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The Power of Premium

Feeling the pressure to slash prices? Don’t do it. Take a cue from some household brands and offer a powerful premium instead. Here’s how to do it effectively.

Kraft Foods, the maker of famed Jell-O gelatin, had a problem.

Even though it dominated its market, Jell-O’s coveted dessert niche itself was shrinking, as more women entered the workforce and abandoned the traditional afternoon decision-making process known as, “What will I make my family this evening for dessert?”

Faced with a demographic change that threatened not only its sales but its very existence, Jell-O’s plan was to radically reposition the product; henceforth, Jell-O would be primarily a snack food, not a dessert. By adding half the water, kids and their parents could create a denser version of the tried-and-true translucent foodstuff, to be known as Jell-O Jigglers, that could be cut or molded into virtually any shape.

Enter Kevin, ready to help Jell-O promote its new positioning with premiums. Kevin’s solution: cookie-cutters in the shape of various wild animals, to be offered as part of “Jungle Animal Jigglers” freestanding displays in grocery stores.

Jell-O sold through the entire display and premiums in less than two days, and the “new” Jell-O – repositioned as a healthy, low-fat, fun snack – was off and running.

“Where we come in is to help differentiate one product from another,” says Kevin. Since 1989, he has supplied Jell-O with any number of different Jigglers molds, cutters and toys to reinforce the new stance, in particular during holiday seasons. Its latest is an egg mold to encourage the consumption of Jell-O Jigglers “Easter eggs.”

Surviving the Squeeze

Since Jello-O found success with premiums many other major brands have adopted premiums as a smart marketing strategy. The main reason: Now, more than ever, many manufacturers are being squeezed on price by retailers selling the same products. Both manufacturers and retailers are finding that premiums are providing product differentiation, offering something, as Kevin says, “that no one else is giving,” while avoiding serious discounting.

“I’ve used premiums primarily as an incentive for answering a promotion, or as an attention getter, something to supplement a marketing message,” says Chuck. One of his most notable premiums was for a Florida real estate development that presented its prospects with a View-Master – the famed child’s toy used to view stereoscopic images – with pictures of the development.

“How could you not go ‘Wow!’ when you open up the box and see that?” asks Chuck. He’s also spearheaded a cassette recorder giveaway featuring taped product pitches. “When you’re selling a $50,000 piece of something, you can afford to invest $25 or $50 in an incentive to well-qualified prospects,” he says. “It really gets their attention.”

Of course, there are other ways to distinguish products. These may include sales, discounts, or the printing of coupons in those colorful Sunday newspaper flyers known as free standing inserts (FSIs). Some promotions feature BOGOs – buy one get one free – as an additional lure.

But a company can only discount so much and so long before all profit disappears, Chuck says. Further, some major retailers, like Wal-Mart, don’t honor coupons, and the BOGO concept could easily backfire. After all, the customer – with double the product in hand – will take twice as long to make another purchase.

Enhancing the Brand

The magic of gift-with-purchase premiums is that it adds value to the product, creates a unique offering for the retailer, and does something positive for the brand, marketing experts say. For the customer, a gift-with-purchase – when it is well-considered as part of a potent strategic plan – makes the brand easier to use, prepare, serve, store or transport.

High-end cosmetic companies are particularly devoted to premiums. Estée Lauder, Clinique (a division of Estée Lauder) and Lancôme are the most active, and in fact Estée Lauder is credited with inventing the gift-with-purchase concept some 60 years ago.

According to Mary Bell, vice president of global promotions marketing for Estée Lauder, based in Manhattan, her promotions drive sales with the giveaway of fancy cosmetic bags, elaborate totes, travel bags, makeup brushes, accessory mirrors and more. The company’s extensive network of department store beauty experts work with customers in providing appropriate versions of its signature skin care, makeup, and fragrance products included in the giveaway bags.

“It’s been an extremely effective way for customers to sample our products, both existing star products and new ones being introduced,” says Bell. She adds that Estée Lauder’s gift-with-purchase campaigns, offered during a mere 17 days in the spring and 17 days in the fall, drive 33% of the company’s total annual sales.

“You can’t offer a gift all the time, since it loses its allure,” Bell says. “It’s something people have to look forward to.” The company never discounts its high-end products, instead using the premiums as a value-add.

Estée Lauder adheres rigorously to the principle that the giveaway must be related to the main product. Hence, you won’t see an Estée Lauder mug, T-shirt or logoed pen, but rather, any and everything else that makes the use and transportation of its products easier. The company has an in-house team that designs its premium giveaways and conducts extensive focus groups to make sure they have maximum appeal.

The promotional gift outlay for Estée Lauder, which logged $6.5 billion in fiscal 2006 sales, is about $9 million a year in the U.S. The company’s twice-yearly giveaway campaigns are supported heavily by TV and print advertising and mailers.

Consider some of these recent examples of premiums as gifts and how they dovetail with marketing strategies and the enhancement of the main product itself:

Kraft Foods wanted to create a customer-specific program for Target stores, leveraging Target’s sponsorship of NASCAR drivers that also tied in with Kraft’s Post Cereals brand. The solution: a series of three custom cereal bowls featuring different NASCAR drivers, placed at the ends of Target aisles.

