Redeeming Factors
Redemption projections for certificates, coupons, and other promotional items should be considerable.
There are times when you can suffer from too much of a good thing. For instance, it’s generally a good thing for consumers and the trade when a brand offers a gift certificate, rebate, coupon, or other redeemable promotion. If the program goes smoothly, it will benefit the brand, too.
However, if a promotion is over-redeemed – say that standard two-percent that was budgeted for skyrockets to 20 percent for some reason – the brand’s bottom line can definitely suffer. That’s the risk marketers take. It’s also one they can manage.
There are two basic types of risk involved in redeemable promotions: legitimate and fraudulent. “The legitimate risks include the nature of the offer, its value, how it’s distributed, the timing, and its relationship with your product in terms of price and frequency,” states John Galinos, president of The Properties Group, a New York City-based provider of “promotional currency” products such as Movie Cash, Music Cash, and Gas Cash that has worked with Sony, Visa, and Kodak. “Once you put all that together, you can come up with a pretty good estimate of what kind of redemption rate is likely. “The risk is that you get your numbers wrong and it doesn’t come in at six percent or even 16 percent, but 66 percent.”
The risk of fraud in these types of programs, while perhaps less manageable and less rampant, is still a danger that needs to be addressed. Redeemable tender means a dishonest buck can be made, perhaps by duplicating items or stealing materials. Marketers can keep ahead of devious forces in the marketplace by using devices such as watermarks and special inks on redeemable items, although the retailers accepting them must be trained to look for them.
Legitimate Concerns The overriding factor in evaluating the legitimate risks of a promotion is the determination of how many offers will ultimately be redeemed. Beyond consulting statistical guidelines from similar previously run programs, there are a number of elements in a program’s design that should be considered in making that assessment.
Near the top of the list is the value of the offer itself – what it’s good for, be it a cents-off coupon for a box of cereal, a mail-in rebate on a home computer, or a certificate good for free admission to any movie. As a rule of thumb, the more attractive and valuable the offer, the higher the redemption rate will be. That’s just human nature. Yet even the most attractive offer can be controlled.
Timing is an important factor. An offer tied to a movie will be redeemed at a higher level during the summer or the holidays than in February or March. Along those same lines, “the longer the ticket or coupon is valid, the better the chance for a higher redemption,” says Galinos. If there’s a tremendous amount of advertising, licensing, and other promotional hype surrounding the movie, that could boost results, too.
A less-predictable risk surrounding tie-ins or sponsorships of high-profile events is the ultimate success of the property. Will it have the promotional “legs” to carry the offer along? Dr. Seuss’ How the Grinch Stole Christmas turned out to be a box-office mega-hit late last year, while the Summer Olympics received lukewarm public reception.
“That’s why marketers tie into a blockbuster like The Grinch, because it’s going to create lots of excitement,” says Galinos, whose company created Movie Cash programs around the film with Visa, Coca-Cola, Nabisco, and Kellogg, “We take that into account when projecting redemption rates. That also will affect the face value of the offer. Ultimately, there’s a fixed budget, so it has to make sense to the consumer and the sponsor. Our role is to try to balance out not only the effectiveness in the marketplace, but also the responsibility to the budget itself and make sure that it doesn’t cost the brand more than it should.”
How the offer is distributed or made available can also affect redemption. “If the consumer is asking for it, the propensity for usage is going to be a lot higher than if someone just gets it unexpectedly,” Galinos says. Thus, regular Sunday FSI browsers are more apt to clip and redeem coupons than someone who’s handed one on the street.
Mail-in offers present an interesting delivery situation. Statistics show that redemption rates for them are typically lower than something in hand, which means that marketers can afford to make a higher-value offer with a mail-in program. However, “once a consumer gets that ticket or coupon, about 65 percent will use them, because they’ve gone through the process and trouble to get them,” says Galinos. From that perspective, we automatically know that the usage rate will be a lot higher.” Comparatively, he adds, a generic discount movie ticket packaged with a blank videocassette might only show a six percent usage rate.
Another consideration is the purchase frequency of the featured product: what’s the price point of the product versus the value being offered to the consumer. “We like to approach parity if we can,” Galinos says. “But obviously, the closer to parity, the greater the potential for the promotion redeeming higher.”
Taking these various factors into account, even the most experienced marketers can have a tough time gauging redemption rates. In some cases, they turn to a third party to insure a promotion from potentially costly over-redemption. “This offers the brand the opportunity to lock in the cost of the promotion, so that in fact it doesn’t blow the budget if it over-redeems,” says Galinos, adding that about half of The Properties Group’s programs are insured. “They essentially are managing both the risk and the budget at the same time by purchasing over-redemption coverage. They can sleep easier at night.”
And that’s always a good thing.
With nearly five billion coupons redeemed every year – and many more billions printed and circulated – there are inherent risks to be considered by manufacturers and promotional agencies developing coupon programs.
Those concerns begin during the design and printing phases. “Probably the greatest risk is that the value offered isn’t the value being coded into the coupon,” says Charles Brown, vp-marketing for NCH NuWorld, a coupon processor based in Lincolnshire, IL, referring to the ubiquitous bar codes that indicate a coupon’s worth. A worst-case scenario would be a coding error that results in the retailer’s scanner reading a $1 offer as $10.
Such costly accidents can be avoided by checking the bar code along with the rest of the text and details before the coupon is printed. “All parties should be knowledgeable of the process,” Brown suggests. Look at the physical number on the coupon, verify the film for the bar code, and inspect a sample as it’s going to press. Be especially diligent if any changes have been made in the design process to be sure they’re reflected in the final film.
Fraud in the distribution and handling of coupons is another major concern for both manufacturers and retailers. Manufacturers need to monitor printing and distribution, while retailers must be vigilant over the redemption process, which is often handled by a third-party clearinghouse such as NCH.
The proliferation of coupons on the Internet has caused some controversy within the industry over the potential for counterfeiting. Advanced tracking services that can identify the point of origin for fraudulent coupons, as well as systems that allow coupons to be printed at checkout rather than at home, are two ways in which the industry is making sure that misredemption won’t run rampant in the virtual world.
“There are billions of pieces of paper out there, and the majority of them are working well and are helpful to manufacturers,” Brown observes. “You just have to be cautious about errors that might confuse the consumer or retailer.”
