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How does… million-dollar cash prize marketing work?

We've been asking some of the industry's most knowledgable boffins to use their knowledge to help you through those confusing meetings and indecipherable conferences. Here, Chris Milne explains how insurance-leveraged marketing works.

Ever wondered how brands can offer the opportunity to win million-dollar prizes in a promotional campaign? Or perhaps you’ve seen cash-back offers that feel too good to be true? Chances are, these campaigns are being bankrolled by insurance – what is known as “insurance-leveraged marketing”.

In its most basic form, insurance-leveraged marketing is using specialist insurance products to offset a company’s financial exposure – linked to a chance-to-win or redemption-based marketing campaign.

What are the benefits?

Using prize insurance, a business can leverage a modest marketing budget into an offering with a knockout headline prize. Every element of the promotion is targeted to grab customer attention and influence consumer behaviour and typically there’s a prize game at the end of the promo giving further customer interaction.

What sort of game do you mean?

It’s usually a skill or probability-based challenge. Marketing departments can run riot with how to choose one winning “envelope” out of 100. Or give a footy fan a crack at an extreme challenge kick during a break in the game.

The simple version

Prize insurance relies on the concept that the promotion “winner” technically wins the opportunity to participate in a game. Only once they have won the chance to take part do they get the opportunity to win the headline prize. Consolation prizes are awarded when the headline prize isn’t won.

Where does the insurance bit come in?

If the headline prize is won, an insurance policy covers the type and value of the prize offered. There’s no risk for your business.

In offsetting the chance of a major prize being won, a business caps its promotional spend while basking in the marketing glory it has created. As the insurance is odds-based, it’s entirely possible to back the prize value (and probability of it being won) into a pre-set marketing budget.

You can also protect against consumer redemption promotions that outperform expectations, resulting in massive uptake from customers. Never thought customers queueing at your door could be an issue for you? That’s where over-redemption insurance comes in.

What type of campaigns can’t be insured?

We’re often asked what type of campaigns can’t be insured or protected. You can’t insure promotions where there is a guaranteed winner. So, no raffles or promotions with guaranteed giveaways.

And where the probability of a prize being won is very high – say greater than 25% – the cost of insurance can become cost-prohibitive for some businesses.

What types of promotions can be insured?

Chance-to-win promotions and consumer redemption offerings.

Provided you run the promotion in line within the legal terms and conditions, you can be as adventurous as you like with theming your promotion, the entry mechanic and how a winner is decided. It’s the games at the end of the promotion or the redemption offering that impact the insurance.

Chance to win promotions

These are where consumers get the chance to win a prize based on probability, like:

Games of chance – pure statistically-based offerings like themed envelope draws and wheel spins, offering a chance to win based on pre-defined odds.
Games of skill – requiring participants to complete a task or challenge to win. Think target throws/kicks, pick the score or half-court basketball shots.
Factorials – where entrants select certain factors in the correct order to win. For example, select the finishing order of the top 10 drivers at the F1 Australian Grand Prix.

Consumer redemption promotions

These are where consumers can redeem or receive something extra when purchasing products. You can insure against greater than expected redemption rates (which lead to increased business costs). Examples include:

Collect and get – collect receipts from eligible products purchased to win or redeem a prize.
Cashback offers – buy a product and enter details online to receive cash back.
Gift or voucher with purchase – say a $10 hardware store voucher when you buy a slab of beer.
Instant win – enter for your chance to win a prize following purchase. McDonald’s® Monopoly is a great example.

Is there more?

Of course there is. You have to love promotions where it’s possible to link a campaign to the weather to drive sales or create additional offerings. Imagine a brewery running a promotion about the temperature on Christmas Day: perhaps everyone who bought a case of their beer in December could redeem a free six pack from their local bottleshop if December 25 topped 40 degrees. #Straya.

The sky is the limit and we encourage clients to have fun with promotions and dream big.

Chris Milne is a director and promotional risk specialist at Spoke Insure.

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