Nothing stems the flow of good promotional ideas more than concerns about how to deal with high redemption rates. Let’s look at where the real risks lie with various promotional mechanics and how Fixed Fee promotional cover can help companies take more risks, encouraging creative freedom and new directions of thinking.
Promotional marketing has fared well as a marketing discipline over the turbulent times of the past couple of years. Promotions have helped a retail sector desperate to shift units. But it’s far from easy and there can be serious financial risks inherent within any promotional activity.
A well thought-out and structured campaign can have products flying off the shelves, and with this comes a very real risk of spiralling response costs. These can be extremely damaging to a brand’s finances and its reputation if this also stretches customer service resources.
With that in mind, nothing stems the flow of good, creative ideas more than the threat of risk. This is why all promotions need to have their risk identified and assessed, but if companies are not aware of where these risks actually lie, the danger is that they enter the promotional field poorly prepared.
Let’s look at a recent campaign from a well-known brewer that wanted to get people back into pubs. In this case, they used a mix of direct mail and door drops to deliver ‘free pint’ vouchers to households.
The direct mail element of the campaign targeted private club members, offering them a free pint in their club. Meanwhile, the door drops were less targeted, instead being delivered to households close to participating pubs, again offering them one or two pints in the named pub.
The highest risk here lay with the membership clubs. Not only were these people known to frequent their local clubhouse, but also, the club atmosphere meant word of mouth was more likely to play a crucial part in encouraging members to bring their vouchers in. This meant the brewer would be more likely to see vouchers redeemed here.
The proximity door drops, on the other hand, were much more hit and miss. The households were not necessarily pub-goers, and if they were they may not have used the nearest participating pub. It was a ‘big ask’ to get these people out of their houses and into their local pub to redeem the voucher. As a result, redemptions of these vouchers would be significantly lower than the direct mail delivery.
Know your Risk Options for Free-Thinking Promotional Marketing
Predicting redemption figures can be a tough call without the help of a professional risk assessor,
but that is only the start of the solution. They then have to decide how to manage that risk:
- Self insure and accept all costs of consumer redemption to whatever level and manage the logistics of redemption themselves;
- Buy limited levels of over-redemption insurance in case their own estimates are too low;
- Choose a Fixed Fee option where a third party covers the cost of all redemptions as well as all logistics to deliver the “reward” to consumers.
The first two still leave the brand with a level of risk to contend with themselves, whereas the third, Fixed Fee, mitigates risk entirely from the creative process. In this case, a fixed cost is worked out by a Fixed Fee specialist, based on what they perceive to be the likely redemption rate. They look at a range of factors, from current trends in the marketplace, to the strength of the on-pack design, and back this up with in-depth historical analysis of similar promotions.
So they end up with a figure to represent how many people will engage with the offer and multiply this by the cost to fulfil each unit. The final figure is the one and only Fee that the brand will pay.
So no matter what happens, or how many people actually do enter the promotion, the cost of covering that is born entirely by the Fixed Fee provider and not the brand. For the brand, this really is a win-win situation.
Knowing that the risk is taken care of can free-up a brand and its agency to concentrate on the creativity of its promotional offers. It means the shackles are off, and they are able to unlock new ways of thinking. This allows both the agency and the brand to take more risks and push more boundaries, in order to deliver campaigns achieving their goals of creating awareness and driving sales.