Satisfying an appetite for sweeteners

The promotions and incentives market has exploded since the recession took hold. While many industries have struggled through 2009, this sector saw a plethora of brands waving special offers around to combat any slide in consumer spending.

The rise of websites such as Moneysavingtips, Vouchercodes and Moneysupermarket means there have never been more offers available to consumers. Such sites offer a wide range of deals, from straight discounts to newsletter/loyalty scheme sign-ups, special lunch/ drinks menus and, of course, two-for-one deals.

Offers have extended beyond food, drink, entertainment and fashion to such areas as motoring repairs, services and car hire. Even health is getting in on the act, with gyms, weight loss and optical centres offering cut-price services. Dedicated bargain hunters can now base their purchasing decisions on which brands are offering promotions.

Brian Gibb, a director of promotional risk management specialist VCG, explains: “There was a massive surge in price-based promotions in 2009, fuelled by retailers insisting that promoters focus on offers such as money-off-next-purchase coupons. Over 30% of our risk management activities were devoted to this type of promotion in 2009.”

With this kind of shopper mentality becoming the norm, the Institute of Sales Promotion (ISP) warns that businesses must not over-associate themselves with budget deals but look towards sales drivers that strengthen rather than dilute their images. Two-for-one offers should be used sparingly and any incentive should be short lived to keep consumer interest alive, it advises.

ISP chief executive Annie Swift explains: “Using continuous price promotions is not good for brands. It is difficult to re-establish the original price if it has been reduced for a long time. Price cutting can harm consumers’ perceptions of the brand.”

Price promotions do have their place, says Swift, for introducing new products, building sales at crucial times of the year and encouraging shoppers to switch brands. But marketers should think twice before resorting to this and look at promotions that deliver “added value” to the consumer.

Pizza Hut marketing director Claudia Nicholls-Magielsen calls the two-for-one phenomenon “lazy marketing”, which buys short-term market share.

“Some of our competitors are doing that and dragging other casual dining players down with them,” says Nicholls-Magielsen. “We can’t be blind to the fact we are in a recession, but we need to look at how we can deliver value by setting the brand up for long-term growth.”

Andrew Johnson, director general of the UK Gift Card and Voucher Association (UKGCVA), elaborates: “Discounting can become the rule rather than the exception and the consumer begins thinking they wouldn’t buy anything that wasn’t on offer. So retailers must create their own supply and demand by not allowing customers to become used to offers.”

Swift at the ISP gives an example of a successful promotion that did not damage brand values. She says the Walkers “Brit Trip” promotion, which gave away entry
to UK leisure destinations by offering points on crisp packets, delivered £5m of value to consumers and Walkers didn’t have to drop prices.

Beyonce concert
Another promotion involving no price cutting was Cadbury’s Trident chewing gum brand’s offer of 13,000 tickets to a Beyonce concert at The O2 arena in London. Customers who bought the gum could enter the barcode digits online to see if they had won.

Tuborg beer is currently offering tickets to music festivals such as Glastonbury by encouraging customers to text in to be entered into the draw. No purchase is necessary but the offer forms part of Tuborg’s strategy to align itself with music. Meanwhile, Starbucks offers its Rewards programme members free in-store wi-fi, along with extras such as free extra espresso or flavour shots with coffee purchases.

A Starbucks spokesperson explains: “The steps we have taken to improve the value and experience for customers are paying off. Satisfaction ratings are up, and our like-for-like store sales in the last quarter of 2009 returned to growth.”

Despite such efforts, VCG’s Gibb predicts it won’t spell the demise of the two-for-one deal. “Retailers will continue to demand such offers to reduce average basket prices and manufacturers will reluctantly agree. There may, however, be a move towards offering a voucher with the till receipt, rather than a second product.”

Naturally, the UKGCVA’s Johnson reckons the way to offer real rewards is to invest in voucher partnership offers, mentioning the Sky TV subscription promotion that entices new sign-ups with a £60 Marks & Spencer voucher. “Sky is leveraging the brand reputation of M&S, which is a good investment partner,” Johnson explains.

While this strategy might have taken a back seat to discounting and two-for-one deals over the past year, marketers have not forgotten the benefits of partnering with another brand, with O2 offering £15 of fashion vouchers with selected pre-pay phones and The Independent newspaper dishing out £100 in John Lewis vouchers to new subscribers.

Buyer’s market
Kuljit Kaur, head of business development for The Voucher Shop, agrees, and points out that Virgin Media, Aviva, Barclays and Citibank also use M&S vouchers to reward loyalty. “Vouchers offer a perceived value to the consumer which doesn’t necessarily cost the brand that same amount – this is why they always have been and always will be popular. And it’s a buyer’s market at the moment, where clients can negotiate more efficiently with suppliers for voucher costs.”

