OVERVIEW
The success of your brand depends on whether consumers buy your product or service, and it's your job to motivate them to do so. Well-designed, well-coordinated premium promotions are powerful motivators: they're offers that consumers can't refuse. They can simultaneously provide the impetus to buy your brand, and reward the consumer for doing so.

Premium promotions also stimulate consumer participation in the brand. Technological advances have made building databases cost-effective, making it feasible for companies to get to know who their customers are and create highly targeted, interactive promotions. Premiums are playing an important role as the prize that spurs consumers to collect points for merchandise, register on a Web site, or listen to a promotional message.

As technological capabilities have made premium programs easier to monitor and track, suppliers have expanded the selection of premiums available. Both factors can help marketers build more effective consumer premium promotions.

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DEFINITIONS
Simply stated, consumer premium promotions use merchandise to get buyers to sample, purchase, or remain loyal to a brand or product. Consumers get a value-added offer in one of several promotional vehicles. The main types are:

• In-pack, on-pack, near-pack. Merchandise is packaged in, on, or near a brand (used by packaged goods manufacturers).
  
• Self-liquidator or free mail-in offer. Consumers can either purchase the item at a low cost (thus the sponsor breaks even) or receive it free by mail as a reward for choosing the brand (used by many top names in consumer products).
  
• Continuity or frequency program. The premium is given to loyal consumers as a reward for repeat business (used heavily by airline companies and hotel chains).
• Gift-with-purchase. An item that prompts people to make or increase purchases
  at the point-of-sale (used by fast food restaurants, telecommunications companies,
  and gas stations).
• Sweepstakes, contests, games. Promotions with prizes that get customer
  attention and generate increased response (used by Web sites and clothing
  retailers).

Among the other types of consumer premium promotions are traffic builders, door openers, direct-mail premiums, and, newest on the scene, online premium promotions.

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THE POWER OF PREMIUMS
Consumer premium promotions are strong programs for three reasons:

• Immediacy. Many, though not all, types of premium promotions are instantaneous rewards that provide consumers with immediate gratification.
• Impact. A premium is a tangible, long-lasting prize (as opposed to a cash reward that can easily disappear into a wallet).
• Measurability. When marketers know their costs, the scope of the promotion, and the objectives they want to accomplish, a consumer premium promotion becomes a highly measurable marketing tool.

Creative, well-constructed premium promotions are known for delivering brand-enhancing and sales-building results. A 1998 article in Promo, titled "The Premium as Brand-Builder," stated it best: "If brands are reacquainting themselves with the full promotional arsenal, marketers can't continue to overlook a workhorse like premiums."

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PREMIUM PROMOTIONS IN ACTION
George Meredith and Robert P. Fried report in their definitive book, Incentives in Marketing & Motivation, that the first formalized consumer premium promotion is credited to Babbitt's soap. Done in 1851, the promotion sounds cumbersome. Consumers had to save 25 soap wrappers to redeem them for a color lithograph. Today the program would probably be described as a frequency program.

Meredith and Fried note that premium promotions share a common purpose: "The varieties of consumer premium that have grown over time have all been modifications designed to deliver the consumer benefit and/or differentiation in a way that most surely reaches the desired end--customer satisfaction--for a given marketer in a given climate."

These days, the climate for premium promotions is favorable. According to the Incentive Federation's " 1999 Incentive Survey of Buying Practices," 66 percent of respondents reported using incentives in consumer/user promotions, making that the second most popular use behind sales incentives (82 percent). Second now, but for how long? Industry observers say marketers are showing renewed interest in consumer premium promotions.

Another survey shows that consumer promotion allocation is growing. "Promotion Trends 2000," conducted by Promo magazine and the Promotion Marketing Association (PMA), found that though consumer promotions commanded a smaller slice of the marketing pie than trade promotions and advertising, about 43 percent of marketers said they increased their consumer promotion spending. Compare that with only 29 percent who reported boosting their trade promotion spending.

