AOL clips coupon deal

On Tuesday, America Online Inc. (NYSE: AOL) and Supermarkets Online, a subsidiary of Catalina Marketing, (NYSE: POS) are set to announce an agreement to offer coupons on AOL and Digital City, the service's local guide. The deal, which makes Supermarkets Online an anchor tenant in AOL's food area, marks the biggest boost yet for the emerging online coupon industry.

The high-tech coupons, called "ValuPage," will be available on AOL's Digital City within the next few weeks and as part of the online service's revamped food area later this quarter, Will Gardenswartz, senior vice president at Supermarkets Online, tells MSNBC.

Terms of the multi-year deal weren't disclosed, although anchor tenancies on AOL typically cost at least several million dollars a year. An AOL spokeswoman declined comment in advance of the expected announcement.

At least half of American homes clip coupons each week, with 82 percent redeeming some kind of coupon every year, according to the Association of Coupon Professionals. And packaged goods marketers like Nabisco, Kraft General Foods, Kelloggs and Del Monte spend at least $1.4 billion each year placing their discount offers in Sunday newspapers.

Short on research
Because online couponing is still a nascent industry, there's no significant research available on it, says a spokeswoman for the ACP, explaining that in 1997, online coupons accounted for 0.001 percent of nearly 3.7 billion coupons redeemed. Yet that was up 500 percent from the year before.

Data for 1998 hasn't been completed yet, but AOL no doubt believes that its deal with Supermarkets Online will change coupon clipping into coupon clicking.

For Supermarkets Online, which launched its service valupage.com on the Web last year, an anchor tenancy on AOL will bring exposure to the Internet's biggest, most mainstream audience.

"Our coupons cannot hope to reach a mass audience without a partner like AOL," says Gardenswartz.

Even so, its Web site has become the No. 12 most popular commerce site on the Web with 1.2 million visits during December, according to online measurement company Media Metrix.

Supermarkets Online -- which in December signed a distribution deal with women's community Web site iVillage -- has more than 40 participating marketers, including Nabisco and Kraft General Foods, and offers the online coupon "clicker" the chance to save some $40 a week at over 8,700 supermarkets nationally.

Although Catalina Marketing doesn't break out earnings for its Internet unit, the company expects its online coupon business will be a "core driver" of revenue growth in the coming fiscal year in the wake of the AOL deal.

From clip to click
How will it work? On AOL, as elsewhere on the Web, customers will download coupons by entering a zip code to choose a nearby participating supermarket. A printout with a barcode (to prevent coupon fraud) is scanned by a cashier. The shopper can then redeem coupons called 'Web bucks' on the next visit to the store.

For AOL, offering coupons is a way to appeal to its increasingly important female subscriber base. Women make up 52 percent of AOL's 16 million subscribers and are credited by analysts as the drivers of its revenue growth.

When it comes to buying groceries, women make up 67 percent of shoppers, according to industry surveys.

AOL has cut some high-profile deals with packaged goods advertisers like Unilever and Kraft General Foods. But the biggest challenge for AOL, just as for Web content companies, is creating effective advertisements for the big brand marketers.

"AOL has been trying to figure out ways to create areas for its food marketers," says an ad agency source. "With couponing, they could promote areas with recipes and then offer food discounts."

Even better, coupons will give AOL's members a reason to come back each week.

"It's an incentive to come back to AOL because you're saving money on your groceries," says Ron Rappaport, analyst with Zona Research, Redwood City.

Rappaport sees the "absolutely growing" popularity of coupons as part of an even larger trend of "incentive based web surfing" in the form of affinity programs some Web publishers are creating to reward users for spending time at their sites.

"Users go online to save time and money," he concludes. "It's a timeless theme."