Pankaj Patel, head of business development, gift cards and vouchers at M&S, adds: “We have seen a significant increase in the number of third-party programmes using our vouchers as a customer retention tool.

“These schemes have often used our vouchers to recruit the client in the first place and now they are employing the same mechanism to maintain loyalty.”

Fashion retailer New Look has also seen increased voucher partner activity. Rob Froome, head of New Look Business Solutions, says: “We have worked with many top brand and agency clients on added value promotions, creative solutions and other incentives.”

It is not just vouchers or gift cards that give shoppers something of perceived high value to use. In the past 12 months, consumers have cut back on leisure activities to save money and this provides brands with a valuable way to reach people through offers for experiences.

Graham Howarth, director of incentives provider P&MM Sales Promotion, says: “The market for free flights in particular has grown. Last year we worked with a plumbing centre to offer two free European flights to customers who spent £1,500 over two months, while a convenience store also offered a free flight to customers who spent a minimum of £40 per week over six weeks.”

Martin Allen, director of customer marketing for Hotels.com, says 2009 was “the year of the deal”, where the hospitality industry responded to falling room occupancy rates by offering value incentives to stimulate business – both through rewarding customer loyalty and attracting new business. “In the past year, there has definitely been an increase in the number of promotions,” Allen confirms. “In the current economic climate, hotels are offering bigger discounts and promotions to attract customers.”

The recession has also made cinema ticket giveaways popular, according to David Pearson, director of film promotions provider Filmology, who says they can be the proverbial “carrot” to help brands sell products. Recent Filmology projects include the Mastercard “Priceless cinema” initiative, which gives away 1,000 tickets a week as a way for the company to strengthen its brand identity; and a tie-up between T-Mobile and Transformers 3 in which the mobile network ran a prize draw for customers to win a walk-on part in the film.

“The beauty of cinema tickets is that films are marketed across all age groups and genres. A cinema ticket is something that is seen as a complete night out and therefore highly valued by the recipient,” claims Pearson.

Perhaps the newest promotional trend is retailers positioning themselves as recycling points for electronic goods in return for a cash or voucher reward. Agency ShP provides a white label promotion, which retailers can rebrand, that offers cash or retail vouchers for the recycling of a working mobile phone. Last year, the company partnered with the Dixons Group to offer £100 trade-ins on laptops in Currys and PC World and plans to extend its recycling efforts to digital cameras, MP3 players and satellite navigation systems.

ShP sales and marketing director Simon Walsh explains: “Retailers are starting to use product recycling as a way of operating sales promotions. We have created sites for Woolworths, T-Mobile, Airmiles and others. Because of the growing awareness about sustainability, companies are using our services to interact with their customers and reward them for their ‘green’ work.”

But before embarking on any type of sales promotion, companies should conduct a thorough risk assessment and consider what could go wrong. Stuart Selby, marketing director for GRG Onefee, part of promotions consultancy Grass Roots, suggests that not only does this involve keeping redemption rates manageable through terms and conditions, but it includes website and voucher code security, fraudulent claims and ensuring any associated stock is sourced on time and at the right quality. Brands should also assess potential partners for financial security to avoid consumers being unable to redeem their reward because a provider has gone under.

VCG’s Gibb also advises: “Promotions that offer free product or money-off-next-purchase incentives became more costly in 2009, although it was possible to manage the level of risk by having it assessed by specialist underwriters and covered by a fixed-fee solution.

“Offering consumers a gift in return for brand loyalty represents better value as the proof-of-purchase level can be set to manage any financial liability that exceeds the brand’s budget. Cross-couponing is one of the easiest ways for brands to partner with each other, but it’s also one of the most financially precarious as it tends to generate a higher percentage response.”

Redemption rates are now increasing across the board – from about 5% historically to about 15% last year, says Grass Roots’ Selby. Business models and relationships may have to adapt to address this or a brand may risk spending more than it budgeted for. “This could be a long term shift,” Filmology’s Pearson warns. “People are taking up promotions and incentives more often because there is not as much money around.”

It’s not all about redemption, claims Selby, but about the campaign’s objectives being achieved, whether it is to increase sales or loyalty. “It’s about the creative screaming out to people,” he says. “Even if a customer gets home and reads all the conditions and decides not to redeem, they have still purchased.”

With consumers still counting their pennies, the promotions and incentive market is expected to remain buoyant throughout 2010. The brands that succeed in this area will be those that ensure the risks to brand quality do not grow too great by employing greater cost management and stricter terms and conditions.