Should you insure your prize promotion?

05 Feb 2018

People are funny. We are hard to predict. And we behave really strangely.

Which is what makes us so great. And also what makes the cost of promotional marketing campaigns so hard to forecast. Who knows if people are going to like what you offer them? Or if they can be bothered or too busy to take part? Who knows if some are going to try to steal from you? Or threaten to tell the world what they think about you?

A brand owner can budget for pretty much everything. They have a budget for media. They know what their agency is charging them. They know what the day rate for an event manager is. But when they launch any campaign that demands consumer response and where that response has a cost, they don’t know how much it will cost. No one knows how many people will enter their codes online or redeem their coupons or collect their tokens. And this is a deeply uncomfortable place for any brand owner to be.

You could play it safe. Just give away one holiday in a free prize draw. That’ll do. You know exactly where you are and you can tick off that line in your budget. But will that idea work hard enough? Will your consumers flood to the aisles to wrestle your product off the shelves. Or just walk on by?

Exciting, campaignable, engaging and motivating promotional campaigns always have bigger headlines: “000’s of prizes to be won instantly online”; “Collect 3 tokens for your free x”; “… plus millions of free packs to be won”. And with these bigger headlines come great uncertainty. What if more people choose to take part than you thought? That can really blow your budget. It probably wouldn’t be a free flights Hoover scenario but you will nevertheless have a very uncomfortable conversation trying to secure additional budget, often months after that original budget was signed off. When there is uncertainty, most brand owners will consider exploring a Fixed Fee option.

Fixed Fee – an elegant solution

A brand owner can sleep easy knowing that all promotional costs, up to 100% redemption, are included in one pre-agreed Fixed Fee.

These costs will cover everything - the prize or reward, handling, datacapture, postage, SMS or web functionality, customer services, coupon redemptions, banking, management, reporting and so on –whatever is required to make the activity a real success. The Fixed Fee provider is an expert in the back-room delivery of the promotion to the consumer. That really matters because the moment the campaign goes live is when consumers are involved. And as we know, consumers are hard to predict - and very vocal.

The Fixed Fee model is very simple. The provider charges a Fixed Fee to cover all costs. If the total cost of the campaign works out to be less than the Fee, the provider makes a margin. If the costs exceed the Fee, the provider continues to pay out. And even Fixed Fee providers whose business it is to forecast redemption rates get it wrong, and sometimes very wrong. The Fixed Fee model absorbs these losses in a way a client’s single campaign budget cannot.

Evaluating the risk

The Fixed Fee provider evaluates the total risk by understanding the size of the universe multiplied by the cost per response and then tries to forecast a response rate – a skilful mix of science and art. The science bit lies in knowing the response history of lookalike promotions: those campaigns with similar types of mechanic, similar product categories, similar communication, similar consumer journeys and similar reward headlines. The art bit is slightly trickier. It’s trying to understand how consumers might behave. Will they find a creative message irresistible? Is the reward appealing? Is the entry journey worthwhile? Will consumers want to take part? Will we behave like you expect? And what happens when you throw in a new technology? How will social media or money saving sites make an impact? And how does the economy affect how we are motivated by value and money off coupons?

Bigger promotional headlines

On the basis that only a proportion of consumers will do what you ask them to do, your budget can stretch further to deliver bigger promotional headlines. Take the safe “one holiday to be won in a free prize draw” example. If you change the mechanic to an online instant win and a 5% play rate was forecast, the same budget you had for your one holiday can now translate to a “20 holidays to be won” headline. Add the bigger perceived prize pool to the more engaging instant win mechanic and you will without doubt be creating a stronger and more motivating campaign for the same budget. Additionally, the Fixed Fee provider takes the liability for all 20 holidays off the promoter’s books. Just as safe but harder working.

Your planning partners

There will always be a compromise between ideal headline, client budget and consumer journey. You want 1,000 prizes and your budget can’t move so you need to make the consumer journey harder; you want the consumer journey to be easy as possible so need to spend more for the same headline. Your Fixed Fee provider will help you try to reach the right compromise by costing out options and advising when the balance is not working: if you make the consumer journey too hard to meet a budget, maybe by asking for 20 tokens and a postal contribution, you kill the idea; if you make it too easy you can’t afford it. But there will be a compromise that works and your Fixed Fee provider should be well placed to help you reach it.

When is Fixed Fee right?

Fixed Fee covers everything from instant wins to gifts with purchase and collectors; from coupons to cash-backs. In fact any campaign where the ultimate cost is linked to redemption rate and where that redemption rate is not known. Some clients run promotions in which one percent response rate might be hundreds of thousands of pounds. Others have entirely manageable risks but see the value in knowing that the planning and delivery of the promotion to the consumer is all taken care of by experts.  And the best way to explore the option and see if it is right for you is to get in touch. At worst, a Fixed Fee solution will make your day-to-day job of delivering a promotion to the consumer a lot easier. At best, it will protect you from the worry and significant risk of over-redemption.