Intelligent Risk-Taking

Highly creative promotion professionals are continuously looking for innovative promotions that can successfully build a brand. Competition and clutter require that brands take risks — and taking no risks can sometimes result in lost opportunities.

Even the most sophisticated marketers, however, can sometimes overlook things that end up producing red faces, negative publicity, and millions of dollars in lost sales and legal damages. There are several notable examples: Kraft Foods had to settle legal claims for about $10 million after an accidental overprinting of winning gamepieces resulted in more than 10,000 grand-prize claims for a Dodge Van. Pepsi faced lawsuits of more than $10 million — and had its factories damaged and its executives threatened — when more than 500,000 bottle caps showing the winning number were produced in a promotion in the Philippines. More recently, McDonald’s and Simon Marketing were apparently duped by alleged criminal acts (October PROMO).

These examples point out the need for the highest possible level of planning and communication among the parties responsible for executing promotions. When various disciplines both inside and outside the marketing company work in concert to manage uncertainty without creating roadblocks, the promotion’s appeal and effectiveness can often be enhanced.

The main aspects of intelligent risk-taking consist of the following steps:

Identify the potential risks in the promotion

All risks should be listed in planning documentation. This can be done individually or as part of team planning. The goal here is to identify risks so that they can be reduced, transferred, or avoided.

Assess and measure the identified risks

Which of these risks are critical? Critical risks are those which could materially affect the promotion and have a high probability of occurring as well as a high negative impact. For example, an error committed by a gamepiece printer that results in poor color quality represents a low-impact risk. One where an excess number of high-level prizes are claimed due to the printer’s failure to follow instructions would be a high-impact risk.

Other potential risks might include prizes awarded to someone who is ineligible, entries which are mishandled or lost, the infringement of another party’s trademark, copyright, or slogan, or conveyance of a false impression that the promotion is associated with a particular person or organization.

Manage the risks

The tactical part involves determining your risk-assumption capacity and taking the steps required to Minimize, Transfer, or Avoid the identified risks.

Lack of oversight and coordination between the promotion agency, other suppliers, and the marketer is almost always the root cause of promotions that go bad. Minimization tactics for a game in which printed gamepieces are to be produced could include making sure that printing and seeding instructions are agreed to in writing between all involved disciplines, and having all parties present at the production, printing, and the seeding of any rare pieces.

Placing special printer’s markings on rare gamepieces to identify them as valid is strongly recommended. And all print waste should be immediately shredded and all printing plates and film destroyed after the gamepieces are quality controlled, accounted for, and seeded.

Transfer is another important tactic. Certain responsibilities and activities are often shifted from the marketer to specialist suppliers. The controlling contract will often enumerate the responsibilities of the parties and, in many cases, the supplier is obligated to indemnify or hold the marketer harmless for liability. Suppliers such as promotion agencies and printers can face legal claims for damages and expenses that might arise from their failure to provide professional services — in legal parlance, the commission of a “wrongful act.”

Claims against the agency could come from consumers, other suppliers, or from its own client. A properly worded Errors and Omissions insurance policy should be considered. The agency or printer should also cause the client to be named as an additional insured for possible third-party claims. Suppliers also should obtain a comprehensive Employee Dishonesty bond, which responds to improper and illegal acts committed by their employees.

Marketers should consider an Advertiser’s and Marketer’s Liability policy as protection for their own wrongful acts. This form of insurance is also triggered when the supplier’s insurance does not sufficiently respond to certain legal claims arising out of the promotion.

In addition, marketers can transfer the risk of contingent prize promotions through a Prize Indemnity Policy and contain the risk of a higher-than-budgeted rebate or coupon redemption program with an Over-Redemption Policy.

There may be instances when a highly creative concept or element is so risky that it should be avoided. But innovative promotions can help to build brands, so marketers shouldn’t be afraid of risks that can be managed intelligently.

Mark Barry is senior vp-global marketing at ASU International, Woburn, MA. Reach him at [email protected].