Catalina Marketing Corporation

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Catalina Marketing Corporation

11300 Ninth Street North
St. Petersburg, Florida 33716-2329
U.S.A.
(813) 579-5000
Fax: (813) 570-8507
Web site: http://www.catalinamktg.com

Public Company
Incorporated: 1983
Employees: 577 (1996)
Sales: $134.2 million (1996)
Stock Exchanges: New York
SICs: 3577 Computer Peripheral Equipment, Not Elsewhere Classified

Catalina Marketing Corporation, the parent company of the Catalina Marketing Network, was founded in 1983 by five marketing professionals on a trip to Catalina Island. With backgrounds in packaged-goods marketing, retailing, and scanner-based technology, the travelers lamented about the waste and misdirection of coupons; then they thought up an electronic alternative. From its inception in 1983 until 1987, Catalina Marketing consumed $12 million in venture capital and lost $7.7 million. In 1992, however, its store base grew to a comfortable size, and Catalina Marketing’s stock became publicly traded at $20.00 per share. Since then, its shares have enjoyed a 148 percent return. Revenues grew from $51.7 million in 1992 to $134.2 million in 1996, and Catalina Marketing was named to Forbes magazine’s list of the 200 best small companies in America during 1993, 1994, and 1995. “Being recognized by Forbes for three consecutive years,” said George Off, president and chief executive officer of Catalina Marketing, in 1995, “is a true testimonial to our success in expanding the existing network with new products and channels of trade, and applying our basic technology to bring value to consumers, manufacturers, and retailers. It’s evidence of the commitment of all our people to continued growth.”

In 1993, the company moved its headquarters from Anaheim, California, to St. Petersburg, Florida. With 20 sales and support offices in the United States and others elsewhere in the world, the company employed 577 workers in the United States, the United Kingdom, France, and Mexico in 1996. Operating units as of 1996 included: Catalina Marketing Services, Catalina Marketing International, Health Resource Publishing, Catalina Electronic Clearing Services, and Catalina Online.

Catalina Marketing Services

Catalina Marketing Services began selling programs to supermarkets and mass merchandisers through the Catalina Marketing Network, the core of the company’s services. The network was a proprietary electronic marketing system that utilized Universal Product Code (UPC) labeling and scanning to generate coupons or promotions for retail stores. Catalina’s first coupons were considered responsive to consumer behavior and cost efficient because its system offered manufacturers and retailers accurate consumer targeting. The redemption rate of Catalina Marketing’s coupons was reported as 9.4 percent compared with 2.5 percent for traditional coupons. Where traditional coupons—newspaper, direct mail, or freestanding inserts—were subject to waste, misredemption, and clutter, Catalina’s coupons were more effective and more efficient. Richard S. Teitelbaum explained in Fortune: “Landfills of America overflow with Sunday newspaper ad inserts, and research shows that shoppers who actually cash in their Tender Vittles coupons are usually the same brand loyalists who would have bought the stuff anyway. Catalina Marketing lets food companies peek at a customer’s shopping habits before they issue coupons—and thus pitch their discounts with surgical precision.”

Catalina’s network worked as follows: Retail chains contracted with Catalina Marketing for the installation of the Catalina Marketing Network in their stores, whether selected sites, nationally, or regionally. Catalina paid retailers distribution fees based on the coupons generated. Promotional instructions and performance data were sent or retrieved by two hub data processing facilities in the United States. Catalina printed promotions and was paid by manufacturers and retailers for each promotion that was distributed. In an interview with the Supermarket News in 1994, George Off, then Catalina’s president and chief operating officer, revealed: “The success of our system is that it’s simple. There’s no hassle for the store.”

Ten years after Catalina Marketing’s founding, the network remained the strength of company. Off told Forbes ’s Matt Walsh in 1994, “Our base business is our best growth opportunity. If you look at what we sold [to manufacturers] last year, we operated at 16 percent of capacity. Good gosh! We’d have to hire trucks to take the money to the bank if we got that up to 30 percent capacity.” Key programs of Catalina Marketing in 1996 included Checkout Coupon, Pay-for-Performance, and Checkout Direct.

