An unprecedented response rate carries financial risk, which could result in the marketing budget being exhausted or possibly the company’s profits may even be severely affected.
The industry still remembers the ‘Hoover Free Flight’ promotion of 1992, not for the increase in sales of £100m, but the mammoth over redemption by consumers to the offer of £50m – eventually resulting in the sale of the company to it’s American rivals.
The ability to deliver a promotion which meets the brand’s objectives within budget is more and more frequently seen to be the crucial, determining factor of it’s success. To manage the risk, an accurate calculation of the likely response rate and all the associated costs with fulfilling the promotion needs to be made.
Up to now there have been two routes to manage the risk associated with sales promotions, Over Redemption Insurance and Fixed Fee.
Over redemption insurance is where a specialist insurance company estimates the response rate and provides an insurance policy should redemptions exceed that, sold in bands of cover at a one off premium paid before the promotion starts.
So, if they estimate a 20% response rate, their policy would generally pay for redemptions past this point and only up to 40% - 100% cover. All costs for the promotion must be met by the insured party, and a claim made after the promotion closes if it has over redeemed, when the insurer will audit the results before making payment. It is important therefore that the insured party can meet these costs in the interim, and also be aware that they will be liable for costs exceeding their band of cover.
Fixed Fee providers also estimate the response rate, but provide an upfront cost which covers redemptions up to an actual 100% of the total risk, but at a fraction of the cost depending on their predictions. All costs are met by the fixed fee company, regardless. If the promotion under redeems, the fixed fee company keep the profit from the over payment, which will include handling and fulfilment costs, so it is in their benefit to see a very low response.
Now we introduce a third... opia™, a unique mix of both products.
Not only can we agree a maximum cost for your promotion in advance, you simply pay on a per redemption basis up until that point*- opia - 100% cover and zero risk.
The opia offer is also far more than an insurance mechanic to assist with budgeting, we provide:
Factoring in the costs of all the elements required to logistically deliver your promotion, we calculate the likely response rate and provide you with a maximum fee – regardless of the response rate you will not be charged more, giving you 100% budgetary control.
However, should the promotion not meet our expectations, then you will only have paid for the promotional stock and our own management fee in advance.
| Fixed Fee | Over Redemption Insurance | opia | |
|---|---|---|---|
| Smaller upfront payment | No | Yes | Yes |
| 100% Redemption Cover Standard | Yes | No | Yes |
| Full service provision | Yes | No | Yes |
* Stock required to fulfil the anticipated redemption is paid in advance, along with our management fee, handling and fulfilment costs are paid for monthly during the promotion.