Promotional risk: a matter for the board?

Promotions and promotional risk have typically been considered by the company Board to be low-risk activities which can easily be handled by Marketing departments and their agencies. If things go wrong, Marketing will sort it out. After all it’s not really even our problem: it’s the agency’s, isn’t it?

Sadly, if a promotion does go wrong, the reality is quite different. It can even bring a business to its knees.

Remember the Hoover free flights fiasco in the early 1990s? In 1992, Hoover, the well-known household appliance manufacturer, was looking for a promotion to help shift vacuum cleaners and washing machines. It happened on a promotional mechanic to offer two free flights to Europe if consumers purchased at least £100 worth of its products. Canny consumers realised that by buying an entry level vacuum cleaner for £119 they could access flights worth considerably more. Vacuum cleaners and washing machines started shifting. Travel agencies were inundated with claims for the free flights.

Keen to ride the wave of the successful promotion they had created, Hoover’s team then decided to make the offer even richer by offering free flights to the USA. They then made even more people aware of the promotion by advertising it on TV. Unsurprisingly uptake increased dramatically. Travel agents could not cope with the demand. Consumers started to vent their frustrations publicly and Hoover had to scramble to manage the negative PR. The extra publicity only served to drive the uptake of the offer even higher!

Hoover had a major problem on its hands which ultimately turned into a corporate disaster.

Hoover had a major problem on its hands which ultimately turned into a corporate disaster. 6 years of legal cases ensued. The final bill was estimated at £48m (£80m in today’s money). It severely weakened the UK business at a critical time (James Dyson had just launched his revolutionary, but comparatively expensive, bagless vacuum cleaner in 1993). Three senior executives left — the Managing Director, VP of Marketing and Director of Marketing Services. Hoover was eventually forced into the arms of Candy, who bought it in 1998.

Sitting where you are now and thinking about it, you make be smiling wryly and even chuckling to yourself. You may also be thinking that this could never happen to your business/brand. The company is too clever and too experienced.

But is it? Who is responsible in your organisation for managing promotions? What risk management training do they have? Are their counterparts in the sales promotion agencies any better trained and/or experienced? If risk management solutions, such as over-redemption insurance or fixed-fee contracts are being put in place, who in your company really understands them? Who are the companies behind these products? Are they financially sound?

I could go on and on, but I think you’re now getting the picture and are going to ask your colleagues a few questions!

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