Promotional Risk Management / Fixed Fee best practice
The Promoter should consider how they might limit the company’s financial exposure in the event that the cost of redemptions might exceed the available budget.
The Promoter has three options:
1. The Promoter may simply “self insure” i.e. accept all costs of consumer redemption to whatever level and manage the logistics of consumer redemption.
2. The Promoter may buy limited levels of over-redemption insurance.
3. The Promoter may choose the fixed fee option which covers the cost of all redemptions up to whatever level is agreed and all logistics to deliver the “reward” to consumers.
If the brand decides to use the Fixed Fee option, then the Fixed Fee company will assess the level of redemptions that the promotional campaign will achieve. This assessment will take into account all of the details of the offer, the steps the consumer must take and also the Fixed Fee company’s experience of similar promotions.
The cost of the Fixed Fee is usually directly linked to the forecast cost of all redemptions plus any fixed or set up costs for things like handling services. Once agreed and the fee paid, the Fixed Fee company will then take on the management of the promotional campaigns finances and logistics.
The Fixed Fee that has been agreed should then cover all costs related to redemptions and claims of the promotional reward or offer. Should the redemption costs be higher than those forecast the Fixed Fee company should be the one picking up and paying out for this excess cost and the promoter should suffer no financial costs over the fixed fee that they have paid.
However buying a Fixed Fee contract to cover your promotion does not always mean that the promotion is insured. The majority of Fixed Fee company’s simply provide a commercial contract between themselves and the promoter, which outlines that they are taking on financial liability for the promotional redemption costs. Many Fixed Fee companies will also limit their liability within this commercial contract so it is very important to check if this is the case.
It is also very important to check the financial situation of the company you are placing your trust in to pay for your promotion. If for example they do not have much money in the bank, how will they pay for the excess costs on your promotion, should redemptions be higher than expected.
Some Fixed Fee company’s will sometimes buy insurance to cover their liability over and above the fixed fee that they have been paid to cover the expected redemption costs. While this does potentially offer a bit more security to the promoter, they should be aware that the insurance will be in the fixed fee companys name not their own.
It is possible for a promoter to take out Fixed Fee Insurance and for the promoter to have an insurance policy in their name, underwritten by A Rated insurers. This too, may have a limit of liability, but that limit will generally be much higher than with a commercial contract Fixed Fee. The promoter also has the benefit of knowing that any Fixed Fee company able to provide them with an insurance policy that is in the promoters name, is regulated by the Financial Conduct Authority and that the client money will be held in a statutory trust account.
When requesting a quote for Fixed Fee cover, make sure you have as much information available about the promotion and if possible any promotional history for the brand. You will be asked lots of questions.
So in summary, if you are planning to run a promotion where there is a potential risk of Over Redemption, then do speak with a Promotional Risk Management specialist. When choosing the company you wish to work with always check:
- Financial Stability of the company you are dealing with.
- How they will cover the cost of excess redemptions once your fixed fee has been fully used up.
- Credentials of the Fixed Fee company directors.
- How will they manage your money, will it be held in a separate account.