Risk averse? | Incentive & Motivation

Last year was difficult for virtually all industries and unfortunately 2012/3 look likely to follow in its footsteps.

Philip Penlington, director of Fotorama, one of the UK’s longest-established fixed-fee promotions companies, says: “In 2011, brands and retailers slashed prices and started sales early to get consumers through the door and purchasing. Household names made major losses. Comet was sold off and electrical retailer BestBuy closed its doors forever. Even Tesco is no longer viewed as the superpower it once was.”

Those in the know attribute the cause of this dismal retail climate to changing consumer attitudes and behaviour. The reality for many consumers is that they have no choice but to become more prudent with their money, spending only on essentials and shopping more wisely. Promotions are more influential on buying decisions than ever, but fewer brands are turning to fixed-fee solutions.

Matt Butcher, director of promotion risk redemption business PIMS-SCA, says: “The big fixed-fee businesses have all seen a reduction in the number of enquiries we’re getting. There are still a lot of agencies pushing fixed fee but the marketplace is tougher. We’re fighting for a smaller slice of the pie.

“At the moment, there are less traditional sales promotions that require tradition risk redemption. We’re seeing brands opt for mechanisms like prize draws, where they know how much the promotion will cost in advance because they select the prize. Brands are also spending more money on shopper marketing – for them, it’s all about communicating with their consumers in the retail environment, with added-value promotions like BOGOFs.”

Penlington adds: “Cash-back deals have also become very popular with consumers. As promotional experts, viewing and creating countless promotions and deals every day, their rise has been evident to us over the last few years, as consumers demand more value for their money.”   

For those working in the fixed fee/risk management industry, 2011 was also the year of countless promotions-based ‘coupons’. Brands have become acutely aware of the power of the coupon with consumers and pushed as many promotions as possible using this mechanic. This is a trend that is set to continue throughout 2012 and beyond.

Penlington continues: “Coupons have now become an established presence alongside banknotes in wallets and purses, regardless of consumers’ social class or background. They are easily available over the Internet and now via mobile phones, so coupons have now become an essential part of the shopping experience and have changed the way consumers shop.

“For many consumers browsing online or on the high street, there will be little change over the next 12 months, as they will continue to see retailers and brands offering heavy discounts on popular products. It’s the changes behind the scenes that will be most notable for marketers, as marketing budgets remain tight this year.”

There are, however, opportunities for marketers to make their decreased budgets go further by working with fixed-fee experts, who are experts in ‘budget stretching’. This concept allows brands to offer higher-value promotional deals than they might otherwise afford without having to worry about how it will be paid; the fixed-fee company will arrange this at a set price and take responsibility for paying out high-value prizes and high levels of redemption.

Andrew Marwick, managing director of Opia, says: “Businesses need to be flexible and come up with creative solutions and effective ideas that will appeal to brands and consumers in these times of austerity. All consumer choices are carefully considered and value is a key driver, which is influencing their choice between brands. Risk management companies need to demonstrate their flexibility in positioning their offering to brands as well,  to deliver uplifts in sales and market share; and acknowledge that this climate will be with us for some time yet.

“As a business that’s growing well, we’re very focused and committed to our client relationships and collaboratively achieving success. We put a lot of effort into our business strategy and making sure our solutions really deliver for our clients. It isn’t easy but it’s the same for everyone. I believe that the measure of a business is how it responds to these challenges and that will define our futures; so our fate is in our own hands.”

There is no doubt that marketers and promoters have a tough year or two ahead and consumers will continue this savvy streak, demanding the best deals and offers from retailers and brands. As a result, the industry is expecting an influx of promotions using coupons, cash and holiday prizes to lure consumers. Offering an additional value added onto a product has now become the norm and consumers don’t expect less.

With heavy price discounting on products, easily accessible coupons and fierce competition, promotions, many of them secured by fixed-fee deals, will play a major role in helping retailers and brands to arm themselves to make the most of the tough marketplace.

Butcher concludes: “I believe there are three big trends that are set to continue. Firstly, there is still a lot of buzz around shopper marketing and brands will continue to explore this route for the foreseeable future at least. We’ll also see brands continuing to develop consumer engagement through digital and social media channels. And finally, discounting will remain popular – couponing levels will carry on increasing.

“There is still very much a place for fixed fee. Fixed costs can make a promotion bigger than it sounds. Say, for instance, a brand manager wants to run an on-pack promotion detailing a free prize draw to give away 500 iPods, the cost to them could be around £50,000. But if we changed the mechanics to something like an instant win promotion, we could increase the prize to 2,000 iPods for the same cost. The response would change greatly and we would take the risk on the client’s behalf.”

Viewpoint 1
According to Opia’s Marwick, there is plenty of scope for promotional risk management companies to thrive and grow. But in order to do this, they must also change with the times in the following ways:

• Adopting a more flexible pricing policy is a prerequisite to ensure that the value of individual sales promotions remains compelling, thus ensuring brands’ sales are driven as high as possible
• Smaller upfront fees and per redemption pricing ensures that a fixed-fee company can secure a margin to cover the cost of providing peace of mind, while also making sure the client feels comfortable that the risk has been completely removed. Clients can then focus on the real objectives of generating sales from great headline offers, rather than focusing on redemption figures, which are rarely directly related to sales
• The comprehensive adoption of new media platforms from social and mobile to other new technologies is firmly embedded in our promotional landscape through social media sites, such as Facebook and Twitter, and smartphone apps. More, if not all, promotions will appear online, and smartphones already provide a much more immersive experience through their web browsers.
• To thrive in today’s marketplace requires a new, pragmatic and head-on approach towards tackling the more ambiguous challenges that we face going forward with new ideas and new techniques. Risk-managed sales promotions should certainly form part of a strategy to stand out and increase market share in an intensely competitive arena.

Viewpoint 2
Steve Berry from Emirat has also seen a downturn in fixed-fee enquiries: “Historically, fixed fee has fared better in recessions because promoters have been more aggressive. But this time, it feels like they are waiting for something to happen. I think is could be attributed to the fact that markets are much closer these days – companies are multinational, the Euro is not good, and the banking sector remains a threat, so it’s much easier for one market to have a detrimental effect on another.

“That said, many of our leads are coming from Germany, which is a growing market for this sector. Germany isn’t alone, as the likes of the Far East and the UAE are also emerging markets. Funnily enough, it’s the old promoting brands that are active in these areas, so there are definitely opportunities in international markets for UK fixed-fee companies.

“Because there is such a dirth in the UK market, now would be a great time for brands to start fixed-fee promotions again and start changing people’s shopping habits. It’s just a question of seeing who will blink first.”