No. 3050
Premiums: Offers that Consumers Can’t Refuse
Targeting consumers with a premium promotion is an ideal way to increase sales and enhance brand image. Thanks to today's technology, this type of promotion also provides a way for companies to learn more about customers and build relationships with them.
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OVERVIEW
The success of your brand depends on whether consumers buy your product or service, and it's your job to motivate them to do so. Well-designed, well-coordinated premium promotions are powerful motivators: they're offers that consumers can't refuse. They can simultaneously provide the impetus to buy your brand and reward the consumer for doing so.
Premium promotions also stimulate consumer participation in the brand. Technological advances have made building databases cost-effective, making it feasible for companies to get to know who their customers are and create highly targeted, interactive promotions. Premiums are playing an important role as the prize that spurs consumers to collect points for merchandise, register on a Web site, or listen to a promotional message.
As technological capabilities have made premium programs easier to monitor and track, suppliers have expanded the selection of premiums available. Both factors can help marketers build more effective consumer premium promotions.
DEFINITIONS
Simply stated, consumer premium promotions use merchandise to get buyers to sample, purchase, or remain loyal to a brand or product. Consumers get a value-added offer in one of several promotional vehicles. The main types are:
- In-pack, on-pack, near-pack. Merchandise is packaged in, on, or near a brand (used by packaged goods manufacturers).
- Self-liquidator or free mail-in offer. Consumers can either purchase the item at a low cost (thus the sponsor breaks even) or receive it free by mail as a reward for choosing the brand (used by many top names in consumer products).
- Continuity or frequency program. The premium is given to loyal consumers as a reward for repeat business (used heavily by airline companies and hotel chains).
- Gift-with-purchase. An item that prompts people to make or increase purchases at the point-of-sale (used by fast-food restaurants, telecommunications companies, cosmetics companies, and gas stations).
- Sweepstakes, contests, games. Promotions with prizes that get customer attention and generate increased response (used by Web sites and clothing retailers).
Among the other types of consumer premium promotions are traffic builders, door openers, direct-mail premiums, and online premium promotions.
THE POWER OF PREMIUMS
Creative, well-constructed premium promotions are known for delivering brand-enhancing and sales-building results. An article in Promo magazine, titled "The Premium as Brand-Builder," stated it best: "If brands are reacquainting themselves with the full promotional arsenal, marketers can't continue to overlook a workhorse like premiums."
Consumer premium promotions are strong programs for three reasons:
- Immediacy. Many, though not all, premium promotions are instantaneous rewards that provide consumers with immediate gratification.
- Impact. A premium is a tangible, long-lasting prize (as opposed to a cash reward that can easily disappear into a wallet).
- Measurability. When marketers know their costs, the scope of the promotion, and the objectives they want to accomplish, a consumer premium promotion becomes a highly measurable marketing tool.
PREMIUM PROMOTIONS IN ACTION
George Meredith and Robert P. Fried report in their definitive book, Incentives in Marketing & Motivation, that the first formalized consumer premium promotion is credited to Babbitt's soap. Done in 1851, the promotion sounds cumbersome. Consumers had to save 25 soap wrappers to redeem them for a color lithograph. Today the program would probably be described as a frequency program.
Meredith and Fried note that premium promotions share a common purpose: "The varieties of consumer premium that have grown over time have all been modifications designed to deliver the consumer benefit and/or differentiation in a way that most surely reaches the desired end—customer satisfaction—for a given marketer in a given climate."
These days, the climate for premium promotions is favorable. According to a study conducted by the Incentive Federation at the end of the year 2000, the incentive industry is enjoying steady growth and has plenty of room for future growth. The study found that the total expenditure for merchandise and travel items used by U.S. companies in incentive programs rose to $26.9 billion in the year 2000 from $22.8 billion in 1996. Of the 32 percent of the study's respondents who reported using merchandise or travel, 44 percent said they used them for consumer/user promotion, second only to the 64 percent who used them as sales incentives.
