Lee Marc Stein

Article Summary:

How can and should you use premium incentives in direct response marketing?

Premium Incentives and Direct Response Marketing

The Newsmagazine Premium Wars of a decade ago, and equally inane use of expensive premiums in business-to-business lead generation, soured many of us on their use. But there are times when the right premium can really help you achieve your objectives. Here are some considerations -

Premiums as a reward for fast response
Normally, faster response means more response. You get people who would put your mail aside (and later reject it) to act on impulse. There are two ways to couch the offer:

1. Give the premium to everyone responding by a specific date (and even to those whose responses arrive within two weeks of that date); or

2. Give the people to the first X people responding. This ploy is known as the "Fast 50", but if you mail large quantities seriously consider expanding the quantity beyond 50.

For a nationally-known product or service, people think "First 50? I have no chance." It's like sending a time-limited offer and giving prospects just a week to respond.

Look at the math
Without any premium, you get a 2% response. With in-mail costs at $400/M (on a quantity of 500M) your gross order cost is $20.00. On #1 above, say the premium costs you $2.00 per response. To lower cost per order by 10% and justify the premium, you'd need a 2.5% response or 25% increase.

On #2, say your giveaway costs you $100 and you offer 100 on a mailing of 500,000. That increases your costs by $10,000 or $20/M. Here, to decrease gross order cost by 10%, you'd only have to increase response to 2.333%. The larger the quantity, the more #2 works in your favor. Aside from magazines, the "Fast X" offer should be tested for consumer catalogs and financial offers like home loans. It may backfire on mailings to the mature adult market and for luxury goods and services.

Premiums used to boost average order
Of course this is most prevalent in the catalog sector - and is used by both consumer and business marketers. But newsletter publishers have added a premium for subscribers taking a longer term (usually two years vs. one), and there's no reason magazine publishers can't do the same thing.

Say you now get a 2% response and $40 average order. If you can boost that average by 10% or $4.00, that means an increase in revenue of $80/M mailed. For orders above $40.00, you can afford a $3.00 premium because the number of people qualifying will be a fraction of your 2% response rate.

Premiums used to increase net orders
In most cases, premiums should be delivered upon payment. This increases payment with order (which is the rule for catalogs and TV direct response) and also puts some teeth into the billing notice for those who don't prepay. In publishing, you can afford extra issues for those who prepay. While that's not particularly compelling, the economics work out quite well.

Premiums as a reward for a personal visit/demonstration
If you're selling high-ticket equipment or services, economics are really not a consideration in your choice of premiums. Getting prospects to take time to attend a demonstration or listen to a formal presentation could be worth a $25, $50, or even $100.

The question becomes ethical rather than economic - is this a thank you or a bribe?

Lee Marc Stein is a direct marketing consultant and copywriter with 40+ years experience in strategy and creative development. Lee creates lead generation programs, writes direct response advertising that generates orders and traffic, and advises clients on how to increased lifetime value of a customer. He has extensive experience in insurance and financial services, publishing, software and nonprofit marketing. Lee taught at NYU and Hofstra, and has spoken at 100+ industry conferences. His web site www.leemarcstein.com offers a free eletter and additional articles.

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