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.
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.
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.
What are promotions and incentives?
They are marketing tactics to change consumer behaviour towards a brand. They are used mainly to increase sales, launch new products, boost consumer loyalty and maintain brand strength.
How are promotions and incentives carried out?
Classic forms of promotions are price offers, prize competitions, gifts with purchases and token/points collecting to redeem a reward. Promotions also include giveaways, vouchers from the brand itself or a partner brand, money-off coupons and internal channel marketing.
Redemption can differ in each case, including a straight product giveaway, providing proof of purchase to entering a code online, or texting in, depending on the target market and objective of the campaign.
10 suppliers you need to know
1 VCG – Manages risks associated with promotional campaigns with a bespoke “fixed fee” solution. www.vcgpromorisk.com
2 Filmology – Aligns brands with high-profile film releases through cinema ticket sales promotions via a fixed fee. www.filmology.co.uk
3 P&MM Sales Promotion – Provides consumer sales promotions from “on-pack” promotions to increase sales to long-term loyalty drivers. www.pmmsalespromotion.com
4 Grass Roots – Delivers incentive programmes to generate a measurable difference in sales performance, customer service and productivity. www.grg.com
5 The Voucher Shop – Offers a range of gift vouchers covering major high street names for use as consumer or employee incentives. www.thevouchershop.co.uk
6 ShP – Provides a white label electronics recycling platform for retailers to rebrand and offer vouchers to drive footfall.www.shpsolutions.com
7 Eagle Eye Solutions – Provides electronic code/voucher capabilities to brands looking to run mobile phone-based promotions. www.eagleeyesolutions.co.uk
8 Brand Addition – Offers bespoke premium incentives to help communicate brand values to a defined target audience. www.brandaddition.com
9 Couponstar – Integrates coupons and vouchers into online marketing campaigns. www.couponstar.com
10 Valassis – Provides coupon processing and financial clearing services. www.valassis.co.uk
Russell Coulston, head of creative services, Brand Addition
This year will define the promotions and incentives landscape for the future as we begin to see what the post-recession market will look like and we gauge how consumers are likely to react after a period of conservative spending. Retail brands should seize the opportunity to be associated with the World Cup as it is an ideal way to earn consumers’ trust. We will see continuing trends towards responsible sourcing of promotional products, to promote brands’ ethical credentials. We also expect to see a shift away from cheap, disposable high-volume premiums.
Annie Swift, chief executive, Institute of Sales Promotion
We will see a trend to move further towards “money can’t buy” prizes as incentives. There will be a huge amount of marketing activity related to the World Cup –. not just in terms of just winning tickets, but exclusive dressing room access after a match, for example, as a way of differentiating. This also goes for the Olympics. We might see offers such as winning a training session with athletes like Rebecca Adlington or Chris Hoy.
Adrian Ferrand, general manager, Brand Inc
I expect a move back to quality premiums for added-value promotions – with gift-with-purchase offers leading the way. Despite the growth of online and mobile-based digital promotions, I believe people still like to see, touch and feel a promotion.
Brian Gibb, director, VCG
In 2010, we believe promoters will be looking to retain their existing consumers by running added-value promotions based on two or three purchases of the product, rather than simply encouraging promiscuous short-term gains.
David Pearson, director, Filmology
Technology is going to enable future premiums. We have built a product around film downloading that we will be able to offer as part of an incentive. But the “holy grail” that people will be searching for is the iconic promotion, the giveaway item that becomes a product in its own right, such as the PG Tips Monkey toy. It is the perfect premium because it doesn’t cost much but captures consumers’ imaginations.
Graham Howarth, Director, P&MM Sales and Promotion
The strength of travel offers is going to continue. Travel can be better value for a brand than supplying a “widget” because that involves handling and postage and can work out more expensive than a free flight, which is perceived to have a higher value from the customer’s perspective.
Steve Rothwell, chief executive, Eagle Eye
People want to reduce the amount of paper they use, so there are opportunities for brands to engage with them via their mobile in the form of an SMS code or voucher. It is better for the environment, more targetable to the consumer and is certainly more cost effective than running a print-based promotion.
Sarah Peters, senior analyst, Verdict
Retailers will move away from small promotions that don’t drive footfall. They need to protect margins so won’t discount as much. Email promotions will be a really important sales tactic in the coming 12 months.
Promotions and incentives in numbers
- Branded goods manufacturers spent £25.6bn in the 2007/08 financial year on sales promotion activity and £14.4bn on price promotions.
- The retail promotion voucher market is worth about 20% of the overall voucher market, estimated to be worth £3.2bn a year.
- Two-thirds of UK consumers claim to welcome promotions. One in five say promotions encourage them to buy products they don’t want.
- Half of shoppers say promotions have prompted them to buy something new.A quarter of people name two-for-one deals as the most common factor in trying a new product.
Sources: UK Gift Card and Voucher Association; Institute of Sales Promotion;and food and grocery research specialist IGD.
Top tips you need to know
- Develop a clear objective for each campaign. Is this about boosting sales, increasing loyalty or building the brand?
- Identify a target audience for maximum results. Promotions work best when tightly targeted.
- Research the target audience thoroughly to choose an appropriate promotion. Ensure the reward or incentive would appeal to the consumer involved.
- Try new things, but measure everything to assess the success of each promotion.
- If it is a multimarket campaign, research each country carefully to anticipate varying results.
- Identify a brand that offers some synergy with your own business to establish a partnership, such as restaurant and cinema combinations.