Promotional insurance is a form of risk management. It takes an evaluative perspective on sales promotion, through looking at the logistics and facts rather than just how creative the concept is. Sales promotions are particularly ridden with risk as they are attractive and often profitable for the consumer.
Where is the risk?
So, where is the risk in sales promotion and why do people use insurers? In order to evaluate the risk, it must first be identified. This takes into consideration an array of different factors:
- Where is the sales promotion communicated– On a bottleneck? On the label? At the bottom of the box?
- The method of distribution– Door drop/in-store/on pack/sampling/off page/electronic.
- Type of mechanic– instant win/cash back/free prize draws/buy and try/coupons etc.
- Brand position– market share/popularity/existing product/new/re-launch/availability.
- Other important factors– the type of product/type of audience/face value of prize/length of promotion/time to redeem vs frequency of purchase.
These are all important factors when evaluating the risk of a sales promotion, as these factors can heavily influence the likelihood of a consumer participating in the promotion. Promotional insurance critiques each factor and draws a comparison against similar promotions to try and accurately estimate how many people will redeem. Promotional insurers then assess and give a Fixed Fee solution to ensure a company is not at financial risk if too many people participated in the sales promotion.
Hoover Case Study Example
Often the concept can be difficult to understand, so here is a case study to let you know how a sales promotion can go wrong and how promotional insurance would have actually helped.
This is the big boss of all sales promotion disasters throughout the land, also known as the Hoover Free Flight Fiasco of 1992. In an ambitious attempt to reclaim market share, lost customers and to offload surplus stock, Hoover teamed up with a travel agent and offered an outstanding promotional offer! For every Hoover product purchased with a value over £100, the customer would receive free flight in Europe, yes, you heard correctly…
This promotion had a very enticing slogan “Two Free Flights Unbelievable!”. Inevitably, the promotion ‘took off’ and consumers were flying into the stores to buy vacuums they didn’t need, just to get the free flight!
Hoover was seeing unbelievable returns and record sales in the UK and decided to extend their kindness to the US. What Hoover did not account for is the ‘vacuum’ in their bank balance and seeing their profits vanish, as they were inundated with demand for free flights.
Reality hit both the brand and consumer, Hoover were not going to pay for what was promised. This inspired a fightback from consumers, who took the matter into their own hands. One famous case was one David Dixon who had poison fed into his wound after his Hoover washing machine broke down he was labelled an “idiot” by the Hoover repairman for actually expecting his free flights.
Chaos ensued and an enraged Dixon compounded the rude repair man’s van as collateral. This gave Dixon temporary celebrity status as it was broadcasted by national media, consequently embarrassing Hoover and bringing the brand into disrepute.
Not only was the brand’s reputation left in tatters, executives lost their jobs and Hoover paid out over £45,000,000, eventually leaving the firm bust. Not only were Hoover and their customer’s victims but the industry was left in need of repair, as many consumers were selling Hoover products to second-hand stores leaving the retailers in a slump.
How Hoover could have benefited from Promotional Insurance:
- First of all, it would have provided guidance to Hoover and advised them not to cover the promotion due to the prize being greater than the product.
- It would have then helped them with a suitable offer which would have meant they were offering something within their means.
- Promotional insurers would have then provided a Fixed Fee solution, which would have created complete cover of all costs from the outset.
- Hoover would have been exempt from public humiliation.
- All risk eradicated, leaving future budgets safe and secure.
As you can see this is an extreme case, and many would not offer such a headline. However, sales promotions can often leave brands with a loss as they are unsure of the risk and the likelihood of redemption. So in short, promotional insurance takes away the risk, offers a safety net and gives your brand the assurance it needs.
Find out more, more via our Fixed Fee Sales Promotion Video.