Consumer premium promotions are more conspicuous than ever. For instance, many snack food and candy companies offer redemption programs so consumers can earn logoed apparel, small electronics, and other items. Tic Tac, for one, launched a campaign called "Tic Tac Incredible Stuff." Consumers collect points by saving the product's label, which can be used to "purchase" products from a print or Web-site catalog. Items include a Tic Tac-logoed backpack, beach towel, raft, CD holder, watch, T-shirt or water bottle. Among the high-ticket items offered are a portable CD-player and a mountain bike.
PUTTING PREMIUMS TO WORK
All sorts of companies use premium promotions to build brands and spur consumers to purchase. Gregory R. Canose, past-president of the Incentive Marketing Association (IMA), says that companies use them for brand awareness, customer retention, and new product introductions. Canose, who is also president of Awards Marketing Services LLC, a Whitehouse, NJ, manufacturers representative for premium, incentive, and award programs, says tobacco companies, dining clubs, hotel chains, pharmaceutical companies, cosmetics manufacturers, insurance companies, and oil companies use them.
Consumer premium promotions can achieve many objectives for a brand, says Paul Kiewiet, president of Promotion Concepts Inc., a Kalamazoo, MI, sales promotion firm. They can stimulate loading or multiple-unit purchase; build repeat purchase; enhance image; reinforce brand claim, promise, or mission; create goodwill; or draw attention to a display, ad, or feature. Some of the more powerful uses include generating trial through the word "Free," attracting attention to a display, building excitement, and adding value.
Among the most ardent users of consumer premiums are cereal companies, which, after some painful experimentation, found out that there is a direct correlation between consumer premium promotions and sales. "They went away from using them, and they saw sales suffer as a result," says Kevin Hess, president of Skokie, IL-based Milmour Products Inc., a manufacturer of custom-molded plastic premiums. "But in the past few years, every cereal box has some kind of mail-in offer on it, especially the kids cereals. It gives some energy as a promotion, and it gives some appeal in the store at point of sale."
Typical is Kellogg, which leveraged the timeless appeal of Sesame Street to add impact to its return to using in-pack premiums. After signing a licensing agreement with Children's Television Workshop, it inserted Sesame Street Mini Beans, a line of plush beanbag toys, into 25 million boxes of eight Kellogg cereal brands starting in January 2000. Kellogg printed the inside of the cereal boxes with games, quizzes, and cutout activities. Promo magazine observed that this promotion was significant for two reasons: Not only did it mark Kellogg's return to in-pack premiums (the company hadn't done one since 1995) but it used the highest-value premium in the company's history.
SIGNIFICANT TRENDS
Technology. Consumer premium promotions are proving powerful in today's tech-savvy marketplace. They can stimulate participation in a brand, allowing companies to collect data on loyal customers and ask for permission to market to them. Companies can then tailor future promotions to these consumers, striving to make the relationship interactive.
The premium offer provides marketers with a potent tool to drive traffic to a Web site, and premiums used for Internet promotions provide a tangible reward from cyberspace. Digital premiums, such as screensavers and other downloadable "gifts," are coming into their own. For example, technology acted as the "intermediary" for Procter & Gamble to create one-to-one relationships with users of its Pampers disposable diapers. P&G offered parents a downloadable digital baby book for registering on the company's Web site, and that opened the door for Pampers to start an ongoing e-mail dialog with parents.
Increasingly, companies are using the Internet to deliver consumer premiums, says Promotion Concepts' Kiewiet. Currently sweepstakes are popular, but he thinks that products will begin carrying unique codes which can be entered at a company's Web site so that consumers can save up e-proofs of purchase or e-certificates towards free-in-the-mail or self-liquidating premium offers.
Also, the Internet is providing ways to manage and track a variety of incentive and premium transactions. Digibates, a click-and-mortar payment processing system introduced by Solutran Inc., allows sponsoring companies to manage all cash and noncash rebate, incentive, and refund transactions on a single platform. The technology provides recipients with an e-mail notifying them of the award and directing them to the sponsor's Web site where they can choose from a variety of options, one of which is to select products or premiums. Since Digibates supports the use of all cash and noncash awards, a sponsoring company can track which awards work best for each customer. Solutran's program can integrate both online and off-line applications.