Catalina Marketing’s services started with Checkout Coupon, a program that provided custom coupons delivered to consumers at store cash registers using the store’s bar code scanner and controller, Catalina software, databases, and thermal printers. Coupons were generated based on buying patterns of the individual consumer. If a consumer bought a given product, he or she might receive a coupon for the same product or a competitor’s equivalent item. The system evaluated scanned data, matched the data to a given promotion, and directed a thermal printer to generate a coupon. Printing continued throughout checkout and was completed at the end of each shopper’s transaction. Consumers received their coupons with their store receipts. The system only printed coupons or incentives relevant to the data collected from the scanned UPC code at point-of-sale.

Manufacturers appreciated the directness and potential of Catalina’s coupons. One frozen food manufacturer, for example, issued Checkout Coupon incentives over a two-year period to convert consumers of the competition over to its brand and earned a 6.1 increase in market share. In 1992, Wally Meyer reported in a Frozen Food Digest article that Checkout Coupon “is a flexible program that can be custom-tailored to address… specific marketing goals and strategies. Checkout Coupon eliminates the wasted dollars associated with more traditional forms of couponing because every coupon is placed directly in the hands of the shoppers you want to reach. The Catalina Marketing Network is the only coupon verification system in the nation, offering a guaranteed pay for performance. With this system, consumers are rewarded only when they actually purchase the required product or products.” In 1996 some of Catalina’s clients in consumer-packaged goods included Borden, Campbell Soup, Coca-Cola, General Mills, Hershey, Kraft, Nabisco, Nestle, Pillsbury, Quaker Oats, Ralston Purina, and Tropicana.

Retailers were rewarded for using the network, too, so—from 1991 through 1996—Catalina’s network expanded to more than three times as many stores. “The big advantage to us,” revealed Kevin Davis, a vice-president of Ralphs Grocery, “is that we can tie in Ralphs’ private-label items: If someone buys Oreos, we can give him or her a coupon for Ralphs’ milk.” In 1991 Catalina issued 780 million coupons through nearly 4,200 supermarkets; by 1996 the Catalina Marketing Network was installed in 10,400 supermarkets—including A&P/Farmer Jack, Kroger, Meijer, and Winn-Dixie—in the top 95 markets and touched 136 million shoppers each week.

Like Checkout Coupon, Catalina’s Pay-for-Performance (PFP) program triggered rewards for consumers when they complied with advertised offers; for example, if a shopper bought three items, he or she might get a certificate for one free item for the next shopping excursion. Introduced in 1994, the Pay-for-Performance program became an independent program separate from Checkout Coupon in 1995, just one year after its introduction to the marketplace. From 1994 to 1995, Pay-for-Performance programs increased by 50 percent. Sales volumes for retailers grew anywhere from 20 to 80 percent owing to Catalina’s Pay-for-Performance programs. According to Helene Monat, president of Catalina Marketing Services in 1995, “We’ve seen a boom in the demand for our PFP programs due to the industry’s interest in more efficient promotions and incremental volume. Our programs have proven results and a low cost-per-unit moved. The establishment of category exclusivity for PFP programs separate from our Checkout Coupon program is significant because it allows more manufacturers to participate. They can run a PFP program even if Checkout Coupon has been booked for the cycle.” Catalina’s introduction of Integrated Price Labels in 1994 further supported Pay-for-Performance programs. Integrated Price Labels showed standard retail tag data, plus promotional messages advertising Pay-for-Performance program offered.

Another service, Checkout Direct, was a database marketing program that monitored purchase behaviors of households and delivered incentives, joining Catalina’s network with retailers’ check cashing or card-based shopper programs. Promotions were then issued based on observed buying patterns and supplemented Checkout Coupon programs with newspaper ads and on-shelf signs, among other promotions.

Company Perspectives:

Catalina Marketing Corporation is the leading provider of in-store electronic marketing services. Through its proprietary network, Catalina Marketing provides consumer products manufacturers and retailers with cost-effective methods of delivering promotional incentives and advertising messages directly to consumers based on their purchasing behavior. The Catalina Marketing Network is also used as a mechanism to capture coupon scan data and electronically clear coupons for participating retailers.

Catalina Marketing Corporation offers consumer- and pharmaceutical-product manufacturers and retailers alternative ways to advertise and to issue promotional incentives to consumers based on their established purchasing behaviors. The company also assists these same manufacturers and retailers with long-term marketing strategies to build consumer loyalty, promote goods, or increase brand awareness and sales. In addition, the company captures coupon data and clears coupons electronically for retailers.

