A fixed fee promotion, often referred to as a risk management solution for the promotional marketing industry in simple terms is a promotion that has a fixed fee, minimising the financial risk to the promoter.
The risk occurs when the headlines are offering huge prizes that may or may not be won (but must be available to be won to be legal) or the prize pool is unknown as it is part of an ‘everyone wins’ campaign.
Breaking those scenarios down
1. Big headlines
A risk managed promotion is great when a brand wants to offer big prizes with big headlines and has a budget to match. However the budget doesn’t have to be nearly as big as the headline suggests. For example, a promotion may offer 10 holidays to paradise to be won. It doesn’t mean they will be won but it legally has to be possible. And with that possibility, is unknown risk. Saving the moral positioning on this and how best to communicate this type of promotion for another day, the brand simply won’t know what budget to allocate for prizes which is where the risk is eliminated by taking out a fixed fee.
2. Unknown redemptions
The other main reason behind risk management requirements is when the redemption rate is unknown. If a brand offers an ‘everyone wins’ campaign for example where if you don’t win the main prize but you win a £1 coupon, or everyone who enters can claim the prize, then again the prize pool is unknown. The brand can estimate but not be accurate in how many people play and then redeem.
Going back to the beginning, in 1992 Hoover ran a promotion where a purchase of a £100 Hoover product would GUARANTEE 2 return flights to New York!
Just think about this crazy idea for a moment. Hoover’s profit on a £120 Vacuum was £30. The cost of two return flights to The USA in 1992 was £600 and the total cost to Hoover if it managed to pay out would have been £171,000,000.
What were they thinking?
The key is Hoover actually thought that only a very small percentage of customers would complete the lengthy application process.
The reality was, it was such a great offer that 300k people entered creating what is known as the worst sales promotion in history.
Fast forward over 30 years and you will find many promotional risk companies have been operation in the industry and would have blocked this idea back in the day or charged an obscene amount of money which would have made it the greatest promotion ever to be created.
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