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Big deal for brands, big deal for shoppers: Making sales promotions pay

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9th Dec 2014
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Many brands and retailers are stuck in price wars that risk seriously eroding their margins. One way to break from this – and realise ambitious and targeted sales objectives – is to move away from constant discounting towards compelling, headline offers.

This is precisely where risk-managed sales promotions really come into their own. Rather than face a hefty bill at the end of the campaign, combining predictive analytics with a specialist insurance policy will guarantee that the promotion won’t backfire and leave the business out of pocket.

Risk-free deals

The main difference between a risk-managed sales promotion and other types of offers is that it gives brands, retailers and promotions agencies access to the scale of promotions that their P&L couldn’t usually afford. This means using new types of promotional mechanisms they may previously have not considered – as well as those that had been ruled out altogether. For example, this could include cash back, prize-draws, instant wins and guaranteed satisfactions, as well as trade-in, trade-up and buy-back deals.

Calculations are based on a combination of data and experience of managing similar promotions in the same markets. Using this information, it is possible to calculate likelihood of redemption and cap the potential exposure before the campaign launches. This is done by underwriting the risk of over-redemption. If a promotion turns out to be too popular, the brand incurs no additional costs or fees as all the financial risk is covered by the policy.

Better offers, better redemption

In creating the offer, the secret to a successful sales promotion lies in finding the right strategy and method of execution. Ultimately, this is about finding a value offer that will persuade prospective customers to buy something now and then again in the future. Depending on the company, it could mean persuading customers to switch brands at the point of purchase or to buy associated products such as accessories.

To achieve this, the campaign needs to be both client and customer-centric; delivering sufficient value to make customers want to buy while also meeting a business or sales objective. From a creative perspective, there are plenty of opportunities during the course of a year to use sales promotions on an ongoing basis to generate momentum. Over the course of a year, this may include, standalone promotions, seasonal ‘back to school’ campaigns, or offers linked to major sporting events, for example.

Throughout, good customer service is also key. No matter how good the deal, consumers will expect organisations to deliver on their promises. They will only participate in a future offer if they get a great experience. If their expectations are not satisfactorily met, they may avoid the brand or retailer altogether in the future.

This is why, as well as advising on strategy and managing risk, the firm responsible for managing the promotion must take handling and fulfilment of the sales promotion extremely seriously. Staff training, ISO9001 quality assurance and ISO 27001 information security certification are all key to ensure everything runs smoothly and consumers and clients are happy. Likewise, to measure the success of the campaign and ensure the business objectives are met, the sales uplift should be monitored throughout the campaign against the specific products on promotion.

Getting customers to think-long term

In markets that are increasingly being driven by price, rather than customer loyalty, using sales promotions to create future value can be incredibly effective. This is why, as a tactic, certain sales promotions are growing popularity. Manufacturers and retailers of high-value products, such as electronic gadgets or white goods, are using them to increase sales of items that consumers may otherwise defer purchasing.

The client pays a small fee for each product sold. In return, the customer gets a guaranteed rebate on the purchase price when they buy a replacement from the client within a set time. This ensures that, when a customer purchases from the firm today, they will be incentivised to upgrade with them in the future. In return for an agreed small fixed-fee in respect of each new sale, customers are guaranteed future value trade-in value when they replace and/or upgrade their purchase, bringing in future revenue and maintaining customer loyalty.

Here too, a risk-managed, fixed-fee pricing model offers much-needed reassurance. Typically, the downside of not being able to predict how many customers will take up the offer would be the subsidies lingering on a firm’s balance sheet. It also carries potential financial risks if the promotion was more popular than anticipated.

However, rolling out a risk-managed sales promotion mitigates the financial risk, giving the brand complete control over costs. Often, it also gives them the confidence to move away from price cuts towards more cost-effective sales promotions that will help to win over new customers and increase their loyalty in the longer-term.

Andrew Marwick is managing director at Opia.

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