Get it right and consumers can remain loyal to a product for years. Get it wrong and companies face spiralling costs and a possible PR disaster.
The promise of a free gift can be an important weapon when relaunching a brand or trying to entice new consumers. Yet the sourcing of merchandise for premium promotions has become a minefield of increased import duties and consumer protection legislation, which can trip up even the most experienced marketing director.
Laws proposed by the European Commission to protect manufacturers in member states are likely to push up the unit cost of products sourced from China and the Far East; a pan-European premium promotion could be thwarted if a company is not fully aware of varying environmental regulations in, for example, the UK, Germany and Sweden; while poor product safety checks could result in an investigation by local Trading Standards Officers.
There are many factors which could dictate the size of budgets allocated to the sourcing of merchandise in the future. For instance, there are fears that China, one of the most popular regions for sourcing, will be affected by changes to the EC’s Generalised System of Preferences (GSP) which charges developing countries reduced or even no duty on products exported to Europe. The Commission is currently reviewing the scheme and it is widely expected that China will no longer qualify for assistance because of its strengthening economy.
Promotions consultancy Product Plus sources 70 per cent of its products from China and the Far East. Managing director Terry McCarthy says changes to the GSP could push up the unit cost of merchandise sourced from China by as much as five per cent.
“The main products to be affected will be headgear, umbrellas, bags, textile products and pin badges. One option will be to switch production and sourcing to other regions, such as Vietnam, but that brings with it different problems and new risks. It means new suppliers and new quality control procedures.”
Companies sourcing sports bags from China could also be hit by impending anti-dumping legislation. Last March, the EC received a complaint from the European leather goods industries committee, Cedim, protesting against the quantities of luggage and travel goods being imported from China. The Commission is investigating the complaint, but UK sourcing companies are confident that plans to include nylon sports bags in any legislation will be dropped.
Micky Rodrigues, marketing director at sports and leisurewear company DSL, which sources incentives for a number of clients, including Coca-Cola and Benson & Hedges, says his company had feared the worst. “The extra costs would have almost made China uncompetitive. We have heard that nylon products will now not be affected, but we have made alternative arrangements to switch production to Vietnam and Singapore if we need to.”
Often new quota levels and legislation aimed at halting the influx of cheap imports from one particular country only moves supply to a different territory. For example, manufacturers will ship goods from China to nearby territories that still enjoy preferential treatment from the EC, and export from there.
This is known as “submarining” and is a practice the EC is keen to stamp out. It has even sent an investigative team to Bangladesh, where a large amount of the promotional clothing found in Europe originates. Bangladesh is on the GSP list, but only locally woven garments are eligible. The EC charges a duty of 12 to 14 per cent on non-local clothing exported from the country, and the delegation is investigating claims that Bang-ladesh suppliers are providing false GSP details.
Sourcing products from countries that enjoy special import terms is only one factor in determining the final unit cost of promotional merchandise. Demands by the sourcing companies’ clients that manufacturers have satisfactory quality control, health and safety, and environmental procedures in place at their factories, can also determine the ultimate budget.
It is essential that products are of sufficient quality to pass any national legislation and consumer tests once they arrive in Europe. Consequently, prior to any orders being secured, most sourcing companies will independently test any merchandise in their own laboratories and visit a factory to ensure working conditions are acceptable and that child labour is not being used. Staff are also in regular contact with the Department of Trade & Industry and the EC in case import legislation or quota levels are changed.
All this should reassure marketing directors concerned about the quality of promotional products manufactured in the Far East. Yet product safety and factory working conditions are not the only considerations.
Companies planning a Europe-wide promotion, for example, must be aware of different environmental laws. A misunderstanding about which materials can be used in the production of, say, T-shirts could result in merchandise being banned in one or more countries.
Germany has become the first European Union country to ban azo dyes from any item which may be in prolonged contact with the skin. The ruling originally related only to clothing and footwear, but was extended to include any product likely to touch the skin. This means companies sourcing garments and sports bags must know which manufacturers are using non-azo dyes if products are destined for Germany.
Similarly, Sweden has banned the use of the potentially poisonous chemical cadmium as a colouring agent in plastics and paints. European toy safety law stipulates that a small level of soluble cadmium can be used, but Sweden is so far the only country to outlaw cadmium totally on environmental grounds.
Other impending Green legislation being introduced by the EC includes packaging regulations demanding that as much as 60 per cent of the material used is recyclable, while there is increasing pressure to ensure that the wood used for gift boxes comes from managed forests.
Alan Kahya, chairman of premium promotion specialist Supre-mia International, says marketing directors can avoid any confusion by restricting themselves to suppliers who work to the quality standard ISO 9002. “An inspection of our own ISO 9002 manual would de-monstrate our knowledge of any concerns a client might have and cover other areas, such as patents and intellectual property rights,” he says.
Kellogg is one of Supremia’s clients and sets its own quality criteria for premium promotions ensuring, for example, that the small toys given away in its cereal packets cannot be swallowed by babies. Sales promotion manager David Walker says: “It is critical that all aspects of product safety are adhered to when sourcing promotional products, particularly when this is done from a distance. The safety of our consumers is paramount, while it is sound business to ensure we take every step to avoid problems.”
Retailers are also becoming increasingly concerned about product safety and the possible implications to their business, should they issue premiums that are unsafe or come from an unacceptable source. The British Retail Consortium represents more than 90 per cent of all UK retailers and has a list of nine sound manufacturing conditions which its members are expected to enforce.
These state, for example, that stores should not buy from manufacturers failing to comply with the labour and health and safety laws of the countries in which they operate, or from companies that employ child labour or exploit their workers. The guidelines also state that the BRC expects third parties acting on behalf of its members to adopt the same principles when sourcing.
Individual retailers also have their own regulations. The Body Shop, well-known for its environmental stance, has a 53-page booklet explaining its sourcing conditions, which include ensuring the safety of the surface coatings used on the promotional badges it gives to customers.
With all the precautions that are in place it is unlikely that a product used in a premium promotion will create problems. However, promotional merchandise is covered by the Trade Descriptions Act, and a company could be prosecuted if Trading Standards receive a complaint. Magistrates can impose a maximum fine of 5,000, while a judge could issue an unlimited fine if a case went to a full trial at Crown Court.
A spokeswoman for Kent Trading Standards says most marketing teams within large companies are aware of their responsibilities, and many even ask officers for advice. For example, Maidstone-based confectionery company Trebor Bassett approached Trading Standards when it was considering using a toy in a promotion, and was advised to use strict labelling if the toy was aimed at very young children.
One way to reduce many of the headaches of sourcing promotional merchandise from overseas is to obtain products from the UK, although many sourcing companies say home suppliers can rarely compete on price with those in the Far East.
London-based sourcing company Marketing In Mind obtains virtually all its products from UK suppliers and its clients include Camelot and The Referendum Party, for which it is producing promotional merchandise for the forthcoming general election. Owner Steve Wickes says: “I have had bad experiences dealing with suppliers from the Far East in the past so I try to source from the UK wherever possible. The quality is often better and there is move towards offering premiums which people will want to keep for a long time.”
Whether merchandise is sourced from the UK or overseas, it is essential companies are aware of the conditions demanded by local, national and international legislation. Failure to understand this complex sector could damage an entire campaign.