Hoover Have Promotions Will Travel

In the summer of 1992, Hoover launched a promotion offering consumers two free return flights to Europe or America if they bought any of its vacuum cleaners, washing machines or other household appliances worth more than S100.

The campaign put the Hoover name on everybody's lips - but for the wrong reason. What happened? The promotion was a ploy dreamed up to tempt people to buy a new appliance. It seemed to have the advantage of raising cash on extra sales, at a time when the UK market for household appliances was depressed, with costs that did not have to be incurred until later, in the form of heavily discounted air tickets, when the appliance market would have improved. Hoover's mistake was to expect many consumers to be attracted by the promise of free flights, but to be deterred from redeeming their air tickets by the offer's small print, which lays down conditions about available dates for flights and choice of hotel accommodation, including one-application-per-household restrictions. Unfortunately, the company had miscalculated, although, according to a company lawyer for Hoover European Appliance Group, no fewer than three sales promotions agencies were involved in originating and costing the promotion. Each of them was sufficiently confident to accept the risk on take-up rates. As it happened, most consumers bought cheap vacuum cleaners that cost as little as $120. The cheapest pair of return air tickets to New York cost about £500. The firm was inundated with as many as 200,000 applications for free flights within the first ten months of the campaign. The company had only issued about 6,000 tickets within that same period. The travel agents hired by Hoover were also alleged to be unfairly dissuading consumers from taking up the offer. Angry customers were, nonetheless, adamant and many were sliil waiting for their tickets. Although Hoover bad put aside some money to cover the air fares, it was nothing like enough. When the three agencies

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failed to fulfil their obligations, they left Hoover to honour their commitments. The parent company, Maytag, had to come to the rescue by paying out $30 million, which helped to fund fully "the redemption of the free flights offer for those with a valid ciaim and the diligence to pursue it. The fiasco had cost the company £48 million (the initial promotional budget was £1.5 million). In the United Kingdom and Ireland, Hoover's name became a sick joke to millions of consumers.

However, this is not the end of the affair. Hundreds of disgruntled consumers have sought compensation since. Hoover does not release an up-to-date total of cases, but sources report that the company has lost one in five of the cases heard in small claims courts. In some cases where die company was found guilty of abusing the rules, complainants have been awarded over £450 in damages. Five years on, in 1997, Hoover returned to court to defend itself over new allegations of misconduct. Of the 600,000 people who expected a holiday from the promotion (some 300,000 vouchers were issued), 220,000 made it to the United States, leaving 380.000 disappointed customers.

Which party is to be blamedV Hoover's management or the promotions agencies it used? Both parties displayed errors in judgement. While the experts severely miscalculated, management at Hoover cannot put the blame entirely on them. It is the firm's responsibility to ask; How should it justify its spending on the sales promotion? What return on its promotional investment was it seeking? What would the take-up rates be and are they realistic? What would it cost the company given the size or attractiveness of the incentive?

It follows that the marketer must cost the sales promotion and carefully evaluate take-up rates when deciding the size of the incentive. A certain minimum incentive is necessary if the promotion is to succeed; a larger incentive will produce more sales response. It is important to strike a balance between an incentive of sufficient substance to induce consumers to experi-

merit and to tempt lapsed users to buy, and too generous an incentive, triggering an extreme rate of redemption, that cotild financially cripple the firm.

A Hoover spokesperson insists that the company has publicly admitted it made a mistake. Technically, the promotion was legal. It did not breach the British Code of Sales Promotion Practice, since the small print spelled out the hurdles involved. But it played on consumers' lack of knowledge. And when the company faced difficulties, it did not act until the promotion got serious media attention. Subsequently, redemp tion rates soared as customers with a valid claim became determined to get their flights. After the fiasco, the company has learnt its lessons. But, as court cases open the floodgates to more claims, Hoover is busy sucking up the mess!

Sources: 'Hoover: it sucks', The Economist (3 April 1993) p. 88; 'Hoover flights offer; the tacts', Marketing Week (21 October 1994), p. 36; David Reed, 'Holiday programme', Marketing Week (5 July 1996), pp. 39-42, Natalie Cheary, 'I loover fails to shake off free flights horror. Marketing Week (1 May 1997), p. 22.

with this period. Some of the magazine advertising is used to announce a competition and free health booklet. It also plans a trade promotion to sustain retailer awareness and to ensure they stock up for demand. Sales force incentives arc also planned to bolster the effects of the trade promotion.

The duration of the promotion is also important. If the sales promotion period is too short, many prospects (who may not be buying during that time) will miss it. If the promotion runs for too long, the deal will lose some of its 'act now' force.

The marketer also must decide on the response mechanism: that is, the redemption vehicle to be used by the customer who takes part in the promotion. The easier it is for the customer to respond to an offer, the higher the response rate. Immediate gratification - for example, a price reduction, or a free gift attached to the product on offer - often yields a higher response. If the incentive requires further action to be taken by the consumer - for instance, to make another purchase or to collect the required number of tokens in promotion packs and then post these off to claim a gift or free product - the redemption rate can be reduced.

Finally, the marketer must determine the sa/es promotion budget, which can be developed in one of two ways. The marketer may choose the promotions and estimate their total cost. However, the more common way is to use a percentage of the total budget for sales promotion. One study found three serious problems in the way companies budget for sales promotion. First, they do not consider cost efi'ectiveness. Second, instead of spending to achieve objectives, they simply extend the previous year's spending, take a percentage of expected sales or use the 'affordable approach'. Finally, advertising and sales promotion budgets are too often prepared separately.-1"

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