If your business wants to offer a billion dollar sweepstakes to attract customers, you better know the right way to manage it.
In 2003, Pepsi ran a sweepstakes competition that was mind-boggling in scale. The grand prize was nothing less than $1 billion. Yes billion. The publicity associated with this astronomical prize generated tremendous value for the company.
Have you ever wondered how a company can offer such a prize? It doesn’t have to be that extreme for you to raise an eyebrow. What would you do if a local competitor offers a $100,000 grand prize for a sweepstakes as a way to generate new business? How confident are they that someone will win the prize? Did they extract enough value to justify the cost? If you are asking yourself these things, you are in fact asking the wrong questions. The right question to ask is how do you manage the financial risk of these types of sweepstakes?
Pepsi didn’t have to write anyone a check for $1 billion. The nature of the competition did not guarantee that anyone would actually win the prize. There was only the possibility of such a payout if a number of highly unlikely conditions were met that someone would win. It’s similar to Powerball, where you need to match the winning numbers and match the Powerball in order to win the grand prize. In Pepsi’s case there were even more layers of complexity. But had someone won the prize, Pepsi would not have had to write that check—SCA promotions would have. The company specializes in risk mitigation strategies for sweepstakes.
There are several strategies you can implement in order to mitigate the risks:
1. Estimate the value of the sweepstakes to decide if it’s worth it
The first benefit to monetize is the publicity that such a campaign would generate. Is your company being discussed on blogs, local news, and newspapers? It’s difficult to estimate the value of this type of publicity. A good estimate is to calculate what it would have cost your company to purchase similar amounts of advertising on the respective media that mentioned the sweepstakes.
Add to that value the value of the customer information captured in the entry forms. Whether it’s electronic or in paper form, the names, addresses, e-mails, telephone numbers, tastes and preferences shared by consumers are tremendously valuable. If you can apply a reliable percentage to the number of these leads that will actually buy from you then use that as the estimate. If not, calculate what the cost would have been to purchase similar leads from a list broker. The former is a better proxy of value than the latter.
Go to the full article: 4 Ways To Manage The Financial Risk Of A Sweepstakes
