Do the math: premiums can spur interest and drive traffic

Publish Date: 
Apr 17, 2014
By Rod Stuckey

A premium is an incentive (with high perceived value and minimal cost) offered to your prospect for taking the specific action offered in your marketing message. Sports Illustrated has been famous for using premiums, such as the sneaker phone and team apparel to sell subscriptions, for decades, and for good reason: they work. Research shows that marketing with a premium offer can outperform marketing without one by as much as 300 percent. This is why many of the cereal boxes you see on the shelf at the grocery store have prizes in them.

The origination of “FREE Gift With Purchase” strategy was implemented by the Estee Lauder Co. decades ago and is now a standard ingredient of the winning formula in the world of direct marketing.  From the P90X fitness infomercial to the ProActiv acne cream endorsed by Jessica Simpson, they all include a FREE gift.

Here’s what marketing guru Dan Kennedy says about premiums:

“Too many marketers deal with premiums as an afterthought. This is a huge mistake. I know for a fact that premiums can and do drive sales, and that a change of a premium, with no other changes, can dramatically alter the results of a promotion. For this reason, just as much careful thought should be given to the premium as to the main offer.”

So why do premiums have such an impact on the results of a promotion? Receiving a gift taps into our basic human instinct, appealing to our need for immediate self-gratification. It raises positive emotions which people relate to special occasions like birthdays and Christmas. Besides, everybody wants something for FREE!

Actually, when used properly, premiums can cost less. For easy math, let’s say that you mail 10,000 envelope or zip mailers, and with postage your price is $1 each without a premium. At a 1 percent response rate, you’d generate 100 leads. Now let’s say that you used the same mailer and added a premium which boosts your response rate to 3 percent. So, you actually could have only mailed 3,340 mailers with the premium to generate the same number of leads at 10,000 mailers without the premium. If your cost is $5 each for the premiums (times the 100 respondents) that’s another $500 in premiums (remember, you only pay for the premiums for those who respond), which would bring equal a grand total investment of $3,840 to generate 100 leads with a premium vs. $10,000 without the premium.

After the dealer hashed out a new marketing message with a call to action and a deadline including FREE premiums, and wove this message across all of his marketing channels, he finally began to get some traction. In one weekend event he drove 135 quantifiable respondents in on Friday and 157 on Saturday, all coming in to see whether they were winners. And while everyone didn’t win, it was a great way to start getting the word out that there was a new dealer in town who was excited about the opportunity to earn their business.

This dealer has a long road ahead of him, but with the help of incentive-based marketing he’s starting to get some momentum. 

The moral of the story: Make sure your marketing has a call to action with a deadline to create urgency, and don’t hesitate to offer a premium to increase your response rate.