For O-Cel-O Sponges (a 3M product), a sponge holder with suction cup was created and included in-pack.

Splenda artificial sweetener included a stirring spoon on-pack, plus a free Kool-Aid packet.

Velveeta Foods, another Kraft product, included cheese slicers, to be used for certain recipes, free with purchase at Wal-Mart.

Sunsilk shampoo, a Unilever brand, leveraged a romantic theme by giving away a magnetic poetry kit.

Strategy First, Premiums Second

What should a company consider when planning promotional products as part of its marketing campaign?

“The premium should tie in with a thought, an idea or concept of some kind,” says Chuck. “Just offering logoed pens or whistles isn’t nearly as effective as having a headline along with it that says something about writing or whistling.”

Or, as Kevin would say, it’s not about the premium itself.

“You want to discuss strategy before you ever discuss premiums,” he says. “We want to understand the manufacturers’ issues, where they’re trying to improve relationships, what they need in incremental sales or how they’re losing market share.

“What this means is, you should strategically think your way through a promotion that just happens to use a premium.”

Kevin relates the story of a particularly successful premium he devised for Cheerios, the breakfast cereal. It was a large yellow snack container that looked exactly like a huge Cheerio. It was so successful that it prompted other potential customers to request their own big, colorful containers, regardless of whether offering portable snacks was part of their overall strategy.

“I’d tell them I could do it, but I asked them how it would relate to their brand,” he remembers. “Again, it’s not about the premium but rather the wisdom of the promotion.”

An ideal way to present gifts-with-purchase is the corrugated display at the ends of store aisles. And the product should be as visible as possible, experts agree. “The ideal presentation for impulse buys, therefore, may well be the “on-pack” premium, one that actually is attached to the outside of the main product,” Chuck says.

Other methods include the in-pack (the gift is inside a product rather than attached to it); special packaging, where the premium is the actual packaging itself (a collectible glass or mug, for example); and the near-pack, where the premium is on the display but not attached to the actual product.

Another method is the mail-in request to receive the premium, a method that usually requires a proof of purchase, and one less likely to produce dramatic impulse sales upticks.

It’s important to take into account the differing consumer behavior each type of presentation engenders, marketing experts say. For example, since the visibility of an on-pack premium in a colorful corrugated display prompts impulse buying, it can encourage consumers to try a brand for the first time. By contrast, a regularly shelved item with an on-pack premium doesn’t promote impulse buying; it may boost a particular brand over others on the same shelf, but doesn’t drive customers to that particular aisle and section to begin with.

Treading Carefully

A one-dimensional marketing outreach doesn’t fit all programs, of course, and premium giveaways are no exception, according to Chuck. They can be part of the total marketing mix that may include BOGOs, discounts and occasional sales, along with the full array of arrows in the marketing quiver (guerrilla, experiential, advertising, etc.). Further, they are not cure-alls for looming marketing troubles and by themselves won’t help a brand long term.

And, “while gift-with-purchase has long been established as a standard promotion technique, it can also be costly,” says Don. The giveaways must have a relatively high perceived value, he argues, or it may not be effective. Don feels such premiums are most cost-effective when attached to products with high markups.

He also warns of theft of on-pack premiums, and believes that games, sweepstakes and contests may be cheaper and more appealing versions of promotions. Kevin, however, disagrees: “With a sweepstakes, you have one winner who loves you and 9,999,999 losers who hate you.

“The best story is that premiums can help reinforce new uses for brands that are tired, retrain the consumer on new ways to use the brand and generate excitement,” says Kevin.

Some marketers question whether premiums offered as free gifts-with-purchase can in some way harm the perception of the main product. However, a 2004 study by the Haas School of Business at the University of California, Berkeley, asserts that, if the program is done correctly, consumers readily accept the gift as a legitimate trial-inducing device to increase future sales, and not as some desperate marketing effort. Further, the study notes that price promotion offers actually may signal high quality, since low-quality goods couldn’t possibly be supported by giveaways.

Sharpening The Pencils

Justifying a gift-with-purchase program within one’s marketing strategy shouldn’t be difficult, Jagoda says. First, promotional products used as gift-with-purchase premiums drive sales; there’s a direct result to the top line that everyone can see and appreciate. Further, premiums are self-financing. They essentially are funded through the incremental sales they generate, and thus shouldn’t have to exist by cannibalizing some other marketing effort. And they’re efficient. Milmour’s Hess says that the programs generally don’t need accompanying advertisements; the corrugated display, a cheap promotional item, is all that’s necessary.

In fact, Kevin says accompanying advertisements can be harmful if the customer can’t find the sold-out premium once she gets into the store. (This is in contrast to the advertising support of Estée Lauder promotions, with long, fixed-term campaigns. In addition, it’s safe to say Estée Lauder’s high-end products wouldn’t be caught dead in a corrugated display.)

He also suggests that premiums be offered on a company’s Web site for customers who may have missed the in-store offer. The company may charge a simple shipping and handling fee; otherwise the premium is still free with proof of purchase.

Reprinted with permission of Successful Promotions, copyright 2006

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