Consumer premium promotions are more conspicuous than ever. For instance, many snack food and candy companies offer redemption programs so consumers can earn logoed apparel, small electronics, and other items. Tic Tac, for one, launched a campaign called "Tic Tac Incredible Stuff." Consumers collect points by saving the product's label, which can be used to "purchase" products from a print or Web site catalog. Items include a Tic Tac-logoed backpack, beach towel, raft, CD holder, watch, T-shirt, or water bottle. Among the high-ticket items offered are a portable CD-player and mountain bike.
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PUTTING PREMIUMS TO WORK
All sorts of companies use premium promotions to build brands and spur consumers to purchase. Gregory R. Canose, president of the Incentive Marketing Association (IMA), says that companies use them for brand awareness, customer retention, and new product introductions. Canose, who is also president of Awards Marketing Services LLC, a Whitehouse, NJ, manufacturer's representative for premium, incentive, and award programs, says tobacco companies, dining clubs, hotel chains, pharmaceutical companies, cosmetics manufacturers, insurance companies, and oil companies use them. "The incentive (premium) industry is about a $24 billion business," he says. Consumer premium promotions can achieve many objectives for a brand, says Paul Kiewiet, President of Promotion Concepts Inc., a Kalamazoo, MI, sales promotion firm. They can stimulate loading or multiple-unit purchase; build repeat purchase; enhance image; reinforce brand claim, promise, or mission; create goodwill; or draw attention to a display, ad, or feature. Some of the more powerful uses include generating trial through the word "Free," attracting attention to a display, building excitement, and adding value.

Among the most ardent users of consumer premiums are cereal companies, which, after some painful experimentation, found out that there is a direct correlation between consumer premium promotions and sales. "They went away from using them, and they saw sales suffer as a result," says Kevin Hess, president of Skokie, IL-based Milmour Products Inc., a manufacturer of custom-molded plastic premiums. "But in the past few years, every cereal box has some kind of mail-in offer on it, especially the kids' cereals. It gives some energy as a promotion, and it gives some appeal in the store at point-of-sale."

Typical is Kellogg, which leveraged the timeless appeal of Sesame Street to add impact to its return to using in-pack premiums. After signing a licensing agreement with Children's Television Workshop, it inserted Sesame Street Mini Beans, a line of plush bean bag toys, into 25 million boxes of eight Kellogg cereal brands starting in January 2000. Kellogg printed the insides of the cereal boxes with games, quizzes, and cutout activities. Promo magazine observed that this promotion was significant for two reasons: Not only did it mark Kellogg's return to in-pack premiums (the company hadn't done one since 1995), but it used the highest value premium in the company's history.

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SIGNIFICANT TRENDS
Technology. Consumer premium promotions are proving powerful in today's tech-savvy marketplace. They can stimulate participation in a brand, allowing companies to collect data on loyal customers and ask for permission to market to them. Companies can then tailor future promotions to these consumers, striving to make the relationship interactive.

The premium offer provides marketers with a potent tool to drive traffic to a Web site, and premiums used for Internet promotions provide a tangible reward from cyberspace. Digital premiums are coming into their own. For example, technology acted as the "intermediary" for Procter & Gamble to create one-to-one relationships with users of its Pampers disposable diapers. P&G offered parents a digital baby book for registering on the company's Web site, and that opened the door for Pampers to start an ongoing e-mail dialog with parents.

Cooperative promotions. Many companies are forming beneficial relationships with others. "Co-branding programs can be very effective," says Promotion Concepts' Kiewiet. "They're used to share budget and lower overall costs, double the sales force impact, and create a newsworthy event." But it's important to allow sufficient lead time for a cooperative venture, he notes, and working with another company almost always requires patience. It also helps to have an experienced agency to facilitate the partnership.

Licensed properties continue to be a hot trend in consumer premium promotions. Sports teams, cartoons, and rock groups are getting in on the act. Movie tie-ins continue to be a mainstay. For instance, Disney's "102 Dalmatians" and McDonald's have teamed up for a multifaceted consumer promotion, including dalmatian toy gifts-with-purchase and a "Win on the Spot" sweepstakes with prizes.

