I will not be regularly updating the posts here, so make sure and check out Leverage, I post there weekly.

In the incentive space, the perceived value spread is crucial. Marketers strive to provide an incentive with a much higher perceived value (than what a consumer has to do to earn the incentive). The higher the spread, the more effective the incentive becomes.

For the last 3-4 years, marketers have dipped into the mobile content space to leverage incentives in their programs. Incentives such as ringtones wallpapers and to degree basic mobile coupons have been used, with varying degrees of success. I like to classify these as Mobile content 1.0. According to research firm SNL Kagan, US ringtone sales peaked in 2007 at $714 million, followed by a 28% decrease in 2008. According to them, advances in technology have made it easier to bypass the traditional download-to-handset method. Extending this pattern out, it is not hard to conclude that mobile content 1.0 is not dead, but it is certainly on the backside of the “perceived value” curve. Point is, this type of mobile content has held some value to a consumer, but as technology moves forward, this perceived value (and related effectiveness as an incentive) is diminishing.

On the flipside though, I think that mobile content as an incentive is just starting to ramp up. As the mobile “phone” phases out, it is replaced by the “phone/media player/internet appliance/computing device”. With this shift, technology advancement makes the term mobile content take on a much broader definition. I call this next generation content mobile content 2.0. Need an example? Consider the explosion of the iPhone “app” market. According to Gartner’s 2009 Mobile device report , iPhone has a 13% market share globally. Impressive share, but based upon the hype surrounding the iPhone application, or “app” market, you would think that considerably more than 1 in 6 consumers have one. The great thing about these “apps” is that they are so diverse and so broad. In addition, the cost to develop is relatively low, especially when compared to the perceived value. Other examples are the wide array of social media applications, streaming content (music and video), casual games, and QR codes (plus a whole lot of GPS-related/geo-coding things that are near mind-blowing).

Over the last few years, consumer mobile phone behavior has had a dramatic impact on marketing (and possibly vice versa). According to my favorite futurist (Gerd Leonhard) and others, in the (near) future, mobile’s influence will dramatically impact everything we do as marketers. My question is, as a marketer, will you continue using mobile incentives to take consumers someplace they have already been? Or are you ready to step into the future and leverage the type of incentives that take consumers where they want to go? I’ve made my value assessment; yours is coming (sooner than you think).

On a different front, I continue to be fascinated by the duel between streamed content and paid download. I posed the question (future of content, streamed or downloaded?) on LinkedIn and the responses pretty much netted a draw.

The thing about Spotify that interests me is challenge posed to existing US music platforms. iTunes is the gold standard, but what about other companies, like iMeem, Lala, Pandora, last.FM and Grooveshark? It’s music today, but as mobile broadband grows, what is next? Should Hulu be worried too?

So where do we go from here?

At times like these, I look to Gerd Leonhard for answers.

A big part of my job is helping sponsors predict response rates, it is my trade. Be that as it may, I never fail to be surprised by the number of people that call me and ask about response rates, just so they can budget plan. It is a point of contention with me, and a source of philosophical disagreement with people I respect.

Harlan Ellison’s colorful support of my position (which ironically I did not pay for):

I want 13...BILLLLLLLLLION dollars!

Mine is straightforward – take the promotional products industry, and reduce its sales by 70%, or $13.8B.  Ok, not the sales exactly, more like the topline number.

According to the Advertising Specialty industry, in 2008 promotional products industry sales were $19.8 …BILLION dollars! I don’t have anything personal against the ASI/PPAI folks, but I question the effectiveness of the marketing spend. Let’s cut to the chase, the interrogation goes like this:
How effective were your (insert promo product here) …flashlights? Do you know who got them? Will you be able to follow up with those consumers? How easy were they to distribute? Did the perceived value of the incentive net incremental sales?

Ouch, these answers can be prickly.

