Catalina S Printed Coupon Business Model

Catalina in the Digital Age Catalina was in the business of printing off coupons for consumers at grocery stores as they waited in the check-out line. Once finished checking out, the Catalina printers would print off a slew of coupons based on the personal shopping habits of the consumer. Consumer Packaged Goods (CPG) firms/retailers paid Catalina handsomely for this service -- much more (about 10x more) than that paid to loose-leaf coupon distributors in newspaper ads pages.

Catalina put personalized coupons directly in the hands of buyers based on shopping history. Catalina's personalized shopping records of consumers was one of its biggest assets, and its ability to print off coupons in more than 30,000 retail stores across the U.S. made it a force to be reckoned with (Dolan, Karmarkar, 2014, p. 1). However, the advent of the digital age brought a new challenge to the company.

Should it embrace the mobile phone/Internet-based business models of other companies like Google and Facebook? Would this be an appropriate transformation for the company? Would it be required moving into the 21st century? A new CEO named Egasti (formerly of P&G) was brought in by stakeholders to help guide the company with respect to these new questions.

Still, at least one director on the board viewed the transformation as risky and, in fact, as potentially debilitating to the company: "Moving from in-store to online and mobile, we go from competing against nobody to competing against Yahoo, Google, and Apple, and they have already established price levels there that are not attractive. We match those prices and cannibalize our existing checkout business, and our margins are gone" (Dolan, Karmarkar, 2014, p. 2).

What Egasti understood was that shoppers in the digital age didn't want to have to spend time sorting through fliers and inserts looking for the "needle in the haystack" coupon that would save them a dollar here and a dollar there (Dolan, Karmarkar, 2014, p. 11). They wanted promotions to find them, to tell them how they could save. They wanted to be directly marketed to. They wanted a personalized experience -- and they wanted it fast, easy, and on-the-go. Catalina could essentially give all of this already -- just not digitally.

Its service still relied on the printing machine -- the tangible coupon that could easily be lost. Considering that about 1% of the 300 billion coupons printed out by businesses around the country per year were actually redeemed, it was not hard to see why Egasti saw digital as the next evolutionary step of the coupon printing process and why he wanted Catalina to go there.

Egasti identified what the consumer wanted: "I want that coupon in a way I want to get it, wherever it is easiest for me, at home on my computer, or my mobile phone, downloaded to my loyalty card so I don't have to carry anything around" (Dolan, Karmarkar, 2014, p. 11). As Egasti said, Catalina had the personalization part -- it just needed a new delivery system that was digital. Two big retailers, Safeway and Kroger, used Catalina services.

But Kroger, the biggest grocery retailer in the U.S., viewed Catalina as a great in-store coupon printing service but not as a joint-venture partner in the same sense that dunnhumby USA was for Kroger. Kroger loved the concept of personalization and already used it and like other retailers was well on the path to loyalty cards and mobile data usage, etc.

There was no need for Catalina to step up and offer a new digital product or digital services when the retailer itself was already capable of doing it on its own. Thus, for this reason, Catalina was actually late to the game. It was attempting to chase a service that was already being rolled out by others. It wanted to get in on the next big thing. But the director who criticized the move of Catalina's core business to the new digital model was right -- Catalina would lose.

It would be best to stick with what was already a proven winner and maintain its dominance in that respect. It could, as Egasti suggested, adopt the mobile platform as a flank or as a support of its business model already in place, but to shift its core from in-store printing of coupons to completely digital would be to go back to zero, square one, and be in a much bigger arena with far bigger and more advanced competitors.

Logistically speaking, it just did not make sense for Catalina to go fully digital the way Egasti envisioned. For this reason, I would recommend that Egasti not proceed with his course of action towards overhauling.