Making sense of the macro landscape
Regulatory changes understandably cause fear and uncertainty for brands, especially in a category like FMCG that has relied heavily on price promotions.
Given the new HFSS legislation, which becomes enforceable in October 2022, it will be harder for brands to advertise products in-store and severely limit flexibility around discounts and sales.
Product innovation through the creation of healthier products is one option, but clearly new strategies will be required to drive sales and inspire loyalty.
While HFSS legislation is coming into place, FMCG brands must also contend with wider changes to online customer privacy and data protection.
Google’s move to effectively end the third-party cookie means that companies will no longer be able to track website visitors as accurately or target online ads as effectively. It impacts everything from overall online behaviours and frequently visited websites to interests shown online and what purchases users have made.
Severing this rich source of data has serious ramifications for FMCG brands that rely heavily on external retailers to sell their products, since these brands will naturally be lacking a robust CRM of first-party data (i.e. owned contacts).
It seems that these fears are starting to manifest, as 41% of marketers believe their biggest challenge in 2022 will be their inability to track the right data.
To overcome these challenges, FMCG brands will need to get creative with their marketing strategies and find different ways to recruit first-party data.
How can prize promotions solve these challenges?
From cereal box inserts to exotic holidays, the idea of a brand driving sales and engagement through prizes and rewards has been around for decades.
However, in today’s digital climate, prize promotions can be seen as somewhat “boring” and “old-fashioned”. Part of the problem is that lazy prize promotions have tainted the perception of all prize promotions.
While the perception may be a little negative, when prize promotions are done well it not only has a short-term sales effect but can have long-term benefits for the brand, too.
Some of these benefits include:
- Showcasing a brand’s proposition
- Providing a way to stand out from the competition
- Aiding the negotiation of incremental in-store display at retail
- Encouraging trial
- Driving sales
- Rewarding loyalty
Research has shown that 33% of prize promotion participants are open to receiving information about a brand.
What’s more, contests have an extremely high conversion rate of almost 34%, which is significant when compared to other sources such as PPC which typically has substantially lower conversion rates.
But how can this solve the challenges brought on by HFSS legislation and the death of the third-party cookie?
At a time when price promotions for HFSS products will be banned, prize promotions could serve as an incredibly effective way to drive sales and encourage loyalty. Moreover, they can act as a vital link for brands to capture badly needed first-party data for existing customers that don’t currently sit in a brand’s CRM and drive data collection for new customers, too.
This combination of sales uptake and data collection makes it much more of an attractive option for brands to weave into their broader shopper strategies as we move into 2022.
The art and the science of prize promotions
That all sounds logical, but isn’t it expensive to present an aspirational mechanic and prize fund?
We’re glad you asked. At Initials, we’ve spent over a decade crafting the perfect prize promotions for a variety of household brands. We recently conducted a study that surveyed respondents who had been persuaded to buy products based on promotions where they can win or get something.
The aim of the research was to reveal the psychological tipping points of prize promotions, and we used a conjoint research methodology to ensure no two people were given obviously favourable options (i.e. would you rather win £100 or £1,000).
Interestingly, we found two surprising insights:
- Consumers react as favourably to smaller cash-value prizes as they do to larger cash-value prizes
- Consumers react as favourably to a lower odds chance of winning as they do higher odds
Let’s consider an example. A brand creates a promotion where the prize is valued at £5. The odds presented are that 1 in 4 consumers will win that £5 prize. Our research shows that this offer will motivate 84% of consumers to take part.
So, what happens if we keep the cash-value prize the same (i.e. £5) but increase the odds to a 1 in 10 chance of winning? Well, surprisingly, the proportion of consumers who would take part hardly changes at all, dropping by just 5% to 79%. This swing in user participation is really quite negligible when considering the amount of money a brand would save by lowering the odds so substantially.
We asked Dr David Lewis, a behavioural scientist from Mindlab, to comment on this, and he said, “Whilst a significant number of purchases are made only after conscious thought (decision), an even larger number of products are purchased on impulse (choice). Low-cost FMCG products need to appeal to the instinctive subconscious. And beyond a certain tipping point, promotional claims around such things as odds of winning and opportunities to win become redundant.”
Based on this research, here are our top line take outs for brands to be aware of when conducting prize promotions.
- Lower odds don’t always mean better take up – cost savings can be comfortably considered
- Higher-value prizes don’t always equate to higher participation
- The number of prizes is not a hugely determining factor
- Frequency of winning is not that powerful
- Method of entry is best kept simple but depends on the objectives of the campaign
By marrying science with creativity, FMCG brands can more accurately plan spend and investment to ensure that their prize promotions drive the highest percentage of consumer uptake. So, at a time when new challenges are going to force brands to think outside the box, could it be the right moment to make prize promotions cool again|?
As seen in The Drum