Many will mock me and I am sure this will push some readers out the door saying “This guy is a true idiot” but I think one of the things that may help rebalance the Consumer/Producer imbalance is coupons.
You laugh but if you recall, around two years ago I wrote a Substack column explaining that not only were prices going to go up, producers were going to get extra mileage by decreasing the size of the products they sell (while keeping the price the same) and by reducing or curtailing the distribution of coupons.
I know, coupons are a thing of the past and the only people that ever cut them out were old people but the very fact that producers no longer distribute coupons has to tell you something very important.
Maybe two things.
One, they really could care less about an aging population that may need the help of coupons to keep their standard of living at the same level as it was a year ago let’s say.
Two, producers stopped producing those coupon supplements right around the time the Fed said that inflation was going to be transitory. As prices rose, producers didn’t need enticements to increase dollar volume sales, inflation took care of that. Sure their costs of producing the products went up as well but it didn’t account for the wholesale price rises we saw. The proof is right there in front of you. Look at the major manufacturers of products in this country and you will see that during the initial months of this inflationary cycle, their profits went up. Think about it. If your components to whatever you manufacture are rising at let’s say a 5% annualized basis, your wholesale prices that you sell to distributors should go up 5%. Your sales numbers will have gone up because your products cost more, but your net earnings should remain the same. Econ 101. They didn’t, manufacturers saw a 10-14% rise in profits while sales went up around 6%. Thats some sketchy math right there.
All the numbers that came out in the months after we started dealing with inflation proved my point. Manufacturers were having a banner year. Most business planners could see that this was not going to be short lived and planned accordingly. One of the things that they did was cancel the coupon marketing programs that had been going on for years. When unit sales are down but revenue continues to climb, why reduce your profit margins by distributing a piece of paper that will basically take a chunk out of your profits.
In their heyday, coupons were never a big driver of sales. When a good coupon was distributed, sales may have increased a touch but manufacturers always believed that strong marketing campaigns in other spaces were more valuable( TV, Radio, newspaper or magazine). There will always be a subset of the consumer population that will wait for the inserts and scour those inserts for products they use. Occasionally trying something new. However, in the new world order, that small subset didn’t generate enough incremental sales to justify the cost. So, to increase profits even more, they eliminated that part of their marketing budget.
My idea is simple in thought, easy in execution and totally doable on a national level. Since the Biden Administration has made it a priority (Which is fitting since they caused a lot, but not all, of the inflation we are dealing with) to lower inflation by subsidizing manufacturing in this country and creating higher paying jobs. Funny because in theory, those are great goals, they will help fuel inflation because if you recall back to Econ 101, the main driver of inflation is always (up until 2020) wages.
Pressure manufacturers to start to redistributing coupons.
Laugh at me. Mock me even. Think about it though. People who used to cut coupons were by and large lower income people who needed to stretch every dollar. These people would slowly and assuredly go cut those coupons for Tide detergent, Skippy peanut butter and the thousands of products they gave up on as their budgets got squeezed. Many consumers went to cheaper store branded products, not minding the lack of quality or flavor and they may stay with those products but if you distribute a large enough coupon, most consumers would go back to their favorite brands.
I did a very limited taste test. I had a jar of Skippy peanut butter siting around, probably past expiration, and I bought a jar of Good and Gather peanut butter from Target. Pretty much the same ingredients, same caloric amounts. I did a side by side and my expired Skippy was still a spoonful of deliciousness. The Good and Gather was ok but it wasn’t rich in flavor. Now, the Skippy cost 3.29 for a 16.3 oz jar and the Good and Gather cost 1.98 for a 16 ounce jar. Big difference but if Skippy reintroduced their 50 cent coupon, we are now talking about an 80 cent price difference for a larger jar of better peanut butter.
I know everyone hates when I do these obscure examples but I am trying to make a valid point. Given a somewhat level playing field, consumers will probably opt for quality rather than a very small difference in price. They can market the Hell out of something, if it cost substantially more than another product and the perceived quality difference is small, consumers in inflationary times will buy cheaper. Give them a coupon and the story might change.
Any manufacturer that jumps back into this space can make a big deal of it and use the fact that they are giving consumers an opportunity to save money will be heralded by a large portion of this country’s consumers.
I understand that most grocery chains use some form of coupon in their proprietary apps and from the statistics, this seems to be an effective tool for the chain and I am sure the manufacturer shares in the cost of these electronic coupons but I have seen what one chain does with these electronic coupons or the coupons they actually print out and mail to members homes.
This doesn’t happen 100% of the time but it does happen.
I am a member at BJ’s and while it isn’t as good as Costco, it is convenient and the clientele at my local stores location are solid people who are courteous. Costco, it’s like the place has run amuck and you need to wear shin pads because at least three charts will ram into your legs at any given moment.
Back to BJ’s. I received a circular with discounts on a few products I buy regularly. One of them was $1.50 off on a Land O Lakes butter four pack. Since I know from experience (and saved receipts it’s 13.59 for that very four pack. Nice, 12 bucks for 4lbs of butter. I’m in! Uh, not so fast skippy, the butter is now 14.79 so with my coupon it’s 13.29. In essence, I saved myself 30 cents! If you don’t have the coupon, it’s 14.79. Sure you can go to the service desk and talk to someone but really? This is a very misleading tactic. Okay, I saved a little bit of money but the idea is not above saving money, it’s about making a purchase thinking I was saving a lot and then reality settles in and I have four pounds of better I really didn’t need.
Guess I will bake a pound cake.
Another Excellent point made! Thank You