Cooperative promotions. Many companies are forming beneficial relationships with others. "Co-branding programs can be very effective," says Kiewiet. "They're used to share budget and lower overall costs, double the sales force impact, and create a newsworthy event." But it's important to allow sufficient lead time for a cooperative venture, he notes, and working with another company almost always requires patience. It also helps to have an experienced agency to facilitate the partnership.
Licensed properties continue to be a hot trend in consumer premium promotions. Sports teams, cartoons, and rock groups are getting in on the act. For instance, Nabisco's Fig Newtons offered a Dale Earnhardt Jr. die-cast car for two proofs of purchase and $4.99. Movie tie-ins continue to be a mainstay. To make the most of excitement accompanying the re-release of E.T. The Extra-Terrestrial, Kraft Foods' decided on in-pack premiums and sweepstakes.
CALCULATING THE PAYOFF
Estimating the cost of doing a consumer premium promotion is complicated, but the potential payoff of a well-executed program is high. Remember to factor in costs for:
The premium—developing the item, packaging, displays, and collateral materials.
Distribution—logistics of executing the promotion; fulfillment and mailing; depending on the delivery vehicle, costs may vary widely for getting premiums inside packaging or attached to it. Premium offers that aren't instantaneous require special care. "Do not disappoint recipients," Canose warns. "Make sure they're shipped what they won and on time."
Promotion—notifying consumers about the premium offer with a TV, radio, or magazine ad or by creating a freestanding newspaper insert (FSI) for a supermarket promotion.
Tracking and administration—evaluating the promotion. Were sales increases sustained? Kiewiet says companies want to look at brand movement, unit sales, volume, market share, long-term volume and share, and consumer/trade satisfaction.
It is important to consider all these elements carefully. Trial and error can produce a mediocre promotion or even a flop. "Many factors must come together to execute a program that has the impact it should," notes Milmour Products' Hess. Anticipating response to a premium offer is difficult, especially with a mail-in promotion. Whenever possible, suggests Hess, use domestic manufacturers that can do a short run, followed up with additional runs as needed.
One reason that programs sometimes fall short of their goals, says Hess, is that few vehicles exist to educate marketers and brand managers on when, why, and how to execute a consumer premium promotion. "Premium promotions are not really discussed at the college or masters level," he says. "There's no formal training for them." As a result, they are often overlooked or not used to their full potential.
CHECKLIST OF ACTION STEPS
Brand managers and other marketers must allow sufficient lead time to ensure smooth promotion development and operation. The most important step is setting objectives. What's the best vehicle to achieve those objectives? Hess warns against "falling in love" with a premium: "The promotional objectives should drive the premium item, not vice versa," he says. Other critical steps:
- Identifying the target audience;
- Reviewing successes and shortcomings of past premium promotions;
- Researching competitors' strategies and market conditions;
- Determining the budget;
- Calling in and choosing experienced professionals to help coordinate, plan, and execute the promotion;
- Determining tactics and considering logistical concerns;
- Generating and reviewing ideas;
- Choosing the premium and the delivery method;
- Safety testing of the premium;
- Calling in the legal department to review the promotion;
- Test marketing and focus groups (if budget allows);
- Evaluating program results and return on investment;
- Recording successes and pitfalls.
SELECTING A PREMIUM
There are hundreds of thousands of premiums to choose from, including apparel, sporting equipment, camping gear, kitchen items, electronics, health and beauty products, gourmet foods, and candy. Premiums can also be custom-designed for a brand-specific promotion. To narrow the field, marketers must keep program objectives in mind. Ask yourself, is a low-end or a high-end premium appropriate? Is it beneficial to use brand-name merchandise? Does the premium support the image of the brand? Does the premium idea complement or add value to the brand? Will the premium appeal to the target audience? Should the premium be imprinted with the company logo?
Milmour Products' Hess suggests using the following guidelines when choosing a premium:
- Offer premiums that enhance your brand, making it easier to prepare, use, store, serve or transport.
