud resistant than paper-based coupons.

The additional information gathered from online coupon users makes it possible to target individuals with just the right offer. For example, it might be optimal to offer a $1 coupon for an OTC product through generic internet banner ads but to provide a $3 coupon for self-reported heavy users of a competitive product. Current users may be encouraged to upgrade to a different or more appropriate version—larger vs. smaller bottle, pill vs. liquid—with a $2 coupon. By knowing consumer preferences, it's possible to make more efficient offers.

The Mechanics of Motivation

Typically, a pharma company creates a landing page where market research data is collected from individuals and/or physicians. This page typically asks for three to 10 pieces of information to profile the customer. For the first contact with the patient, less is more. Marketers should ideally try to collect only the bare minimum: e-mail address and patient interest in receiving additional information. Every extra piece of information asked for before building a relationship decreases registration rate.

E-mail or banner ads—which are most effective when they present just the coupon offer, the product name, and/or the therapeutic class—can drive customers to the registration page. Offline vehicles, such as printed cards that patients can get in doctors' offices, are far less effective because they require consumers to have the card while they are at their computer. Offline vehicles pointing to a website will only work well when the offer is very compelling.

Online offers are sent to either an internal population of customers or to a third-party population who have opted in for health-related offers. E-mail delivered to such third-party populations should explicitly remind recipients of their previous opt-in to receive such offers, provide a brief description of the offer and how to receive it, and include standard privacy and opt-out information.

When the customer reaches the registration page and fills out their information, they will often have the choice of either being mailed a printed version of the coupon or the ability to print out the coupon directly from their computer. If they elect to have the coupon mailed, the pharma company's fulfillment house must be poised to act quickly. Too often the time lag between the rapid online registration process and the physical mail results in very low usage rates for the coupon or rebate. By the time the recipient receives the coupon, they have already forgotten that they requested it and why.

Programs provided by vendor companies demonstrate how coupons can motivate product trial and therapy compliance. InfoMedics, for example, offers vouchers and coupons to doctors' offices. The coupons invite patients to call an 800 number, log onto a designated website, or fill out a business reply card to provide feedback about their experience with the sample medication.

Each voucher or specially packaged sample is tagged with a unique and confidential identifier so the data can be transferred back to the prescribing doctor. The data is often new information for physicians concerning symptom relief, tolerability, satisfaction, and convenience. It can build doctors' confidence with the medication and have a positive impact on prescribing patterns. In addition, the pharma company receives de-identified, aggregate patient data along with data about the effectiveness of the sampling program.

Such programs provide additional benefits as well:

  • The physician is engaged with the patient in a positive way.

  • The pharma rep has a positive reason to visit the physician.

  • The patient has a more informed physician.

  • The patient has a relationship directly with the pharmaceutical company.

The Right Balance

The golden rule for collecting information is the more you collect, the less you get—the more data asked of each registrant, the fewer registrants that sign up. But like all things in life, there is a happy medium. Collect no information, then chances for fraud increase, customer targeting and segmentation becomes difficult, and a long-term relationship with the customer is impossible. For OTC products, that limitation may be reasonable—not many consumers want to have a lifelong conversation with their cough syrup company. But for prescription products, lack of profile information may prevent pharma companies from addressing the twin problems of compliance and loyalty.

Best practices for information collection depend on the anticipated relationship with the customer and the value of the coupon being offered. If a long relationship is expected, then marketers should start by requesting a bare minimum of information, then later re-contact patients in a useful, targeted way, and collect further data at that point. If the relationship is expected to be short and tactical, there is no point in reducing coupon print rates by asking too many questions.

The bare minimum of information is an e-mail address and opt-in information, as well as other information needed for a follow-up contact—such as other products they might be interested in. However, after the relationship is established, marketers can ask for street address; symptoms; usage of current and competitive products; and level of satisfaction. As with any direct marketing endeavor, the best approach is to test a variety of options to balance the need for information while maximizing reach.

Marketers must also match the value of the coupons to the potential value of the customer. They must also take into consideration whether the customer is a "coupon clipper"—such consumers display little brand loyalty either in OTC or Rx products; their choice is driven solely by rebates and coupons. Coupon tracking and analysis can determine customers' value and lead marketers to invest accordingly.

Coupons will become more important to the pharmaceutical industry as aging baby boomers retire and start picking up the tab of their own prescription drugs. Even if there are future changes in Medicare to provide significant drug benefits, there will still be a multiple year gap between employer-sponsored plans, which end at early retirement, and the start of the individual's Medicare benefits. Overall, baby boomers are more highly educated and more likely to look for healthcare information online than the previous generation of seniors. Well-positioned coupons can make a big difference in the purchase decisions of this significant demographic group during the next five to 10 years.

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