Knowing when to seek cover for your promotion is hard enough, without having to figure out what, who and how it’s covered. The below dispels a variety of myths whilst helping with some frequently asked questions about promotional risk management.
Q: What’s actually covered?
Sales promotion cover is based on a realistic and educated projection of the campaign’s performance. With no promotion realistically redeeming 100%, the cover only covers the promotion to a certain percentage. Standard liability is often £1,000,000. Whilst many insurers claim to cover 100%, is that realistic, necessary or even true?
100% protection in some cases, would result in covering tens of millions. Providers won’t cover this. For two reasons, they can’t afford to and there is no need, as it’s extremely rare for a promotion to redeem 100%.
Q: What should a promotional risk specialist actually provide?
(Use our TRACE the manager acronym!)
Indeed, it is a word thrown around too many times, but in this case, it’s imperative. A good risk provider should walk you through exactly what’s covered, what information has been gathered and how they have reached their estimated redemption rate.
All assumptions should be based on reason and logic. Ensure your provider is referring to historical data from both your brand and their own database. The justification is paramount to gaining the necessary cover. Without it, where’s the logic in using the service at all?
A risk manager shouldn’t be seen as a supplier- they should be seen as a partner. Any risk manager worth their salt should be advisory as if it was their own promotion, so they should help advise you on maximum engagement for minimum risk.
By this, we don’t mean puffing out their chest and telling you what’s, what. But, sticking to their guns when stipulating an estimated redemption rate. When a provider frequently undercuts or changes their facts, alarm bells should be ringing, after all, where’s the value in projections if they are going to change just to win the business? How much trust can you really place in this provider’s estimations?
Evidence of stability
Before handing over your promotion’s liabilities to a promotional risk management company, ensure that they have the financial ability to take on that risk and fulfil your brand’s promise to its consumers, whatever the redemption levels.
- Will they pay? Where’s the legal documentation, are details clearly stipulated?
- Can they pay? Check the company’s balance sheets (last year’s financial statement)
Q: How do I calculate the risk in my sales promotion?
You are offering a £60 cashback on a fridge worth £300.00.
Cost per redemption X number of redemptions
You calculate the worst case scenario is 100% (30,000 claims). Which will cost you 30,000 X £60= £1,800,000 without any transaction fees.
Using analysis from your previous promotions, you calculate the promotion could redeem around 50%, which is still a cost of £900,000.
However, you are sceptical due to:
- The strength of your communication message, with a nationwide campaign via TV, magazine, in-store and leaflet
- The fridge is a new product
- Your budget can’t stretch to anything more
You ask a promotional risk specialist for their advice.
Q: What types of cover are available to me?
You can attain cover from 0-40%, alternatively, you could use over-redemption cover meaning the cover is triggered at a certain percentage to another agreed point. For example, 35-40%.
A promotional risk specialist references their data and estimates 35% redemption.
The provider then agrees to a Fixed Fee Solution and pay for all redemptions to and past this point.
Remember: Promotional cover isn’t just for expensive promotions, even a small budget may need covering to keep finance happy.
Q: How can you make the process a success?
- Use the risk manager to full advantage – risk managers are partners- they know what works and what doesn’t
- Be prepared to be flexible if your budget isn’t
- Find out what promotions your brand has run previously
- Share your artwork and communications plan
- Share sales figures- how can an estimate be agreed without knowledge of the amount sold?
When looking for cover and consulting a promotional risk specialist these are all vital questions which can help attain the right cover for your promotion. For more information, please, download our Promotional Risk Management Dummies Guide here.