E-Coupons: A Solution to Fraud?

Two weeks back, I explored the world of electronic couponing and the benefits this approach can offer both vendors and consumers. Many responses agreed there was benefit in this approach and offered additional insight regarding online couponing.

The traditional world of consumer package goods couponing is battling fraud. Some retailers have been known to clip coupons from circulars, harvest errant coupons from store aisles, and commit other behaviors they probably didn’t learn from the Boy Scouts. This way, they can redeem more coupons than those actually collected in sales. It’s estimated up to 20 percent of all redeemed coupons are fraudulent. On the other side, coupons generate over $8 billion in transactions annually.

Apart from costing businesses millions of dollars, coupon fraud has been linked to terrorist activities. In 1998, the Senate Judiciary Committee heard testimony regarding organized networks in the U.S. using fraudulent coupons to fund Middle East terrorist organizations.

Perhaps the biggest hurdle to getting widespread acceptance of e-coupons, according to Jeff Beliveau of CustomCoupon, is vendors’ ability to restrict the number of times a single consumer can print or redeem a coupon. Though this is less of an issue for merchant coupons (such as specials for brake jobs, dry cleaning, pizza, or subscriptions), the consumer package goods side objects to the prospect that every time a consumer buys a gallon of milk, it could come with a discount.

According to Beliveau, one solution some vendors are testing is generating unique barcodes for every printed coupon. This would mean once a coupon is redeemed, any coupon with an identical barcode would be rejected as counterfeit. The hurdle is in linking stores to a central database that would allow discrepancies to be caught at the retail level, rather than at the clearinghouse where coupons are gathered and returned to vendors for payment.

In other cases, printing an online coupon would generate a cookie on the user’s computer that sends the coupon directly to the printer. The consumer would not have direct access to the file from which the coupon is printed. It is possible a determined person with a scanner could find a way around this type of safeguard.

Because there’s often a discrepancy between the number of coupons submitted by a retailer and the actual number that were redeemed as part of a store purchase, many vendors aren’t willing to explore e-couponing. Michael Sullivan of Fisher-Price says the problem manufacturers face is their lack of control in the retail channel. A small retailer who sells 500 units of a product could theoretically redeem 500 coupons. If in actuality customers redeemed only five coupons for these purchases, the potential to make money on 495 bogus transactions exists. Sullivan states, “By the time we caught up with this, it would be six months down the road, and we wouldn’t be able to do anything about it.”

There are still more questions than answers regarding the best ways to avoid coupon fraud. Creating an online couponing infrastructure with built-in antifraud measures will take time, cost money, and possibly still have vulnerabilities.

Combating fraud is a difficult battle to win in any industry. Concepts such as “decency” and “honesty” mean little to the individual who wants something for nothing. Safeguards that will be put into place will affect the remaining 99.5 percent of us who use coupons ethically.