- Capitalize on the equity of your brand's logo, mascot, or promotional character by incorporating it into the premium item.
- Avoid generic items that are readily available at retail.
- Choose premiums that are especially suited to your brand (important for ensuring a strong consumer response).
- Whenever possible, offer premiums that promote new or alternative uses for your brand, increasing brand consumption.
Remember, too, that premiums sometimes become collectibles. Take, for instance, Woodbridge, NJ-based Amerada Hess Corp. Since the early 1960s the oil company has made a toy truck every holiday season, offering it for a low price with a fill-up at participating gas stations. The trucks, created to thank loyal customers, have become high-ticket collector's items that sell out fast. The company distributes approximately 2 million toy trucks per year.
CHOOSING SUPPLIERS
Brand managers and other marketers can consult trade associations, industry magazines, and Web sites for supplier recommendations (see listings at the end of this article). They should choose a promotion agency and a supplier/vendor based on the candidates' experience in creating and coordinating consumer premium promotions and their ability to provide the services that the company wants. If you're considering a company for the first time, look at the experience of their principals and ask to see documentation of past promotions.
MAKE THE RETAILER YOUR PARTNER
If your company sells through retailers, consider them your promotion partners. After all, they may not care about your promotion unless it helps build their business, too.
Retailers like a premium promotion that's an exclusive opportunity (known as an account-specific promotion). Why? "They want to be different from the guy down the street," says Kiewiet of Promotion Concepts. "They want their circular to have different items and offers in it." Your promotion can provide differentiation and take the focus off price competition.
Make your promotion as simple as possible for the retailer. "If the premium changes the product code or configuration, retailers may not be able to utilize the promotion, or may charge you a slotting allowance," Kiewiet says.
If your promotion requires displays, make them easy to assemble. If you're working with a warehouse club or a discount store, consider a display-ready pallet (DRP) where retailers need only open the top of the pallet and put it out on the sales floor.
Some companies set up their own in-store premium displays; others pay an agency to do it. Either way, it doesn't pay to stint on this procedure. "It's a cost," says Hess, "but it's the difference between getting 100 percent of your displays up or having 60 percent out and 40 percent left in the back room."
LEGAL CONSIDERATIONS
Legal regulations, safety, and FDA compliance may come into play with consumer premium promotions. Postal regulations must be heeded. "The big one is the Federal Trade Commission mail-order rule, which states that if you make an offer to the consumer you must fulfill it within 30 days unless you specify otherwise," says Kiewiet. "The odd thing about that law is that it even applies to free-in-the-mail [premiums]. That's why so many offers say, 'Allow six to eight weeks for delivery.'" Marketers at large companies should consult in-house counsel on such matters. For smaller companies, regulations should be brought up by promotion or ad agencies during the planning process.
Premium laws vary from state to state. "Certain states are tougher than others," says Hess. "Some require simply labeling the package if the premium is not suited for all ages. Others settle for any notification on the package. Other states require notification on every part."
Safety testing can be done by one of the two major testing agencies, ACTS and STR, which specialize in premium promotions. "Any premium specialist worth their salt would not only suggest but insist a premium item being run though," says Hess. "It takes as little as a week and usually costs under $2,000."
The U.S. Consumer Protection and Safety Commission encourages fast-food chains to let it preview premiums before distribution. New federal guidelines for toy safety may follow.
CASE HISTORIES
Texas Ford dealers draw people in for a test-drive. Every fall, the North Texas Ford Dealers Advertising Association (NTFDAA) conducts a direct mail promotion on behalf of area dealers to encourage Ford owners and prospects to test-drive a new car. Traditionally, the organization offered a $10 gift certificate toward a Thanksgiving turkey as the incentive. But to track results and breathe new life into the promotion, the organization decided to add a Web-site component and offer a choice of premiums.
Postcards were mailed out directing recipients to a special Web site set up for the promotion. Once there, people could schedule the test-drive at their local Ford dealer and choose either a $10 gift certificate or one of three logoed premiums: a baseball cap, a road atlas, or a travel mug. The premium or gift certificate would be waiting at their test-drive appointment.
