From grand prize coverage to hole-in-one insurance to over-redemption coverage, sometimes it’s difficult defining exactly what we do here at SCA Promotions. For this reason, we asked some of our employees to give us their definitions of promotional risk management. Here is what they had to say:
GRAND PRIZE COVERAGE
Grand prize coverage is a key component of promotional risk management. Typically associated with probability games and skill contests, grand prize coverage allows for a large prize ($25,000, $100,000, $1,000,000 or even up to $1 billion) to be offered with zero risk to the promotion sponsor. In the event a consumer beats the odds, the promotional risk management company backing the promotion, pays the prize.
“Promotional risk management is outsourcing risk to protect your promotion from an unexpected, non-budgeted winner(s) resulting from a sweepstakes or promotional offering.”
-Todd Overton, Senior Account Executive
SCA manages the risk of prizes offered through promotions and contests. This type of risk management allows the marketer to fix their budget by having the financial risk of a prize payout underwritten by a third party. That third party is SCA Promotions.”
-Christine Bennett, Senior Account Executive
Over-redemption coverage protects companies from budget disasters resulting from too many promotional offers being redeemed by consumers. Consumer behavior is unpredictable and a slight uptick in redemption rate can be devastating to the bottom line. For a fixed fee, companies offering over-redemption coverage will pay for any redemption in excess of expectations.
“Promotional risk management is covering your risk associated with a promotion. Most of the time this is the financial risk associated with a promotion, such as the risk of too many promotional offers being redeemed. Typically described as over-redemption coverage, a company will work with the promotion organization to fix their risk associated with a rebate or other “offer” promotion.
For example, say a cereal brand is offering consumers the chance to receive three free music downloads if they purchase the brand and redeem a special code contained within. With a value of almost $3 a piece, and 1,500,000 cereal boxes in distribution, the client has a substantial financial risk of $4,500,000 at 100% redemption. Everyone knows that 100% redemption is impossible but what about 15%, or $675,000? Each percentage thereafter costs the client $45,000. Budgeting for this type of program can be a nightmare for any brand manager, and for him/her to put their neck and job on the line is unnecessary.
There are companies that specialize in this type of promotional risk management and will step to the line and take the risk for the client, for a fixed fee. Not only does the client fix their financial exposure, the fee allows them to move on to the next project with budget certainty.”
-Jackie Walker, Director of Business Development
Hole-in-one insurance is one of the earliest and most commonly used services falling under the promotional risk management umbrella. Usually purchased by golf tournament hosts or sponsors, companies offering hole-in-one insurance reimburse tournament organizers for the cost of awarding a hole-in-one prize in the event a participant successfully sinks a hole-in-one during the tournament.
“Hole-in-one insurance is most commonly used for charity golf tournaments. It lets hosts and sponsors offer big prizes for successful hole-in-one shots, without having to budget for the full cost of the prize. Most people don’t realize that Hole-in-one insurance is inexpensive and easy to obtain. SCA Promotions offers a convenient online site for people that want to purchase or quote this service. Register and learn more about SCA’s online platform for hole-in-one insurance coverage here.”
-Dan Rogge, Marketing Communications Specialist
WHY COMPANIES USE PROMOTIONAL RISK MANAGEMNT
Why do companies dangle incentives like a million-dollar prize for making a half-court shot, or offer consumers the chance to win a $500,000 dream home in an online game?
According to Bob Hamman, president and founder of SCA Promotions, the leader in promotional risk coverage, “sales promotions are about motivating customers to behave in a way that satisfies corporate objectives, and cash reigns supreme as the motivating force that shapes decision-making.”
Brands like Sara Lee, Pepsi, and the New York Lottery have increased sales and grabbed customer mindshare through engaging promotions that bribe consumers with an incentive that piques their interest. To do this, it’s important to GO BIG!
The problem is, not every company can afford to offer big ticket prizes. This is where promotional risk management comes in.
“In today’s economy, marketers are finding creative ways to leverage their budget and get the most bang for their buck with promotional risk management. By turning a guaranteed sweepstakes into a probability-based contest, marketers can leverage their budget through the use of promotional risk coverage.”
-Tanya Mathis, Marketing Director
“Prize Indemnity, the key component of promotional risk management, covers non-guaranteed prizes and is a balance between believability and affordability.”
-Wendy Collins, Director of Risk Management