Promotional Risk Management
We’re not satisfied until we’ve created an ambitious promotional campaign that can drive your sales and cap your exposure to risk at the same time. Find out more below about how we protect our customers from over redemption with forecasting and promotional insurance.
One of the many benefits of working with Opia is our expertise in both creating compelling “buy now” offers whilst also offering peace of mind through sophisticated management of promotional risk.
Aggressive promotional techniques will very often achieve your expected sales lift, however when more customers than you expect participate in your offer you may find yourself dealing with the aftermath of “over redemption” which can slash your profits and alienate customers. To eliminate this issue and protect your P&L, most of Opia’s clients utilise our promotional insurance, or “over redemption cover”.
Here’s an example of how we approach promotional risk:
Imagine that you want to offer a free flights promotion, with each claim for the promotion carrying a $120 cost.
The promotion is open to anyone buying a $200 printer. In total, you plan to ship 25,000 promotional products through your sales channels.
You communicate the promotion via partner marketing, online banners, and in-store collateral. You also run a webinar for your salespeople, and announce your offer via social media.
Your offer is innovative and attractive: the value of your reward equates to 60% of the purchase price and you’re using new and impactful techniques to reach your customers. There’s a high probability that you'll see a large number of claims but you have no way of predicting how many customers will take you up on the offer. All you can be sure of is that 100% redemption would cost you $3,000,000.
If you were to take on the risk yourself without Opia’s services you would have to reserve the full exposure within your P&L restricting your ability to invest in other programs which may be required during the promotional period. You have a feeling that the promotion will redeem at 40% so you make an accrual for 40% of the maximum risk, but how would you manage the sales promotion if the rate of redemption claims grew to 60%? or 70%? Who would pay the difference? You may think that you could just pull the promotion half way through but you can’t – the resulting damage to your brand could be irreparable. Your customers have purchased in good faith and they are entitled to their free flight.
Let’s say we agree that the likely redemption for your promotion is 40% and that there’s a chance of it peaking at 60% to 70%. The difference in cost between a 40% and 70% redemption is $900,000. In this scenario we would recommend an Opia “fixed fee” promotion which includes over redemption cover, this would cap your total cost of claims at a pre-agreed rate, and Opia is liable for all redemptions up to 100%.
Opia’s promotional risk management insurance gives you the creative freedom to run the most compelling sales promotions whilst locking down your costs and removing the financial risk of over-redemption, so you can rest easy and watch the sales roll in.
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