Catalina Marketing Services experienced growth in many areas since 1992, including store expansion and the development of new applications. In 1995, for example, Catalina Marketing Corporation announced that 87 Super Kmart centers were joining the network in the first quarter of 1996. This marked the network’s entry into mass merchandising. “This is an important move for our company because Kmart’s stature solidifies our role as a multi-channel delivery system including supermarkets, drug stores, and mass merchandisers,” said Off.

Additionally, the Catalina Marketing Network proved itself flexible and able to be upgraded to support different or new applications. Catalina Marketing’s more recent innovations included Checkout CallFree, free phone debit card certificates, in 1996; Checkout Prizes, an electronic instant-win sweepstakes based on consumer purchases; and SaveNOW!, instant discounts of particular products.

Checkout Prizes was awarded first in 1996 to Dillons supermarkets, a Kansas-based chain. Catalina Marketing initiated a sweepstakes to thank retailers for helping its network grow. Checkout Prizes is an instant sweepstakes game that electronically awards prizes to consumers when they check out. Lynn Lackey, a Dillons executive, said: “As one of the newest retailers on the Catalina Marketing Network, we’re especially enthusiastic about the savings opportunities network programs will provide our customers. Giving our shoppers a chance to win valuable prizes will create excitement in the store while introducing them to the benefits of the network.”

SaveNOW! also created interest among consumers for retailers. Retailers were paid for each discount delivered to shoppers. Catalina billed the appropriate manufacturers, then reimbursed the retailers for the discounts. Tested in May 1996 at Ralphs and Pathmark stores in Los Angeles and New York, SaveNOW! required that manufacturers indicate products to discount—and the levels of those discounts—by brand and/or size for two-week intervals. Catalina then incorporated discounts into ads, signs, and point-of-sale scanning systems. Discounts occurred automatically at scanning, with confirmation on each customer’s register receipt. As Off explained: “With more than ten years of experience in transaction-based promotions, Catalina Marketing has the in-place electronic network, established retail partners, and proven technology base to make paperless discounts a feasible, cost-efficient alternative to traditional marketing. We see SaveNOW! As an enhancement of our existing portfolio—where Checkout Coupon and our other offerings serve as long-term franchise building tools, this program can provide a timed, targeted, short-term life in a brand’s sales.”

Catalina Marketing also launched a frequent shopper program in 1996, offering a flexible menu of turnkey electronic database marketing programs. The frequent shopper program was an initial attempt at loyalty marketing. Catalina offered data collection, store and warehousing analysis, consumer communication through a program designed to assist retailers in communicating with shoppers, thus promoting store loyalty and increasing profitability. The program bridged the Catalina Marketing Network and a store’s card-based transactions or other frequent shopper programs. Basically, Catalina’s frequent shopper system provided data collection of purchases and a method of communicating with a retailer’s customers, then printing incentives based on a consumer’s total spending and number of shopping trips. Said Brian Woolf, president of Retail Strategy Center Inc.: “Retailers have recently begun to grasp the power of frequent shopper programs, but are often daunted by the expense and time it takes to set up a program. The Catalina Marketing frequent shopper service now provides a great turn-key database marketing solution without the delays, and hardware and software expenses typically incurred when running an in-house frequent shopper program. Catalina Marketing is the company to bring this type of program to market because they have an established expertise and a proven track record of executing successful electronic marketing programs, and they have a solid, electronic network in place.”

Catalina Marketing International, 1992

Catalina Marketing International was founded in 1992 with the licensing of Checkout Coupon technology in the United Kingdom. Catalina Marketing International eventually became responsible for all overseas and Mexican operations of the Catalina network. The network reached 14 million shoppers outside of the United States each week in 1996 through 650 stores. Though basically the Checkout Coupon program available in North America, the international versions sported their own names; for example, Checkout Saver in ASDA chain stores in England; Ecobon in the Casino and Promodes chains in France; or Promo Cupon in Gigante and Aurrera chains in Mexico. Checkout Direct, Catalina’s database monitoring program, also was introduced in the United Kingdom to track household purchases and deliver incentives accordingly. In 1996 Catalina Marketing International bought out the 46 percent minority interest in its U.K. operation. Off revealed at the time of the purchase: “We’ve had great success in England. Our U.K. operation is positioned for excellent growth in sales and profits, making this the right time to increase our ownership position. We feel that our U.K. operation will continue to be a strong performer for the company, and look to it as a model for success as we move forward with our international expansion.”

