Recalling the expression ‘you can have too much of a good thing’, it’s worth remembering that a promotion which over-redeems can all too quickly turn a profitable success into a costly failure. Not only in terms of increased promotional expenditure but also in alienating retailers and destroying customer loyalty if your featured product sells in such quantities that it becomes no longer available, mid-promotion.

HOW RISK MANAGED SALES PROMOTIONS WORK

Our hard-earned expertise in redemption forecasting and our dedicated promotional insurance options give you the complete reassurance to run risk managed sales promotions.

The promotion

Imagine that you were to offer a free flights promotion, with each claim for the promotion carrying a cost of $120.

The qualifying products

The free flights promotion is open to anyone buying a $200 Printer. In total, you plan to ship 25,000 promotional products through your sales channels.

The communication

You communicate the promotion via partner marketing, online banners, and in-store collateral. You also run a webinar for your salespeople, and seed your offer into your Facebook and Twitter pages.

The risk

Your offer is innovative and hugely attractive. The value of your reward equates to 60% of the purchase price. And you are using new and impactful techniques to reach your customer. So there is a chance that you will see a large redemption rate, but you have no way of predicting just how many customers will respond. You calculate that the worst case scenario is 100% redemption (25,000 claims) that would hit your P&L with a cost of $3,000,000 plus handling.

The assessment

You cannot afford to run a promotion with a potential maximum P&L exposure of $3million. But you have a hunch that the promotion will redeem at 40% so you make an accrual for 40% of the maximum risk. But how would you manage the promotion if the rate of claims grew to 60%? Or 70%? Who would pay the difference?

You may think that you could just pull the promotion half way through. You can’t. The fact is, your customers have purchased in good faith and they are entitled to their free flight. And we’ve seen what happens when a business tries to close the stable door after the horse has bolted – the resulting damage to their brand can be irreparable.

THE RISK FREE SOLUTION

Talk to us. Not because we have a crystal ball for seeing into the future – like you, we cannot hope to know exactly how many customers will redeem. What we do have is extensive experience and a knowledge base of similar campaigns that we can refer to and use as our guide. Armed with that insight, we can protect your P&L from any financial hit over and above the forecast with our risk managed promotions.

The cover

Let’s say that we agree the likely redemption is 40%. And we agree there is a chance that redemption could peak at 60%. The difference in cost between a 40% and 60% redemption is $600,000. For a fraction of that $600,000, we can offer you an over-redemption policy, guaranteeing that in the event of your promotion being oversubscribed, your total cost remains fixed and you do not need to pay a penny more.

Our over-redemption cover means that we will manage and settle the costs of all claims over 40% redemption and up to 60% redemption. We can guarantee that cover all the way up to 100% redemption if you wish!

The cautionary tale

We cannot recommend strongly enough the wisdom of taking out this cover. Opia recently worked with a global brand on a nationwide cash-back campaign and we offered them a risk-managed solution that would cap their financial risk at $2million, even if the cost of claims went way beyond that. However, based on previous redemption history for smaller campaigns, the brand felt confident that they understood the redemption profile of their customers well enough and felt confident that redemptions would not breach the $1million mark.

They declined our over-redemption cover and rolled out their cash-back promotion using our ‘handling only’ service. In the final analysis, the amount of redemptions surprised us all, topping $3,300,000.

The success of their promotion meant that our client was forced by their own consumers to create a new and unplanned purchase order for $2,300,000.

The moral of the story

Opia’s over-redemption cover or fixed fee pricing gives you the creative freedom to run the most compelling promotion whilst simultaneously locking down your promotional costs and removing the financial risk of over-redemption. So you can sit back, watch your sales increase and still get to sleep at night!

For more information about our risk managed sales promotions get in touch today

Find out more

Promotion Consultancy

Find out more

Sales Promotion

Find out more

Risk Management

Find out more

Contact the Team

Find out more