In the battle to devise ever more creative and innovative sales promotions, brands are increasingly prepared to risk over-redemption in the drive for cut-through.
This is good news for the risk management companies that offer insurance against these potential hazards. Promotions such as cashbacks, taste challenges, try me free, money-off coupons and instant win competitions are increasingly run on a fixed-fee insurance basis.
"Brands prefer to focus creatively on what will engage their target audience and not have to worry about what might go wrong," says Mando marketing director Chris Baldwin. "We are taking on more of a consultancy role these days to help brands tweak their campaigns to reduce risks and fees."
Fotorama director Philip Penlington agrees insurers should be called in earlier to ensure a worry-free promotion. "Generally, 30 per cent of promoters we deal with talk to us at the planning stage and 70 per cent after the mechanic has been agreed," he says. "It would be better for everyone if this pattern was reversed."
It is crucial that any fear of what might go wrong does not get in the way of a good idea. It is better to adapt a promotion by making it more difficult to enter or by creating redemption disincentives.
The price insurers charge will depend on market sector, location, how this particular type of promotion has performed in the past and how easy it is for people to enter or claim their reward. However, an offer repeated identically a year later can attract a substantially different level of response - either more or less.
There are still many occasions when a risk management company will base its fee decision as much on gut feeling as data. "We dip into research from previous promotions, but an ice cream promotion during the summer can turn on its head if it rains all the time," says Umbrella Risk Management director Nick Carter. "Let's just say this whole area is not a science."
So just what are the riskiest promotions and what can marketers do to protect themselves? Here we look at five classic promotion scenarios and their risks:
WHAT IS THE PROMOTION?
Free gifts at the point of purchase when buying a particular product
- What are the risks involved?
There are real opportunities for people to steal more than one gift without buying the product the promotion is actually all about, especially if items are in a dump bin. Also, if gifts are not scanned at the checkout the promoter might not have enough gifts to distribute to bona fide purchasers. "This will leave customers disappointed and damage the image of the brand," says Stuart Selby, managing partner at Grass Roots OneFee.
- What are the possible solutions to reduce the risk?
The solution is where the problem is - on the front line. Promoters must spend time training retail staff to ensure the offer is policed effectively. Alternatively, it might be preferable to encourage consumers to apply in writing for a free gift with proof of purchase. This is often a better option, because redemption levels will be lower and brands can capture data on who is buying their products. But it's a tricky conundrum. "Brands know many consumers like to be rewarded at the same time they make an impulse purchase," acknowledges Selby.
WHAT IS THE PROMOTION?
A competition offering consumers the chance to win hard-to-get tickets for a high-profile sports event or music concert.
- What are the risks involved?
"Promoters sometimes assume that if they are giving away 1,000 tickets to a special event, the redemption level will be only around the 40 per cent mark, but this is a brave shout," says Umbrella Risk Management director Nick Carter. "If redemption is higher, a promoter could discover the tickets have sold out and face the increased costs of having to buy tickets from auction sites or even ticket touts."
- What are the possible solutions to reduce the risk?
A risk management company might agree to buy tickets for a certain percentage above the face value if there is a problem with stock, but it would expect the promoter to pay anything above that figure. A promoter could also offer a cash alternative.
Carter says the best advice would be for the promoter to buy as many tickets as it could, at least 40 per cent, as well as to take out a fixed-fee insurance policy.
WHAT IS THE PROMOTION?
A redemption offer aimed to boost loyalty among at green-minded consumers.
- What are the risks involved?
According to Mando marketing director Chris Baldwin, campaigns aimed at environmentally conscious consumers produce higher redemption levels than promoters often expect. "Consumers are extremely loyal and usually have strong empathy with a brand," says Baldwin. "They make a considered purchase and their willingness to interact with a brand includes taking part in promotions." He says redemption levels on green food offers can be twice that for other categories, and up to five times higher on bottled ales.
- What are the possible solutions to reduce the risk?
Increase the number of tokens a person must collect, ask for a contribution to cover postage, or switch to a paid-for offer. "This will reduce the number of people entering and bring redemption rates down, while still getting the brand in the shopping basket," says Baldwin.
WHAT IS THE PROMOTION?
A web- or SMS-based coupon promotion aimed at driving online consumers in-store.
- What are the risks involved?
VCG director Brian Gibb says brands that email or text consumers with coupons to redeem at retail outlets must ensure people cannot download multiple coupons or print fraudulent ones at home and possibly alter the value. "It can also be possible for consumers to grab an image and download it and send it to someone else. There is a viral marketing risk here," he adds.
- What are the possible solutions to reduce the risk?
Gibb says promoters must take a belt-and-braces approach and test promotions vigorously to ensure they are totally secure. The training of retail staff to identify fraudulent coupons should also take place. Ideally, brands should expect a better return on investment from a web or mobile coupon promotion than a paper campaign, because the offer should be better targeted.
WHAT IS THE PROMOTION?
A high-value instant-win prize offer on breakfast cereal, featuring a £1 million multi-prize fund.
- What are the risks involved?
A risk management company would charge a fixed fee from £120,000 to £180,000, depending on the number of prizes, the reveal mechanic and the claim mechanism. There is a high risk if consumers simply have to look inside a box to see if they have won, says Fotorama director Philip Penlington.
- What are the possible solutions to reduce the risk?
A promoter has a number of options if it does not want to reduce the value of the prize fund. The fee would be lower if consumers had to look in a pack for a code number and then go online to see if they have won. A promoter could also reduce the value of the winning coupons but increase the number, or put any code on the inside bottom panel rather than on the inside lid. Either option will reduce redemption.