Although a highly effective way of winning business, promotions require a delicate balancing act that even household names have seen go disastrously wrong. Growing Business looks at how to please your customers without damaging your brand.

In a classic case that is as much a cautionary tale for smaller businesses as giant brands, Hoover showed exactly how not to run a promotion. The deal was launched in 1992, offering two free return flights to Europe if you spent just £100 on a Hoover product. It was a tempting offer that proved far too alluring, as the company failed to cope with the massive demand. It cost Hoover a reported £48m and, temporarily at least, its reputation.

With risks like this to contend with, why do companies use such marketing techniques? “Promotions can be a quick and effective way for a small company to start building a brand and differentiate from competitors,” replies Mark Stuart, head of research at the Chartered Institute of Marketing. Whether driving brand awareness, increasing a customer base or rewarding existing customers, promotional marketing is a tried-and-tested technique, but one that comes in a number of forms.

“Most promotions involve money-off vouchers, buy one get one free (BOGOF), giveaways, special offers or a prize draw,” continues Stuart. “The success of each depends on what you’re trying to sell, your audience and what your competitors are doing.”

Adding value

Retail businesses are probably the most at home with promotions like these. Annabel Gatward is managing director and founder of online lingerie boutique GlamorousAmorous.com. Discounts are part of her marketing strategy, but she says: “This is not the focus of what should incentivise customers. The emphasis is on making customers feel special, which, more than a discount, is about giving them something physical. I believe incentives must be about adding value, not slashing prices. It’s the extra touches people remember, rather than the 20% they saved.”

Pascale Perry, head of marketing at flower delivery company Arena Flowers, agrees. “It’s easy to think that 10% off everything is a quick and easy way to get people to buy from you,” she says. “Giving something free – although more complex operationally – can be less costly and have a higher perceived value to the customer.” Giveaways can also avoid some of the pitfalls of discounting, such as devaluing your product or service, or making the normal price seem too high once the promotion ends.

Free trials

Of course, not all businesses have something physical to give away. Rasik Kotecha is managing director of CallCare, a call handling company with a £1m turnover. It offers every prospect a free trial, after finding that trying the service is an appealing hook for those sceptical about outsourcing. However, Kotecha says: “This is quite expensive for us to offer, so it’s imperative we turn as many free trials as possible into retained clients.”

Publicising this particular offer would, therefore, not be beneficial. Instead, CallCare meets with each prospect. “Only once we are certain that there is a genuine need for our service will we offer a free trial,” says Kotecha. With a conversion rate between 90% and 95%, the strategy seems to be working.

For most businesses, however, generating interest in promotions is important. But too much coverage, through money saving websites and similar mediums, can also cause a campaign to take off in unexpected ways, raising the spectre of Hoover once again.

Going viral

It’s something that Raam Thakra, chief executive of mobile phone greetings card service Touchnote, knows all about. The company decided to give away credits worth £25 to readers of a mother and baby magazine, chosen on the basis that new parents were some of the company’s best customers. “This promotion was conducted exclusively offline with the magazine, so that only authentic readers could access the promotion,” says Thakra. “Or so we thought.”

When someone apparently put the promotional codes online, the number of requests rocketed and Thakra realised they were coming from people unlikely to become paying customers. “It soon became very difficult to determine who had legitimately purchased a copy of the magazine, although it was clear the information had spread well beyond the title’s usual circulation,” he explains. “Happily for us, we had put the right systems in place to flag non-legitimate customers. Had it not been for these measures, this could have turned out to be a very costly and inefficient campaign.”

Managing risk

Effective promotions are targeted at those likely to become regular customers – and often this does not include internet bargain hunters: “If your promotion goes viral, you may lose out financially,” adds Thakra, “particularly if you are using a loss-leader marketing strategy.

“Businesses must consider the systems they have in place to stop ‘unfair’ use of their promotions, such as authenticating whether those requesting free products are the readers of the publication they are working with.”

Certainly, as Hoover found out, being able to cope with demand is also key. “It is crucial that you only offer what you know you can deliver”, says Kotecha. “In our case, when we offer a free trial to a business, we assess the volume and nature of calls they are likely to receive, so we can be certain we have the capacity to handle them effectively.”

Getting the terms and conditions of any offer right is also paramount – something that Arena Flowers realised during a recent promotion giving away a free vase with customers’ purchases. Perry explains: “We didn’t specify that the vase could only be given with an order that also includes flowers. One customer went to our checkout, put a large number of vases in his shopping basket, all of which were free and included free delivery. He could have cleared out our entire stock. We changed our terms and conditions accordingly.”

Measuring impact

Measuring a promotion’s impact can be straightforward – calculating the sales of a discounted product, for example. However, there are other measurables that are not as obvious. “One thing to look out for is any brand web search uplift you might receive when running a promotion,” says Perry. “Look also at sources of online traffic during a promotion. You may find a group of websites or blogs specifically linking to your promotion.”

Asking customers their opinions of your promotions can also be valuable. “We look at trends of what our competitors are offering and what people are requesting to ensure that we constantly match our offers and promotions with what our customers want,” says Perry.

Perhaps in times of recession more than ever, businesses have to be clever about how they run promotions. “The art lies in finding something that is relatively low cost to you but relatively high value to the customer,” says Mark Stuart. As ever, knowing your customer is key. What’s attractive to them? Would do they want and need? What will make them remember and come back to you? It’s probably wise to stay away from the free flights, though.

Five tips for pain-free promotions

  1. Time your promotion well: GlamorousAmorous.com’s Annabel Gatward says: “Businesses linked to fashion can see what marketing activities they can do in relation to the time of year, such as Valentine’s Day and Christmas.”
  2. Don’t let your standards slip: Keep the quality of your service or product at the highest level, even when customers are paying less for it.
  3. Think logistically: The Chartered Institute of Marketing’s Mark Stuart says: “If you’re attaching something to the product, does that make your usual stacking and packaging unwieldy? Does it add to your transportation and delivery costs? Will the retailer object to the extra space it takes up?”
  4. Be aware of the ‘no purchase necessary’ rule: Particularly if you’re running a competition. This means you have to offer an alternative way for customers to take part in your promotion.
  5. Make sure you’re not breaching the Unfair Commercial Practices Directive: Mark Stuart says: “If you run a viral promotion online, for instance, it’s a legal requirement that any messages, videos, etc, show that they originate from a commercial company.” It also bans what Stuart refers to as “not so special” offers. “Promotions that don’t really offer the customer any real benefit (such as winning a mystery prize, or when the cost of the premium rate phone call to claim is more than the value of the prize) are not only unethical and bad practice, but also now explicitly illegal,” he adds.