In 1992, Hoover famously promised free airline tickets to customers buying more than £100 worth of its products. Unfortunately, the company had not anticipated the extent of the – huge – demand. The oversight cost Hoover a reported £50m and its British division was sold soon after.
Why understanding redemption is key to success
Sales promotions are a staple part of any brand’s marketing activity, but each company faces a fundamental challenge when planning such a campaign – how to anticipate redemption rates.
While every company wants their promotion to be a huge success, they also need to ensure that they accurately forecast the likely number of people to redeem the offer. This ensures that customers are not left dissatisfied, and that the expected ROI is achieved…
Being able to accurately calculate such demand is key to avoiding the disaster that befell Hoover.
IS YOUR CAMPAIGN ENGAGING?
“As with any marketing activity, brands and agencies want to know that the sales promotion they are spending time – and money – planning is going to be engaging and effective,” says Chris Baldwin, Head of Commercial at promotions management company, Fotorama.
“If it is a promotion requiring consumers to collect tokens or codes, for example, in order to receive a free gift, brands need to be sure that it is a compelling enough offer for consumers to commit.”
BUT WILL YOU REACH 10,000 CONSUMERS OR ONE MILLION?
It stands to reason that the more people who enter the promotion, the higher the cost will be. Dealing with redemptions costs money, whether it is coupons redeemed, prizes won or teddy bears collected. “The difference between 10,000 or one million consumers engaging with a brand’s promotion will have a big impact on budget – it is critical to ensuring ROI,” says Baldwin.
ACCURATELY WORK OUT YOUR REDEMPTION RATE…
There are lots of variables when it comes to achieving an accurate estimation of your campaign’s redemption rate. A good starting point is to work with a specialist who can compare the type of campaign and brand reach with historic sales promotions.
“We will compare any potential campaign against our own substantial database of sales promotions,” says Baldwin. “If we haven’t worked with the brand before we will also look at its history in terms of the redemption rate of its previous promotions.”
IDENTIFY HOW PROMOTIONALLY AWARE YOUR AUDIENCE IS
If a brand is experienced in running sales promotions but hasn’t got experience of running a specific mechanic, such as a ‘click to win’ for example, looking at how well other types of campaign have worked offers valuable insight. “It gives us an idea of how a brand’s consumers rank in terms of promotional awareness compared to the norm, or to other similar promotions we might have run,” says Baldwin.
Indeed, it is like taking out car insurance. “Insurers need to know what your driving is like before they calculate your premium. Ensuring adequate cover for a sales promotion is no different. We examine each brand’s past history to help inform the likely redemption rate.”
In short, the more information a brand can supply, the less risky the promotion becomes.
CALCULATE THE TOTAL LIABILITY
Once this data has been compiled, a specialist will calculate the total liability of the offer. This is basically the cost of each successful redemption multiplied by the number of opportunities there are to redeem. “For example, if there are one million coupons, it is a million times the face value of those coupons, plus clearing house costs,” says Baldwin.
Alternatively, if it is a prize competition, the total value of the prize fund will be multiplied by the anticipated play rate. “If we use the existing data to estimate that there will be a 10% play rate, then the cost of the promotion will be 10% of the total prize fund,” says Baldwin.
REMEMBER, NO TWO PROMOTIONS ARE EVER THE SAME…
Even if a brand is running the same promotional offer as a previous year, it will differ as a result of various factors, including the economic environment. It may also differ because consumers will already be aware of the promotional mechanic, increasingly the likelihood for greater participation.
“Of course, if a brand runs the same promotion year after year there is also a risk that consumers will become bored and disengaged, meaning redemption rates will fall, but that is down to the skill of both the sales promotion agency and the creative to ensure it remains fresh.”
LEARN FROM HOW MCDONALDS KEEPS ITS CAMPAIGN FEELING FRESH
McDonalds is a good example. The burger giant has run variants of its Monopoly promotion every year since 1987. Each time, the campaign is slightly improved, with the addition of new elements. The company has also introduced online aspects to the promotion, which originally involved collecting physical tokens with meals.
“It is a good example of what every good marketer should be doing – keeping a promotion original yet building on awareness so popularity continues to increase each year,” says Baldwin.
UNDERESTIMATE REDEMPTION AT YOUR OWN RISK
Brands must ensure that they take factors such as repeat promotions and past history into account when calculating the redemption rate. Underestimating this can mean a brand isn’t protected. “If you haven’t taken any form of cover for your offer it could present you with a nasty shock when it comes to fulfilling the offer,” says Baldwin. If significantly more consumers than anticipated engage with the promotion it can have a considerable impact on the bottom line.
OVERESTIMATE REDEMPTION AND YOU COULD REGRET IT…
“If you think your planned sales promotion is fantastic but it doesn’t actually engage consumers you can end up with egg on your face, and you will have probably wasted a lot of money setting it up,” says Baldwin.
Discussing a planned campaign with a specialist who has worked on lots of promotions is time well spent. It can enable brands to benchmark their campaign against a wealth of previous activity to gauge likely interest from consumers before any action is taken.
LEARN FROM THE MISTAKES OF OTHER BRANDS, LIKE HOOVER
“There are promotions which have massively over-redeemed, but I think the industry has learnt from that kind of thing and now understands the importance of scalability and insurance,” says Baldwin.
But if a promotion over-redeems it shouldn’t spell disaster. On the contrary, it means it has been very successful. “The trick is to make sure brands have the right fulfilment partners in place so if a campaign does over-redeem they can deal with it, and their terms and conditions allow for it.”
Working with a specialist also means that brands will have the necessary communications in place to manage consumer expectations, concerning the time it takes to receive prizes, for example. “People have learnt from Hoover and the majority of brands now look, not just at the financial connotations, but at the burden of fulfilment too.”
UNDERSTAND THE IMPACT OF DIGITAL ON PROMOTIONS
Of course, times have changed since Hoover’s painful lesson too. The exponential growth of digital has complicated the art of calculating redemption rates. The potential of online to send promotions viral – reaching vastly greater numbers than before – can have a huge impact on redemption rates.
Online forums such as Moneysavingexpert, can super-scale reach by identifying and promoting particular campaigns to their highly engaged audience.
TAKE SOCIAL MEDIA INTO ACCOUNT
Social media platforms can also be game changers. “From a risk management point of view, we do have to ensure that we have a full understanding of the realities of social media,” says Baldwin. “We have to be aware of its possibilities as well as its limitations.
“We will look carefully at how a brand uses Facebook or Twitter for example, in terms of organic growth or promoted posts, and we will look at the brief given to their social agency, to help anticipate potential reach.”
But such briefs tend to be fluid and reactive, which doesn’t fit with a standard insurance contract, as Baldwin points out. “It means we have to be adaptable, and that is why our business exists, to sit between the standard insurance concept and one related specifically to promotional marketing.”
THINK ABOUT REDEMPTION EARLY ON – AND SEEK ADVICE
The best advice is for brands to talk to a specialist about risk and redemption as early on in the process as possible. “It’s not in anyone’s interests to develop a fabulous campaign only to then look at the risk management side and discover they can’t afford it,” says Baldwin.
“Having that conversation early on means brands can keep a sense check on the creative process, to ensure it meets the budget.”
article re-posted from Simon Creed January 2016