Response Rates v. Promotional Offers

Getting customers to respond to marketing efforts has been an age-old dilemma for all marketers. Many think that enticing customers with some sort of promotional offer or discount is the best way to spark customer interest or sales. There is no question the promotional offers can be effective for certain types of products or services. However, once promotional (money lost due to discounting) and actual (price of marketing the promotion) costs are combined in with the conditioning effect that can cause some customers to buy only when a product or service is on sale, the promotional offer can be far more expensive than you could have ever anticipated.

A recent study[1] on response rates provides some interesting insight into the response and promotion dilemma. Researchers mailed a survey on group health insurance to 1,200 members of a trade association. Respondents were incentivized to participate by receiving anywhere from $1 to $40. The survey was also sent to a control group that received no incentive and four requests to participate (the incentivized groups received only one request).

Surprisingly, the response from the group receiving $1 was approximately 20 percentage points lower than those that received $40 (41% and 54% respectively). Certainly the increase in the response rate was not significant enough to justify the increase in incentive to participate.

Even more surprising was that receiving four requests to complete the survey, the response rate for the control group, who didn’t receive any incentive, was only two percentage points below the group receiving $40 (52% and 54% respectively). Surely the price of printing a few more letters and purchasing three more stamps was far cheaper than giving respondents $40 to participate.

Every business considering promotional offers as a way to sell its products or services should seriously consider these findings. If they hold true for your business, think of how much less expensive, if at all less expensive, multiple impressions with a prospective customer would be when compared to discounting. To do so, business should calculate all of the cost of all promotional and actual expenses of the promotional offer under consideration (cost to market promotion + money spent/lost as a result of the promotion). The cost of simply marketing the service or product sans the promotion should also be considered by replacing promotional costs with the costs of obtaining multiple impressions. The comparison of the two calculations will manifest the method for proceeding.

[1] See Hall & Smith, Meaningful Marketing, Brain Brew Books, 2003, p. 90.