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May 20, 2002 - Strategy Magazine
Premiums & Incentives

Extending the high
Marketers find new ways to parlay premium sales spikes into long-term gain

by Lucy Saddleton
page B 11

Premium programs are like the crack cocaine of marketing. Offer a high-quality gift and sales shoot up, but as soon as the program ends, the buzz is gone, and sales slump.

Many marketers are increasingly looking for ways to get off the hamster wheel and use premiums and incentives in a way that increases customer loyalty and bolsters the image of a brand. Short-term gift-with-purchase programs are being jilted in favour of long-term loyalty initiatives.

Gas stations have already weaned themselves off the low-cost giveaways of old, increasingly making use of loyalty cards and Air Miles schemes, and virtually every major retailer now offers some kind of rewards program.

But the movement from direct giveaways to loyalty doesn't mean that marketers are using premiums less than they used to: quite the contrary in fact. While traditional advertising budgets continue to fall, spending on premiums and incentives shows no signs of slowing. In the U.S., spending on promotions in 2000 rose 10% to about $368 billion from a year earlier, according to the Promotion Marketing Association. Of that, $26.9 billion was spent on premiums.

And the most recent study by the Montreal-based Promotional Products Association of Canada (PPAC) found that the total estimated sales of promotional products by Canadian distributors in 1998 reached $1.157 billion, up from $808 million in 1984, the date of the previous study. Sales by Canadian suppliers rose from $795 million to $1.163 billion during this time. In addition, 32.6% of all distributors sold premiums in 1998, accounting for 14.7% of their total sales.

"Incentive use is definitely on the rise," says Robert Martin, owner of Paris, Ont.-based fulfilment company Marco Sales & Incentives. "We have never handled more contests and sweepstakes in our lives, whereas gift-with-purchase deals are few and far between compared with 10 or 15 years ago."

Continuity programs are always more effective than a giveaway in Martin's opinion. He believes the tremendous growth in loyalty programs has been a natural snowball effect, sparked by airlines and banks in the U.S.

"Unequivocally, virtually every program is growing," he says, "some by as much as 200% year on year for the last two years."

However, many marketers still believe that there is something to be said for offering a tangible quality gift, which can surprise the consumer, and build long-term equity through association. Beauty marketers and department stores regularly count on such giveaways to spur sales and traffic, but today's consumers are only swayed by significant swag.

Sears, for example, recently offered a free watch with the purchase of any Givenchy fragrance worth $55 or more, as a Mother's Day promo. And The Bay is offering a free bag of cosmetics with any Lancôme purchase of $27 or more.

More interesting though was a Biotherm gift-with-purchase program at Sears last April, which cleverly managed to extend the sales impact by dangling a limited-time coupon for another 30 mL of Biotherm body lotion, redeemable if the customer returned to Sears in May.

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