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How to assess risk on promotional activity

 How to assess risk on promotional activity

Failure to properly assess the risk of any promotional marketing activity can not only put companies seriously out of pocket, but it can also leave them with a PR nightmare to contend with. Becky Munday, chief executive of fixed fee promotional risk specialist Mando, looks at what brands need to know to evaluate their promotional risk.

When it comes to sales promotion, calculating the risk involved and ensuring you have the right cover is too often left to the last minute, or dismissed altogether.

However, the problem with promotional marketing is that if you do it really well, it can cost a lot of money and you need to be prepared for this. If you create an offer that consumers find irresistible, not only will your products fly off the shelf, but also your costs for honouring that offer could run out of control.

However, by ensuring you are effectively assessing and managing your risk you can protect against getting caught out by huge over redemption costs, while at the same time enhancing the creative process and allowing you to make fantastic offers within even modest budgets.

To fully understand this risk, the first thing to think about is the maximum number of people who can enter your promotion. Then you need to consider how many actually will. To do this you need to take into account the redemption process to get your full redemption exposure.

There are a number of key factors that will influence these calculations, and you need to seek advice on these to get as accurate a picture as possible of your risk:

Brand Profile

The personality of your brand will be a consideration in any promotion when determining the uptake of your offer. For example, a t-shirt with a Coca-Cola slogan may have more appeal than one from, say, Andrex.

The type of product

Each product sector has its own characteristics regarding product loyalty and usage rates. Collector schemes on tea and coffee, where brand loyalty is high, can be expected to redeem higher than ones on frozen ready meals, where the consumer is more promiscuous.

Historical Results

Past history of similar promotions is invaluable in assessing the likely uptake of future campaigns. But remember every campaign has its own unique elements so what happened last season, may not be repeated this time.

Method of communication

The consumers’ reaction to the campaign will depend on whether they see the offer on pack, on the web or a leaflet. If you’re allowing people to enter the promotion online you need to bear in mind that your redemption rates may be much higher, as you are getting them at home when they have time to think rather than seeing your promotion in a blur around the supermarket.

Supporting media

TV or display advertisements will affect the sales of a product, but not necessarily the uptake of the offer. However, if the advertisement is itself an offer – such as a taste challenge, or try-me-free – then you should expect a significant uplift in participation.

Proof of purchase requirement

For most promotions, some degree of proof of purchase is required to ensure the consumer has bought the correct product. In some cases this may just be one or more pack tokens, ring pulls or unique numbers printed on the pack. In others the actual till receipt may be required. Keeping a till receipt may put some consumers off applying, which can be both a positive or negative.

Perceived value of offer

Remember Hoover? The ‘free flights’ promotion is notorious because the perceived value of the offer far out-weighed the purchase price required to enter. Stories of consumers buying product to claim the tickets and then selling on their machine at car boot sales should act as a constant reminder. Nowadays, eBay has replaced the car boot, and brands would do well to keep an eye on this channel to ensure their promotions are not being abused.

Ease of participation

There’s a happy balance between making entry to a promotion too easy (leading to over-redemption) and too difficult (leading to a poor campaign and possibly unwanted customer service issues).


The time you give participants to respond to an offer will affect total redemption levels as well as resource costs.

Purchasing behaviour

You need to understand the demographics of your target market and how that interacts with the brand profile. The outcome of your campaign will be greatly affected by the way in which your product is used and its rate of consumption.

While understanding these areas will give you an in-depth insight into your risk, it is just the top line of what can be a complex process. We strongly advise you use a third party risk assessor to help ensure that the information you gather is not only as accurate as possible, but also that the implications are fully understood.

A good risk assessor will help you get the best, and most cost-effective, cover, and they can also add value to a campaign by advising on everything from budgets to campaign artwork, message and mechanics, giving any promotion the best possible chance of having a safe and successful conclusion.

You wouldn’t run the risk of not having your company or your building properly insured, so make sure your promotional marketing is equally protected.

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