Feature: Promotional risk management

When Fotorama assessed the enquiries it received for risk management last year, it found that, while the most common mechanic was still instant wins, coupons were making up 32 per cent of the promotions, an increase of 14 per cent since 2005. The large increase was, says director Philip Penlington, quite a surprise, although in retrospect it makes sense. “Coupons are a good way to encourage trial and promote product launches, and with the advent of the Tesco Clubcard, coupons are at front of mind,” he says.

The question is whether this is an industry-wide trend. Beth Johnson, client services director at Umbrella Risk Management, notes: “Research based on tenders is misleading as the clients and agencies you are working with may change, and therefore your basis of analysis is not representative of the entire coupon sector.” To this, Penlington responds: “I think you could say it’s a fairly good sample as we’re probably number one and two in the fixed fee business, in terms of turnover during that period.”

At Fixed Fee UK, the pattern has been similar to that seen by Fotorama, with research showing a 15 per cent increase on the number of coupons from 2006 to 2007 (based on contracts signed), while instant wins have dropped by nine per cent. According to sales director Dan Westwood, the rising prices of raw materials is causing FMCG companies to reassess their marketing budgets, with fewer new product launches. “The use of ‘impact’ mechanics such as ‘try me frees’, which can be expensive, and instant wins which are commonly used for the trial of new products has therefore been reduced,” reveals Westwood. Chris Baldwin, marketing director at risk management specialist Mando, adds that, on his interpretation of the market: “I\\\\\\\'m not sure that coupons are being more requested. It’s more that instant wins are decreasing.”

It’s not only rising prices: the credit crunch is already having an impact on how brands are looking at promotions, with more conservative approaches being adopted. “As one of our clients explained, ‘We consider that currently, the consumer’s priority is to purchase a quality product at a reasonable price, not because they could pay a little more for a one-in-100,000 chance, of winning a holiday’,” says Westwood at Fixed Fee UK.

Matt Helm, director at risk management company PIMS-SCA, agrees economic conditions are playing a role in the choice of mechanic. “We’re seeing some of the bigger manufacturers moving towards relatively cheap and direct ways of talking to consumers,” he reports. “I would expect, given the current condition, that more people will move to traditional coupons that work at point of sale, talking to the consumer rather than experiential stuff that is hard to measure.” By using fixed fee, the cost of running a promotion using coupons can be set, and the promotion can be swiftly put into place. As Baldwin points out: “There\\\\\\\'s not a huge amount of thought needed to generate a barcode, and it\\\\\\\'s quantifiable.”

The economic uncertainty does not mean the marketing industry is under threat. “Having seen in my working life probably three recessions, generally we tend to get more enquiries as clients take the above-the-line spend and use it below the line as brands still need to do something, but the general mindset is to become risk averse,” Penlington at Fotorama says. “We’re not sitting here rubbing our hands with glee, but with hindsight we can see that the number of enquiries go up.”

Agency Momentum Manchester has seen fixed fee and over-redemption insurance become more popular, “primarily driven by clients\\\\\\\' need to operate within a pre-defined budget criteria”, says creative services director John Saxon. “Interestingly we have seen a more recent move towards risk insurance on smaller lower-budget activity perhaps due to a combination of increasing competition between fixed fee insurance providers and greater confidence and knowledge of the benefits of fixed fee.”

Brian Gibb, director at risk management specialist VCG, reports that more than 30 per cent of VCG\\\\\\\'s business in the last year has been dealing with “money off next purchase” (MONP) activity, and doesn\\\\\\\'t expect this to change. The economy is not the only reason, however, that he expects this trend to continue. “Retailers have been forcing manufacturers to run ‘buy one get one free’ promotions which are very expensive for the client and arguably do not sustain any long-term brand loyalty. With the current confusion on new legislation to avoid the use of the word ‘free’ in these circumstances, this will additionally fuel use of this mechanic,” he says. “The trend to move even further towards MONP coupons will in my opinion increase as it is a genuine tool to brand-build rather than simply use consumer promiscuity to buy market share in the short term.”

At the end of last year VCG provided cover for a “money off next purchase” promotion for Walkers. The coupons, offering a saving of 40p on purchase of Walkers Sensations, were distributed as a neck collar on Gallo Wines. Gibb says: “The current trend is increasingly to offer consumers MONP coupons either as an off-the-page advertisement to attract new users or to run cross coupons, such as with Walkers and Gallo, whereby a host brand with a similar market will promote sales of its own product by offering a MONP coupon off the complimentary brand.

“In the scenario where the consumer has to buy the next product, we’d normally expect – as did the client – redemption to be in the region of five per cent, but with this it was well over 10 per cent. It underlines the value of fixed fee, particularly in coupons where it seems both the client and the consumers are becoming more responsive to cash saving.”

Technological advances are also making their mark. Baldwin reports that, whereas mechanic trends can be erratic, technology trends are more straightforward. GRG OneFee, for example, has seen an increase in fixed fee digital promotions, with director Stuart Selby noting the appeal to clients of being able to capture fields while the promotion is running. “It is cost-effective with the individual capturing their own data, therefore it is more accurate, no postage and very topical at the moment as it helps the environment,” he explains.

Case study: Müller Rice

A Müller Rice tour campaign run by experiential agency Sense used a “factorial” promotion to drive data capture. Entrants were given eight statements relating to what constituted the perfect snack and were asked to rank these in order of importance. Anyone matching these eight statements with those ranked by a panel of experts would win £2,500.

“Although this initially appeared like an easy-to-enter competition with a high probability of winning, the reality was that there was less than a one in 40,000 chance of getting the same answers,” says Sense director Bruce Gardner.

Sense agreed a set fee with the insurance agents based on this figure and the number of competition leaflets that were to be produced. The whole promotional deal was signed and sealed with no risk to the client for £7,500.

“The competition yielded 36,000 responses, which statistically shouldn’t have produced a winner – and indeed it didn’t,” Gardner says. “By going down this route, Sense and Müller were able to offer a high individual prize for a relatively low fund, maximising redemption and minimising their risk.”