Moving beyond Europe, Catalina Marketing launched a joint venture in Japan with Pacific Media K.K. in 1996 to introduce Checkout Coupon and electronic marketing programs through a new division called Catalina Marketing Japan. According to Off, “Our electronic marketing programs have excellent potential in Japan, where research has shown that shoppers are searching for good values. This fact, along with the positive reception we’ve received from Japanese retailers and manufacturers, prompted our decision to move into this market. Japan has a total population of more than 120 million, and a $150 billion supermarket segment. Ninety-nine percent of stores in the country’s large chains are equipped with point-of-sale scanners.”

Health Resource Publishing Company Debuts in 1995

Founded in 1995 as a test program in 40 stores in seven chains, Catalina’s Health Resource Publishing Company delivered a prescription-based newsletter to pharmacy customers. Similar to Checkout Coupon premiums, these customized newsletters were based on consumers’ individual drug purchases as indicated by the National Drug Code that corresponded to each prescription. The laser printer-generated 81/2 X 14-inch newsletter covered fifty product categories and included editorials, product ads, consumer information, and incentives for customers. One year after its establishment, the Catalina’s newsletter system was installed by fourteen retailers for a total of 150 stores, with commitments from several others for future installations. Soon more than 230 pharmacies offered Health Resource. President of Health Resource Publishing Company Mike McClorey revealed: “Retailers are excited about the program because consumer response has been so positive, and that has enabled us to expand within existing chains and into new retailers. Personalized health care information is a big customer concern. Retailers trying to distinguish themselves are looking at value-added programs such as the Health Resource newsletter to offer this type of information to their shoppers.” Health Resource Publishing Company is headquartered in St. Louis, Missouri.

Catalina Electronic Clearing Services

Another operating unit, Catalina Electronic Clearing Services, was founded in 1993 as the first automated coupon clearing system, serving more than 100 stores and nine supermarket chains in the United States. Essentially, Catalina Electronic Clearing Services improved past manual systems of processing coupons. Manual systems were inefficient—with each coupon being handled about 30 times—paper intensive, and subject to misredemption and chargeback problems. Catalina’s system, however, captured data as coupons were scanned, tallying count and value information for manufacturers to issue redemption payment to retailers. In 1996 Catalina Electronic Clearing Services were reorganized, moving from a separate business unit to part of Catalina Marketing’s core operations. According to Off, “We strongly believe that electronic coupon clearing will become the industry standard in the future, and by streamlining operations now, we are ensuring the long-term viability of our electronic clearing business. We are committed to maintaining our leadership position and growing this business.”

Online Activities and the Future

With the advent of the Internet, Catalina Marketing Corporation instituted two vehicles for reaching its clients and consumers. The first, Supermarkets Online (http://www.supermarkets.com) is a cooperative Web site offering promotional and information services to consumers from retailers and manufacturers. Consumers see weekly specials, create shopping lists, or print coupons. (Coupons had security measures installed to ensure proper redemption: bar coding, chain-specific redemption, manufacturer expiration dates, sequential numbering, and personalization with a shopper’s name.) Supermarkets Online was first available to consumers in California in 1996. By mid-June 1996 it was installed in 1,600 stores by eleven retailers—including Ralphs, Vons, Lucky, and Safeway—that participated in the lead-market launch. Catalina Marketing believed it to be the first third-party Internet project for retailers and manufacturers. David Rochon, Catalina Marketing Online vice-president, said: “Just as Catalina Marketing has spent the last twelve years building its in-store network, now the company is establishing an in-home network, which will give our clients and consumers better access to one another. We believe Catalina Marketing Online will provide retailers and manufacturers with a new way to offer added value, and will present consumers with shortcuts to make shopping easier, faster, and more enjoyable.”

Catalina Marketing also launched a business-to-business web site (http://www.catalinamktg.com) offering news and issues relevant to the packaged goods industry and providing an interactive medium that profiled the Catalina Marketing Network’s services. Really the company’s home page, the Web site featured a bulletin board, hot issues, a shopping game, demonstrations of Catalina Marketing Network services, chats with industry experts, live discussions, and polls. “In developing our home page,” noted Off, “we strived to provide a combination of topical information, effective business-to-business marketing tools, and entertainment. And I think we’ve accomplished this by providing user friendly access to company information as well as through engaging and interactive resource elements.”

Principal Operating Units

Catalina Marketing Services; Catalina Marketing International (United Kingdom, Mexico, and Japan); Health Resource Publishing Company; Catalina Electronic Clearing Services; Catalina Online.