Visitors to the Web site were asked for standard demographic information, such as name, age, address, and e-mail. They were also asked how many cars they owned, which TV/radio stations they liked, when they planned to purchase a car, and other critical data.
Over 4 percent of the 500,000 households that received the postcard logged onto the Web site, and more than 6,000 completed the process of registering for a test-drive, choosing a premium, and stopping by the dealership to collect their gift. The dealers estimated that the promotion resulted in over $120 million in viable sales leads.
Sunshine Biscuits' "Baker's Wonder Cup." Sunshine offered consumers a free-in-the-mail premium to add value to its brand. The offer was featured on boxes of Sunshine Honey Graham Crackers. Consumers sent in two proof-of-purchase seals from any of the company's cracker brands to get a measuring cup.
Milmour Products Inc. created "The Baker's Wonder Cup" for Sunshine. The measuring cup could be used for all types of ingredients, even sticky solids. A self-cleaning feature was added, making the premium a unique item that offered the baker convenience: no stopping to clean the cup between measurements. The item also encouraged multiple-brand purchase.
Sunshine enjoyed a substantial increase in cracker sales during the promotion. It generated over 100,000 premium redemptions. Due to its success, the brand continues to offer similar free-in-the-mail premium offers flagged on packages.
ASSOCIATIONS
Promotion Marketing Association represents the promotion profession and promotes understanding of the importance of promotion in the marketing mix. Call 212-420-1100; go to http://www.pmalink.org.
Promotional Products Association International represents the specialty advertising, premium, incentive, and gift industry. Members are suppliers or distributors of imprinted promotional advertising products. Call 972-252-0404; go to http://www.ppa.org.
The Incentive Federation was formed to protect the rights of organizations to motivate customers and employees through the intelligent and ethical use of incentive programs. Comprised of the leading associations, trade shows, and some of the top suppliers in the incentive field, the Federation monitors Federal regulations that could affect the proper use of incentive programs and lobbies against proposals that could hinder the ability of businesses to properly use incentive programs. As part of its industry services, the Federation also conducts the only regular research on use of incentives by U.S. organizations, and manages the Incentive Performance Center, the industry-wide effort to promote professional use of incentives and that underwrote this Web site. For information, call 908-233-4009, e-mail mailto:IncentiveFed@aol.com
Incentive Marketing Association is the voice of suppliers in the incentive marketplace. Primary purpose is to increase corporate America's use of incentives. Call 630-369-7780; go to http://www.incentivemarketing.org.
Incentive Manufacturers Representatives Association. Members are sales organizations that specialize in incentives. Call 703-610-9005; go to http://www.imra1.org.
Association of Retail Marketing Services. ARMS is a market-information network for suppliers of premium and continuity plans, customer incentive programs, and motivation techniques for retail sales personnel. Call 732-842-5070; go to http://www.goarms.com.
Point-of-Purchase Advertising Institute. Members are producers, buyers, and users of signs and displays used at retail. Call 202-530-3000; go to http://www.popai.com.
Society of Incentive & Travel Executives. A worldwide organization of business professionals dedicated to the recognition and development of motivational and performance improvement strategies, of which travel is a key component. Call 212-575-0910; go to http://www.site-intl.org/.
TRADE SHOWS
For a list of Industry Events, go to #9510, Calendar of Industry Events.
BOOKS
Incentives in Marketing & Motivation, by George Meredith and Robert P. Fried, contains a chapter on consumer premiums that provides historical information, case studies, and useful advice. It discusses the emergence of, and issues related to, in-pack, on-pack, and near-pack premium promotions. 1999. Kendall/Hunt Publishing Co. $28 through Amazon.com.
Dartnell's Sales Promotion Handbook, Eighth Edition, edited by Tamara Brezen Block and William A. Robinson. An all-in-one reference for marketers, divided into four parts with each part devoted to different aspects of sales promotion, from planning and techniques to strategies and issues. Each chapter is written by an expert with experience working in the field. Hundreds of examples and case histories are included. 1998. Dartnell Corp. $35 through Amazon.com.