I think that promotional products/incentives have their place, it’s just at the end of the aughts, I think they should be (mostly) digital. Why? Well, digital incentives (for today, let’s call it “content”) have several advantages to physical products: They offer instant gratification, you can track who has them, integrate those consumers into your CRM plan, distribution is simple (by comparison), and by taking advantage of breakage, you can offer consumers a higher perceived value incentive. The thing I really like though is the way that you can engage a consumer in a rich experience, and get them interacting with your brand in a positive manner. Try doing that same calculus with a free hat and get back to me.

So back to my plan…by leveraging digital incentives, the promotional spend becomes more targeted, distribution becomes less expensive (and less worrisome too), and know marketers are able to pass incentives (with higher perceived values) to the consumer. These are substantive benefits, with less waste and lower costs. My idea is not really an evil one; it’s just a wakeup call to marketers and promotional sales folks alike. The digital future is now, embrace it, leverage it, benefit from it. This message is not unique to me alone, check out Tom Foremski’s thoughts on the Internet’s devaluation effect…

World domination can wait until later.

Most multiplayer games involving teams and combat include aspects of force multiplication, either as a player class, skill set, or specialized gear. On its own, a force multiplier is not particularly dangerous or effective. When added to an existing unit and used properly, they effectiveness and skill of that team increases (multiplies) dramatically. In PVP, the teams that recognize and leverage the power of force multiplication are generally the most feared (and effective) ones.

PVP teams in some ways are similar to promotional marketing teams. For every promotion pitch/execution, there is some combination of tactics/roles used to meet an objective. When leveraged by these teams, Promotional risk coverage serves as a FORCE MULTIPLIER. It helps amplify message, facilitate creative thinking (by removing budgetary restraints), stretches and/or fixes budgets, and contributes to effective solutions. The most effective marketers often incorporate promotional risk coverage at the concept level, and are able to leverage it to do some things that otherwise might not be possible.
The next time you start gearing up for a big raid, PVP battle, or promotional concept, devote some time on how to incorporate your “force multiplier” into your efforts, and let me know what happens.

So, Peter, what do YOU do here?

I ply my trade in promotional risk. In most situations, it can be one the most useful, yet abstract (see hard to define) concepts to adequately define. In my experience, marketers either get it, or they do not. The fact that it is widely applicable only serves to confuse some otherwise smart people. When people ask me what I do, I have a hard time rolling a concise definition off in casual conversation. At networking events, no one is interested in a 5-minute epistle (unless it applies specifically to them), most people just want an interesting anecdote and another drink. Based upon the application; promotional risk can look totally different to a bystander. So I have taken to describing what I do in simple, practical applications and analogies. Still, it is not perfect, but I find I get (a few) less blank stares.

Consider this blog my attempt to create better ways to explain what promotional risk is, and how it can be applied in promotions and marketing.

Let’s talk about measurement for digital music download promotion. The first inclination is to jump right to redemption rate as a means test for success when in fact, that is one of the poorest possible metrics on which to judge efectiveness (unless the goal was to influence redemption as much as possible). At some point, after that, a glance is given toward the bottom line, and year over year sales.

Over at CNET, they seem to subscribe to the theory of “redemption as barometer”:  Interesting…

To each their own, but for me, I am more concerned about things like:
- How much extra leverage did Pepsi distributors get in the field as a result?
- Did Pepsi meet their sales targets (Pepsi was the primary sponsor after all, not iTunes)?
- For Pepsi, how far did the iTunes partnership go in effectively re-asserting itself as THE brand that best utilizes music?
- For iTunes, what was the increase in user base for the iTunes music store?

The challenge in thoroughly evaluating promo performance is that these specific answers are spread over various parties, none too eager to discuss their results. My contention is that in this promotion specifically, the benefits from this partnership were substantive for everyone involved, even though the redemption rate was what I would classify as modest.

Artificially weighting something like a redemption rate is not a good way to solely judge effectiveness. Let me give you a better example (the names and industries changed to protect the guilty):

A software company gave away music CDs to consumers that purchased multiple software titles. When the promotion was over, the company instructed it’s agency to analyze the promotion by contacting as many participants as possible to determine how many times each one had listened to their CD. That metric, it was determined, would be used to judge whether they would run a similar promotion the following quarter.

