Nigel Ashdown suggests ways of avoiding the nightmare of a promotion that goes wrong
Would you believe that you encounter literally thousands of promotions each year? Well it is true. Think about how many promotions you see every day – a free toy in your breakfast cereal promoting the next big children's film, a 'buy one get one free' offer on your toothpaste pack, vouchers to collect in your morning paper to get a free bottle of wine, a 'win a million' campaign with your packet of crisps at lunchtime, a money-off-your-next-purchase coupon on baked beans – the list is endless.
Companies in Britain spend billions of pounds each year on products and schemes that they offer to customers and consumers to encourage them to buy a brand or buy more of it. It is a massive industry. However, there is a significant element of risk involved in any promotion, because there are so many things that are unpredictable.
Even the most experienced marketer cannot predict the outcome of a promotion accurately every time. As companies, sponsors and marketing organisations constantly seek innovative ways to promote their campaigns, and with the growing popularity of high value prizes and rewards, the risks are growing in frequency and scale.
The classic example of the ultimate promotional disaster was the Hoover 'free flights' fiasco in 1992/1993. Two free international airline flights were offered to consumers in Britain and Ireland who purchased an appliance from Hoover – a great idea, but one that was massively miscalculated. As the appliances were significantly cheaper than the airfares, thousands of consumers bought Hoover appliances just so they could fly for free. However, when the promotion was not honoured, many of these consumers turned to the law. Hoover Europe's former corporate parent, Maytag Corp, found it a very costly blunder, as they spent £72m to fly some 220,000 angry consumers.
Other big promotional blunders include a company which offered a jet as a prize for collecting thousands of tokens and was astounded when a consumer actually did this to get their hands on the jet (never underestimate the obsessive consumer), and a leading daily newspaper which offered day trips to France for an amazing price. This led to its website crashing from the overload, and to thousands of disappointed, frustrated, customers.
It requires an enormous amount of planning by the promoter to cover every contingency, and even the most experienced find it difficult. How can you predict how many consumers will redeem? How many call centre staff will you require to handle your requests? Who is going to house all of the stock? What happens if you offer tickets to an event which is then cancelled? New technology promotions, such as SMS and web-based e-redeem, are even harder to predict than traditional on-pack promotions, as there is very little experience to go by.
When undertaking a promotion, there are three risk management options available to you. First, you can let the brand take the risk itself. But you should only consider this if you have very comprehensive past history of similar promotions. Alternatively, you can either buy promotion insurance, or have a fixed fee arrangement. Both work very well, but if you want a completely risk-free solution and everything taken out of your hands, fixed fee is the answer.
What is meant by fixed fee and how does it differ from promotion insurance? A fixed fee approach gives promoters and agencies peace of mind by removing the uncertainty of redemption issues. For one agreed set cost, the fixed fee company will handle all aspects of a promotion from sourcing and database management, right through to customer service and fulfilment, and take all the risks. Promotion insurance, on the other hand, is focused on the financial liability, leaving the promoter to handle the logistics. It is commonly used only to protect from over-redemption. This suits some companies, but a degree of risk is still present in terms of some redemption and logistics issues that the insurers will not cover for you. The fixed fee promotion removes all risk.
While fixed fee gives 100% cover to the promoter, promotion insurance usually only offers a tranche of cover, for example from 10-20% redemption with the risk above 20% remaining with the brand. The promoter will also have to pay the costs of redemption and make a claim against their insurance policy, like any other form of insurance. This claim may or may not be successful. The insurers will appoint a loss adjuster, who may challenge the claim and look in detail at the operation of the promotion. If, for some reason, say, tokens had to be attached to a coupon and some had fallen off or been misplaced, the loss adjuster may reduce or reject the claim.
Loss adjusters and insurers will also look closely at the small print, which could adversely affect your claim. For example, there may be a clause that stipulates that insurers have to be notified as soon as it is likely that a claim will be made under the policy. If you forget to notify them at the appropriate time, they may have grounds to reject your claim altogether. Other examples include failure to retain all of the applications (promotions sometimes run over many months) or failure to disclose other knowledge relating to the promotion.
When you are considering starting a promotion, you should always implement some form of risk management. A promotions virgin may not know where to start. Even those who have considerable experience of promotions get caught out from time to time. However, with the fixed fee approach, you always know that you are protected and that you will not go down the Hoover path to disaster!