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CALCULATING THE PAYOFF
Estimating the cost of doing a consumer premium promotion is complicated, but the potential payoff of a well-executed program is high. Remember to factor in costs for:

• The premium—developing the item, packaging, displays, and collateral materials.
• Distribution—logistics of executing the promotion; fulfillment and mailing; depending on the delivery vehicle, costs may vary widely for getting premiums inside packaging or attached to it. Premium offers that aren’t instantaneous require special care. "Do not disappoint recipients," the IMA's Canose warns. "Make sure they're shipped what they won and on time."
• Promotion—notifying consumers about the premium offer with a TV, radio, or magazine ad or by creating a free-standing newspaper insert (FSI) for a supermarket promotion.
• Tracking and administration—evaluating the promotion. Were sales increases sustained? Kiewiet says companies want to look at brand movement, unit sales, volume, market share, long-term volume and share, and consumer/trade satisfaction.

It is important to consider all these elements carefully. Trial and error can produce a mediocre promotion or even a flop. "Many factors must come together to execute a program that has the impact it should," notes Milmour Products' Hess. Anticipating response to a premium offer is difficult, especially with a mail-in promotion. Whenever possible, suggests Hess, use domestic manufacturers that can do a short run, followed up with additional runs as needed.

One reason that programs sometimes fall short of their goals, says Hess, is that few vehicles exist to educate marketers and brand managers on when, why, and how to execute a consumer premium promotion. "Premium promotions are not really discussed at the college or masters level," he says. "There's no formal training for them." As a result, they are often overlooked or not used to their full potential.

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CHECKLIST OF ACTION STEPS
Marketers and brand managers must allow sufficient lead time to ensure smooth promotion development and operation. The most important step is setting objectives. What's the best vehicle to achieve those objectives? Hess warns against "falling in love" with a premium: "The promotional objectives should drive the premium item, not vice versa," he says. Other critical steps:

• Identify the target audience.
• Review successes and shortcomings of past premium promotions.
• Research competitors' strategies and market conditions.
• Determine the budget.
• Call in and choose experienced professionals to help coordinate, plan, and
  execute the promotion.
• Determine tactics and consider logistical concerns.
• Generate and review ideas
• Choose the premium and the delivery method. Safety-test of the premium.
• Call in legal department to review the promotion.
• Test-market and focus groups (if budget allows).
• Evaluate program results and return on investment.
• Record successes and pitfalls.
  
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SELECTING A PREMIUM
There are hundreds of thousands of premiums to choose from, including apparel, sporting equipment, camping gear, kitchen items, electronics, health and beauty products, gourmet foods, and candy. To narrow the field, marketers must keep program objectives in mind. Ask yourself, is a low-end or a high-end premium appropriate? Is it beneficial to use brand-name merchandise? Does the premium support the image of the brand? Does the premium idea complement or add value to the brand? Will the premium appeal to the target audience? Should the premium be imprinted with the company logo?

Milmour Products' Hess suggests using the following guidelines when choosing a premium:

• Offer premiums that enhance your brand, making it easier to prepare, use, store, serve, or transport.
• Capitalize on the equity of your brand's logo, mascot, or promotional character by incorporating it into the premium item.
• Avoid generic items that are readily available at retail.
• Choose premiums that are especially suited to your brand (important for ensuring a strong consumer response).

Whenever possible, offer premiums that promote new or alternative uses for your brand, increasing brand consumption.

Remember, too, that premiums sometimes become collectibles. Take, for instance, Woodbridge, NJ-based Arnerada Hess Corp. Since the early 1960s the oil company has made a toy truck every holiday season, offering it for a low price with a fill-up at participating gas stations. The trucks, created to thank loyal customers, have become high-ticket collectors' items that sell out fast. The company distributes approximately 2 million toy trucks per year.
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CHOOSING SUPPLIERS
Brand managers and other marketers can consult trade associations, industry magazines, and Web sites for supplier recommendations (see listings at the end of this article). They should choose a promotion agency and a supplier/vendor based on the candidate's experience in creating and coordinating consumer premium promotions and on their ability to provide the services that the company wants. If you're considering a company for the first time, look at the experience of their principals and ask to see documentation of past promotions.
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MAKE THE RETAILER YOUR PARTNER
If your company sells through retailers, consider them your promotion partners. After all, they may not care about your promotion unless it helps build their business, too. Retailers like a premium promotion that's an exclusive opportunity (known as an account- specific promotion). Why? "They want to be different from the guy down the street," says Kiewiet of Promotion Concepts. "They want their circular to have different items and offers in it." Your promotion can provide differentiation and take the focus off price competition.