Best Sales Promotions, Sixth Edition, by William A. Robinson, reviews 126 of the best recent sales promotion campaigns. Readers will develop a better understanding of what constitutes a successful promotion and of what a good promotion can—and can't—do. 1987. NTC Business Books. $34.95 through Amazon.com.
Brand Leadership: Building Assets in the Information Society, by David A. Aaker and Erich Joachimsthaler, guides managers in the implementation of strategic brand leadership. Citing such brand-focused companies as Virgin, L.L. Bean, and Nike, the authors provide hundreds of case studies to support theories on building brand equity. 2000. Free Press. $30, through Amazon.com $21.
Sales Promotion Essentials: The Basic Sales Promotion Techniques … and How to Use Them, by Don E. Schultz, William A. Robinson, and Lisa A. Petrison. Introduces current trends in sales promotion and advises readers on planning programs and selecting promotional tools. 1997. NTC Business Books. $19.95, through Amazon.com $14.
Sales Promotion: Concepts, Methods and Strategies, by Robert C. Blattberg and Scott A. Neslin, deals extensively with sales promotion planning and analysis. Particularly good for marketers involved in packaged goods promotion. 1995. Prentice Hall. $33 through Amazon.com.
Advertising and Sales Promotion Strategy, by Gerard J. Tellis. A comprehensive handbook on advertising and sales promotion, covering strategic and tactical issues. Includes examples of creative advertising campaigns. 1997. Addison-Wesley Publishing Co. $115 through Amazon.com.
Advertising and Promotion: An Integrated Marketing Communications Perspective, by George E. Belch and Michael A. Belch. Explores how marketers must look beyond traditional media to communicate with consumers in the changing field of advertising and promotion. Describes the shift from conventional methods to implementation of an integrated marketing communications strategy and reviews the promotional tools available to help make the transition. 2000. Irwin Professional Publishing. $98 through Amazon.com.
Advertising, Communications & Promotion Management, revised with new sections, by John R. Rossiter and Larry Percy. The definitive advertising and promotion management text for students at the MBA level. Emphasizes corporate communications and business products/services in addition to the traditional focus on consumer packaged goods. 1997. McGraw-Hill Higher Education. $108 through Amazon.com.
PUBLICATIONS
Promo, monthly. PROMO defines promotion trends, presents critical "how-to" information and case studies about promotion, and serves as a meeting ground for companies and professionals in the industry. Free for qualified subscribers. Visit http://www.promomagazine.com.
Creative, bi-monthly. Published by Magazines/Creative Inc. Contains articles of interest to sales promotion and marketing executives who manage sales promotion programs, POP displays, and trade show exhibits. Go to http://www.creativemag.com.
Incentive, monthly. Published by Bill Communications Inc. Contains articles and news about incentives, premiums, and promotional products. Its tag line is "Managing and marketing through motivation." Go to http://www.incentivemag.com.
Potentials, monthly. Published by Bill Communications. Contains ideas, products, and services for marketing, sales, advertising, and promotional professionals. Go to http://www.trainingsupersite.com/.
ONLINE RESOURCES
http://www.incentivecity.com offers an extensive proprietary collection of online tools connecting marketers to incentive suppliers. In October 2000, Incentivecity acquired SupplierFinder.com and integrated its services into a new e-marketplace.
http://www.promomart.com. Developed by the Advertising Specialty Institute and the Millstar Electronic Publishing Group, this site allows users to search an online promotional products mall.
http://www.incentivesatwork.com. A joint initiative of Potentials and Incentive magazines, this is a one-stop center for incentive ideas, suppliers, and products.
http://www.incentivecentral.org, managed by the Incentive Federation Inc., provides management with objective information on all aspects of incentive programs, including lists of available resources.
RELATED SMN ARTICLES
For information related to this article, go to 3010, Incentives Core Overview and 3051, More Power from In-Packs, On-Packs, and Near-Packs.