A good starting point for anyone considering running a promotion is to speak to the leading trade association for the promotional marketing industry, the Institute of Sales Promotion (ISP) One of the most useful aspects of the ISP is its legal advisory service, which offers specialist legal advice on a promotion, thus eliminating the risk of being sued. Further information can be found at www.isp.org.uk. The most cost-effective way of getting this advice is to become a member of the ISP.
Assessing popularity
A key decision to make before choosing between promotion insurance and the fixed fee approach is to assess your campaign risks. The essential consideration is to ensure that unexpected redemption levels will not leave you out of pocket. This could ruin your promotions budget for the year, or even have a significant effect on the financial stability of your company. But to have an understanding of possible redemption levels, an insight is needed into the psychology of redemption.
Experience in the promotions market, the mind of an actuary and a good head for maths are ideal in determining predicted redemption levels. However, a gut instinct for the popularity of a promotion is also extremely valuable. A knowledge of human behaviour is also helpful, as human nature can play around with probability in very strange ways.
For example, a cuddly toy promotion is usually popular. Take the recent Andrex Bean Puppy promotion, which was held in 2002 and received 1.3 million redemptions. Consumers love 'cute and fluffy,' and these products also fell into the collectors' realm, making them desirable and of a greater perceived value. It is fair to predict that if one promotion is offering a plastic toy and the other is offering a cuddly toy kitten, redemption rates for the latter will be far greater .
Indeed, any promotion involving animals will receive high redemption rates in the UK. This is because we just love our furry friends. But if you are running a promotion overseas, you have to take how cultures vary between countries into account. Not everyone is as passionate about pets as the British. Others might prefer promotions for clothing. The popularity of particular sports also varies significantly between countries.
You should also take into account how easy it will be to redeem your promotion. If it takes a fair amount of effort to claim something with little perceived value, consumers may not do it. This is where Hoover fell down – offering the amazing promotion of free international flights linked to a purchase that was relatively easy and inexpensive to make. If the consumer is getting a gift with a perceived value which exceeds the cost of the items purchased, the promotion will redeem very highly.
The positioning of offers, such as on-pack, can also significantly affect redemption levels. Wrappers on which the offer is not easily accessible, for example on the back of labels on pre-packed meat, as well anything that is hidden well away in a product until you have used it all, will attract less redemption. Consumers are more likely to forget the promotion and throw away the empty pack. Similarly promotions on frozen products will redeem at a lower rate than on ambient products.
Whichever path you choose to go down – fixed fee or promotion insurance – always consider the financial strength of anyone that you are considering working with. In the event of unforseeably high levels of redemption, you need to be sure that they will be around to meet the liability. And when asking them to provide a quote, remember that these companies need as much information as possible to provide you with an accurate cost. If the risks are too uncertain or the information on the mechanics of the promotion not clear, companies may decline the opportunity, or quote a much higher fee to cover the uncertainty.
INCENTIVE WORLD 2003
The UK's leading promotional marketing exhibition is taking place from the 29 April to 1 May 2003 at Earls Court 1, London. Prospective visitors can pre-register online at www.incentive-world.co.uk
INSTANT WIN ALERT
Ever since Heinz and Pedigree first pioneered instant wins over a decade ago, the technique has grown in popularity to become the most successful and effective of the prize promotion techniques, says the Institute of Sales Promotion. So much so, that it's increasingly in the media spotlight and therefore in the firing line to challenges from both consumers and the law.
The ISP warns that organisations holding on-pack free entry competitions for prize draws and instant wins may face a deluge of plain paper entry postcards from the Must Win Club, a subsidiary of Competitors Companion, on behalf of its members. The club is taking advantage of the fact that prize draws must be free to enter and that the prizes must be given away to avoid being an illegal lottery.
The ISP is exploring ways in which the free entry route can continue to operate legitimately, whilst not incurring the additional administrative costs of data capturing the full membership of the Must Win Club. It advises members to include the following in their terms and conditions: "No purchase necessary. You can enter direct by sending your name and address by post on a plain piece of paper to xxxx. Entries must not be sent through agents or third parties. Any such entries will be invalid. Winners will be notified in writing within 28 days."
