Resources / Blog

The Current State of Coupon Fraud (and how to prevent it)

Raymond wrote this on August 17, 2016 • 6 minute read

Coupons are a great way for Sampler to measure the success of our campaigns, we often include brand coupons with our samples so we know that we’ve converted a sampler into a paying customer when they redeem.

It’s a great way to measure for us because shoppers love coupons, sometimes a bit too much…

What a lot of people don’t see is how much goes on behind the scenes for manufacturers and retailers to honour those coupons and how prevalent extreme, even fraudulent, coupon usage is.

In our work with brand managers, we often hear concerns about coupon security and coupon fraud. We wanted to make sure we address those concerns about coupon fraud completely, so we took a step back to look at coupon security industry wide. We believe we currently have strong security on the coupons we send with samples but it never hurts to double check.

Here’s what we learned.

What is coupon fraud exactly?

Coupon fraud takes many forms, here are some of the most common practices:

Claiming Unrelated Products a.k.a Decoding

Scammers intentionally apply coupons to the wrong products and coerce the cashier to accept them. For example, using a coupon for 12oz of soap on the 18oz bottle.

Mass printing or gang cut coupons

Printing or photocopying coupons to use multiple times to redeem at different stores or even the same store if the cashier is part of the fraud. Gang-cutting involves stacking piles of print coupons in a publication and cutting them all out at once.

Coupon modification

Adjusting coupon terms of expiration for abuse. For example, changing the expiration date, value, and barcode. There are even courses and applications that help teach people how to modify their coupons.

Counterfeit rings

The most extreme cases involve large counterfeit rings that mass-produce fake coupons that are then sold on eBay. These outfits produce millions of dollars worth of fake coupons at a time.

In 2012, police in Arizona busted a counterfeit ring and seized $40 million worth of bogus coupons. Assets included $240,000 in cash, vehicles, 22 guns, and a 40-foot speed boat.

Coupon counterfeiting generally flies under the radar, it’s not as flashy as cash counterfeiting but coupon fraud has caused some serious damage.

Who does it hurt?

Retailers

Retailers are the frontline for dealing with coupon fraud and often feel the financial brunt of these scams. Cashiers at retail stores have the challenge of identifying fake coupons from multiple sources and dealing with pushy customers wanting to use coupons for different products.

Whenever a retailer accepts a fake coupon they lose money on the sale. In 2011, two men used expired coupons at multiple Target stores, costing the retailer $570,000 in losses.

Retailers with consumer friendly return policies can also be targets of coupon fraud, fraudsters make purchases with coupons and then attempt to return the product for full price including the value of the coupon.

Brands

Brands lose control of the promotion of their products when coupon fraud runs rampant, they can’t measure the actual effectiveness of their campaign if fakes or abuse are common. Duplicated or decoded coupons cause manufacturers to discount much more product than they initially accounted for with no ability to filter out the real coupons from the fake ones.

In 2011, a student cost a major CPG $200,000 by designing fake coupons, distributing them and allowing couponers to print multiples.

Shoppers

Whenever coupon fraud gets out of control retailers and brands opt-out of running coupon campaigns. Kroger had to remove their doubled coupon campaign in a response combat coupon fraud. Exploited coupon usage also affects cashier and customer service times for shoppers.

Fake coupons have also been used to target consumers in attempts to steal personal identities. Coupons that look too good to be true have been circulating around on Facebook; these coupons often promote $100 off at a retailer in exchange for your personal information. The image below is a fake coupon from Kroger that went viral and stole the information of thousands of people.

13645309_10153971490803218_3327104781759841945_n

Coupon fraud countermeasures

Any counterfeit/fraud situation is a constant battle; money counterfeiting, piracy and password protection are constant arms races between hackers and security and coupon security is no different.

Jail time and fines

The illegality of coupon fraud is the primary deterrent against the practice, the current punishments are strong with a push to make the punishment even stronger.

As of this date,

  • Longest prison sentence: 17 years
  • Highest financial penalty: $5 million
  • Prison sentences of three to five years are not uncommon. Financial penalties generally vary, but have often been in excess of $200,000.

Organization and communication

Organization and communication are essential to combat coupon fraud. Retailers, redemption houses, and brands need to have quick and effective communication working in tandem to quickly stem coupon fraud cases as they occur. Groups like the Coupon Information Corporation (CIC) are helpful in ensuring that retailers and manufacturers keep open lines of communication.

Print technology

Technology is playing a major role in fraud prevention. Print technology has security features such as microprinting, special colours and watermarking prevent printed coupons from being photocopied or easily manipulated.

Digital technology and personalization

Print at home coupons are now capable of not showing the coupon on screen at all in an effort to prevent digital manipulation. These coupons can also include social media information to provide coupon vendors personalized details to insert onto the coupon to prevent abuse in coupon claims.

More complex barcodes

More complex barcode systems such as the GS1 barcode contain more information and less human legible code to prevent de-coding. Next-level coupon security systems features unique coupon codes that expire after use automatically within the POS. Some retailers can also accommodate smartphone POS authentication as an additional layer of security. Redemption houses such as CFR and Inmar can help implement such technology.

Coupon security best practices

We learned some quick things to consider when developing coupons for general promotion or to supplement your sampling campaign.

1. Personalized and clear coupon design

To reduce chances of point of sale or consumer confusion, coupons should clearly spell out restrictions and product offers so that abuse of the coupon is minimized.

2. Emphasize security on high-value offers

If the coupon is offering a free product or a heavy discount, consider saving those offers for a high-security coupon option like physically printed coupons with watermarks, holograms, microprinting and a GS1 data code.

3. Don’t deliver e-coupons with a re-printable pdf

PDF coupons open up the potential for image manipulation and multiple coupon printing.

4. Review coupon policies regularly

Brands that are running coupon programs should periodically check their policies to ensure that anything that doesn’t adhere to the policy gets caught.

Sampler’s Coupons

Sampler has been working with brands and coupon redemption houses to send out personalized, social media enriched coupons that are difficult to abuse.

img_6693

 

Newsletter

Delivered fresh to your inbox - Learnings and insights from industry experts.

Join thousands of brand and marketing professionals as we share learnings and stories from our own work and other experts in the CPG industry.