Make your promotion as simple as possible for the retailer. "If the premium changes the product code or configuration, retailers may not be able to utilize the promotion, or may charge you a slotting allowance," Kiewiet says.

If your promotion requires displays, make them easy to assemble. If you're working with a warehouse club or a discount store, consider a display-ready pallet (DRP) where retailers need only open the top of the pallet and put it out on the sales floor. Some companies set up their own in-store premium displays; others pay an agency to do it. Either way, it doesn't pay to stint on this procedure. "It's a cost," says Hess, "but it's the difference between getting 100 percent of your displays up or having 60 percent out and 40 percent left in the back room."

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LEGAL CONSIDERATIONS
Legal regulations, safety, and FDA compliance may come into play with consumer premium promotions. Postal regulations must be heeded. "The big one is the Federal Trade Commission mail-order rule, which states that if you make an offer to the consumer you must fulfill it within 30 days unless you specify otherwise," says Kiewiet. "The odd thing about that law is that it even applies to free-in-the-mail [premiums].

"That's why so many offers say, 'Allow six to eight weeks for delivery."' Marketers at large companies should consult in-house counsel on such matters. For smaller companies, regulations should be brought up by promotion or ad agencies during the planning process.

Premium laws vary from state to state. "Certain states are tougher than others," says Hess. "Some require simply labeling the package if the premium is not suited for all ages. Others settle for any notification on the package. Other states require notification on every part.

Safety testing can be done by one of the two major testing agencies, ACTS and STR, which specialize in premium promotions. "Any premium specialist worth their salt would not only suggest but insist a premium item being run though," says Hess. "It takes as little as a week and usually costs under $2,000."

The U.S. Consumer Protection and Safety Commission encourages fast-food chains to let it preview premiums before distribution. New federal guidelines for toy safety may follow.
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CASE HISTORIES
Sunshine Biscuits' "Baker's Wonder Cup." Sunshine offered consumers a free-in-the mail premium to add value to its brand. The offer was featured on boxes of Sunshine Honey Graham Crackers. Consumers sent in two proof-of-purchase seals from any of the company's cracker brands to get a measuring cup.

Milmour Products Inc. created "The Baker's Wonder Cup" for Sunshine. The measuring cup could be used for all types of ingredients, even sticky solids. A self-cleaning feature was added, making the premium a unique item that offered the baker convenience: no stopping to clean the cup between measurements. The item also encouraged multiple brand purchase.

Sunshine enjoyed a substantial increase in cracker sales during the promotion. It generated over 100,000 premium redemptions. Due to its success, the brand continues to offer similar free-in-the-mail premium offers flagged on their packages.

Pizza Hut and CDNOW combine for "The Big Mix" music giveaway. Pizza Hut and leading online music destination CDNOW joined forces to create a co-branded consumer premium promotion with an interactive element. When consumers ordered a Big New Yorker pizza from Pizza Hut, they received a colorful cardboard foldout printed with an access code. The code allowed the purchaser to go online and create a free, six-song compact disc on the CDNOW Web site.

Pizza Hut's objective was to thank loyal customers for making the introduction of the Big New Yorker pizza the most successful launch in the company's history. CDNOW's objective for the redemption was to increase its brand awareness and get Web site visitors to try making a custom CD. The promotion was targeted to the "echo boomer" generation (also called Gen Y) and was supported by a $15-million advertising campaign, including four weeks of commercials on network and cable TV and radio before, during, and after the Super Bowl.

Participants could name their own compilation. Approximately three weeks after choosing songs on the CDNOW site, the custom CD arrived in a plain sleeve. During the eight-week promotion, more than 800,000 custom CDs were created, earning a 16 percent redemption rate and exceeding CDNOW's estimates. The Recording Industry Association of America awarded CDNOW an honorary Gold Record for selling over 500,000 custom CDs.
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