Which promotional risk management solution?

There are three options available to brands (promoters) when assessing how best to manage promotional risk: self-insure, over-redemption insurance and fixed fee. Which one is best is a question we’re often asked…

Unfortunately, there is no right or wrong answer. It very much depends on a number of different factors including:

  • the brand’s attitude to risk
  • the budget for the promotion
  • past experience promoting the brand
  • past experience using the proposed promotional mechanic.

Let’s take a look at each of these in turn.

The brand’s attitude to risk

Given that brands want to manage risk rather than place a bet, a systematic approach always works best. Engage the Finance, Procurement and Marketing teams and ask the person ultimately responsible for risk management to complete a promotional risk management questionnaire. The responses gathered will provide the framework for making appropriate decisions.

The budget for the promotion

There is so much to say here but there are some universal truths worth considering:

  • the bigger the budget the greater the absolute cost of any over-redemption
  • the greater the contingency fund is as a proportion of the overall budget, the more self-insure becomes an option for many brands
  • the lower the degree of flexibility in the budget, the more closely the promotional mechanic itself needs to be assessed in addition to the risk management options.

The bigger the budget the greater the absolute cost of any over-redemption…

Past brand promotions

Data on past promotions is very important when looking to forecast a redemption rate. Hopefully the brand has kept a library of all its past promotions and hence understands this area well. If not, a promotional risk management provider will have actual information on similar brands which can be used to make an informed judgement.

Past promotions using the proposed mechanic

Different mechanics have different ranges of likely redemption rates. And each brand will respond differently to a given mechanic. If you do not have experience of a particular mechanic on your brand, a promotional risk management provider will have actual information on the proposed mechanic and can model a likely range of redemption levels based on overall brand responsiveness. This can then be used to make an informed judgement.

As you can see, there are a number of factors to take into account. Following a systematic approach will make it more likely that the most appropriate risk management solution is put in place for your brand’s promotion.

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