Sounds crazy right? the digital equivalent of this happened. last. year.

Maybe I’m old fashioned, but I’m more interested in trying to find things like:
- Of people buying the software, how many saw the CD offer and chose that brand over a competitor?
- How many incremental software units were the field sales teams able to ship because of this promo? How many displays were they able to get?
- How many people went in to buy one title, and ended up buying more than 1 to get the CD?

It is the same with digital content. The actual redemption rate of the offer is not necessarily material to the promotion’s effectiveness. The real metric is whether the digital offer was effective in grabbing attention and creating action.

It makes good sense to protect yourself and cap liability, you know, just in case something bad happens, like a fire or worse, some sort of defective product or service makes it into the marketplace under your name.

When it comes to promotions though, it is amazing to me the number of marketers who are suddenly willing to take their own risk. I had a client just this week that started to strongly consider taking a multi-million dollar risk themselves. As scrutinized as budgets are these days,that sort of thinking is a bad idea more often then not, and here’s why:

Say a company wants to offer 10,000,000 $2 off coupons. Sure, they are only expecting 500,000 to be used, but in this post Madoff/AIG world we live in,they have to reflect the whole entire $20,000,000 liability on their books until the redemption period is over. A line item that size will definitely create a little disparity on a balance sheet.

Now, the probability of this coupon redeeming at 30% are much, much greater than say, your office building burning down, yet the company buys coverage for this fire scenario, but is fully ready to take a chance on $6,000,000 promotion risk ride…

After all, taking risks always works out for Danny Ocean and his crew.

Doesn’t it make more sense to protect yourself (and when I say yourself, I mean you, your budget, and your job) from something that could potentialy wreck all three?

In the end, the aforementioned client agreed with my position, and decided to secure the redemption risk. While I am not certain whether their promo will meet their goals of increasing trial, but I do know my client won’t lay awake at night worrying about over-redeeming coupons, and I also know that the next 10-Q will not be weighted down by someone’s decision to “let it ride”.

During the 1930s, coupons were characterized as a “necessity” to help families make ends meet during difficult economic times. ( http://www.couponmonth.com/pages/allabout.htm)

Fast forward to today – the tactic of using coupons to increase distribution and created trial for marketers has been used effectively for the last 70+ years. In fact, recent data suggests usage is tracking upward, and has been since 2007. Believe the hype, consumers like (and rely on) them:

- http://www.msnbc.msn.com/id/25500262/
- http://www.reuters.com/article/pressRelease/idUS118086+03-Sep-2008+MW20080903
- http://promomagazine.com/research/ads-resonate-coupons-instore-1218/

This relevance though (great as it is) increases redemption, and increased redemption means increased (but uncertain) costs, and increased costs are in direct contrast to marketing budgets that (for good or bad) are often on the front lines of budget cuts.

So what’s a marketer to do?
Abandon or limit a tactic that that seems to be resonating in the market?

Roll the dice and hope that incremental sales can soften blow of increased budget impact?

I am not sure it is ever a sound idea to go into a promotion with off budget liability hanging out, but in the climate of shrinking marketing budgets and every expenditure receiving extra scrutiny…why take the risk?

Promotional Risk Underwriting and redemption coverage fixes exposure on coupon offers, so marketers know their costs to the penny, prior to the coupon ever hitting the market. Call me old school, but I think marketers are best when they create and execute, not when they are sweating the cost implications of tail end promotional redemption.

As a tool, promotional risk coverage caps the exposure that can accompany redemption-type (i.e. COUPON) progams. No underspend, no overspend, no lingering worries about coupon redemptions 9 months after the fact.

So, if you’re ready to cash in on the coupon’s resurgence as a marketing tactic, but not interested in wearing your “accounting hat” as much as your “marketing hat”, I don’t blame you. Check into promotional risk, or redemption coverage – your budget will be happy you did.