Hundreds of companies are regularly putting the operation of their businesses at risk by underestimating the difficulty in forecasting sales promotion redemption accurately – and they certainly don’t sufficiently appreciate the awful consequences that can follow. Yet there are tried and tested ways to eliminate the risk completely.
Research by Fotorama into the accuracy of forecasts for sales promotion redemption given by brand management teams shows a high level of inaccuracy, with only eight per cent of offers coming within 10 per cent of expected levels.
An inaccurately forecast promotion can create massive problems across a business:
Over-redemption may demand immediately finding the time and the budget to buy more merchandise, plus the extra cost of handling and delivery along with sudden extra management time in arranging all of this. These can have significant consequences on budgets. And if there are delays, customers will besiege the switchboard unless they are proactively informed and appeased.
Under-redemption means dealing with stocks of valuable but possibly unsaleable goods taking up expensive space in warehouses and not generating extra sales.
The scale of the problem can be vast. The promotions in our research covered a wide variety of promotional mechanics used in both consumer and business to business marketing.
For example, a financial services company found that 79 per cent of those who claimed a free UK weekend break actually booked against a forecast of 35 per cent, adding £1.1 million to the cost of the promotion.
While this may be an extreme case, for many businesses a much smaller unexpected extra cost can be disastrous – yet the risk is avoidable.
The risk management options available are:
1) to take the risk
2) fixed fee
Promoters and marketers should only consider taking the risk themselves if they have a comprehensive past history of similar promotions and can comfortably handle the consequences of under or over-redemption. So when considering if and how to use fixed fee effectively, several questions arise.
What is fixed fee?
A fixed fee approach to promotion gives promoters and agencies reassurance and peace-of-mind by removing the uncertainty of redemption issues. For one agreed set cost, the fixed fee company will handle all aspects of a promotion from sourcing and database management right through to customer service and fulfilment, taking all of the risks. A fixed fee promotion company gives a 100 per cent cover to the promoter and will not only pay the bills but also handle the practical issues that need addressing to keep customers happy. Quite simply, fixed fee removes all risks from the promotion and gives the promotion company complete peace-of-mind about the financial and logistical issues that may occur whether the promotion is more popular than forecast or less attractive than expected.
When choosing a fixed fee company, always research its financial strength and previous experience. In the event of unforseeably high level of redemptions, the client needs to be sure that the fixed fee company has strong financial backing so that it will be around to meet the liability in full. Check also it has the capabilities to handle the issues. Look closely at the previous projects that the company has handled on a fixed fee basis, and ask questions about them.
Effective promotions
The more information the fixed fee company has about the promotion the better because if the risks are too uncertain or the information on the mechanics of the promotion is not clear, a company may decline the opportunity or quote a much higher fee to cover the uncertainty. In order to quote correctly, the fixed fee company needs to know the full details of the promotion, including:
- its size and anticipated results
- how the product will be sold
- the promotional mechanic
- the rewards or prizes
- method of communication
- promotional period
- media activities
- and the results of any previous promotions.
Data is gathered from all fixed fee promotions and this can be highly valuable to you for databases and in managing the cost of future promotions.
Promotions are an uncertain business: even repeating the same campaign in the same market at the same time can produce a vastly different response second time. Business must always be wary of the risks associated with every promotion.
If you think you have a good offer, beware; and if your offer looks too good to be true – it probably is, so be very wary, and for peace-of-mind, contract out the risk!
