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A promotion which over-redeems can be a costly failure. It can slash your profits, alienate retailers, and, if your featured product runs out of stock, it can erode the loyalty of customers who can’t get their hands on it. With Opia’s expertise in redemption forecasting and promotional insurance, this risk is minimised. Here’s an example of how we work.
Imagine that you want to offer a free flights promotion, with each claim for the promotion carrying a $120 cost.
The promotion is open to anyone buying a $200 printer. In total, you plan to ship 25,000 promotional products through your sales channels.
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.
Your offer is innovative and hugely attractive: the value of your reward equates to 60% of the purchase price, and you’re using new and impactful techniques to reach your customers. There’s a chance that you’ll see a large redemption rate, but you have no way of predicting how many customers will respond. You calculate that the worst case scenario is 100% redemption, which would cost you $3,000,000, plus handling.
You can’t afford to run a promotion with such a high potential profit and loss exposure. 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 resulting damage to your brand could be irreparable. Your customers have purchased in good faith and they are entitled to their free flight.
Let’s say we agree that the likely redemption is 40%, and that there’s a chance of it peaking at 60%. The difference in cost between a 40% and 60% redemption is $600,000, yet for a fraction of that, you could use our over-redemption policy, whereby we settle the cost of all claims over 40%. We can even cover all the way up to 100% if you wish, meaning that regardless of over-redemption, your total cost will always remain fixed.
Opia’s risk management gives you the creative freedom to run the most compelling promotions while locking down your costs and removing the financial risk of over-redemption, meaning you can rest easy and watch the sales roll in.
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