"The Four Components of Every Offer" (510 words)

Offers that require a promise to pay are called "hard" offers. "Soft" offers, on the other hand, don't require such a promise. Because they reduce the commitment required from the customer, soft offers increase gross response by 50 percent to 200 percent. This results in higher gross sales, but also a higher cancelation rate. A combination of the two, however, often produces higher net sales after cancels, which makes the offer pay off for you, the marketer.One example of soft payment terms is to allow customers free, no-risk trial offers of the product. You promise that they can begin to get trial shipments or services with no obligation to pay. If customers decide not to continue, they can write "cancel" on your bill or call and tell you not to charge their credit cards, and the customers will owe nothing further.Tip: Emphasize the free trial/no risk terms of this offer in many prominent locations in your promotion. Also remind customers in several places that they can keep their first shipments (or benefit from your services during the trial period) even if they decide not to continue.Payment TermsYou have a wide range of payment terms from which to choose. Following are some examples, starting with soft terms of commitment. Sample wordings for these offers are at the DM University Web site (see box at right):• Bill me later/free trial.• Bill me later (hard offer).• Free trial converting to negative-option credit cards (see text below).• Pay with check or credit card before shipment.A negative-option offer is one in which you continue to ship and charge customers until they tell you to stop. ("You can call us any time to cancel, otherwise we'll continue to ship for your convenience and bill your credit card.") While historically used primarily in "bill me later" offers, such credit card offers are becoming increasingly popular. Marketers love their high retention rates, and consumers like their added convenience.You will, however, need to promote a strong incentive or soft trial terms on the front end to get large percentages of your customers to try a negative- option credit card trial offer. Usually the higher retention rate produces enough of an increase in long-term profits to more than compensate for the up-front cancel cost.If you're selling merchandise via the Web, direct mail or catalogs, your product guarantee plays a key role in your offer. Because your customers can't touch, feel or see your products as they could in a retail environment, you need to make them feel little risk of being stuck with something they may not like. You can do this by providing customers with a no- risk, full-refund, satisfaction-guarantee offer.The Impact of a Guarantee. With a hard offer and product or service of reasonable quality, cancellations usually are only 5 percent to 7 percent of gross sales. Since a prominently displayed 100-percent satisfaction guarantee can increase gross response or Web page conversion by 5 percent to 15 percent, you'll usually come out slightly ahead. And offering a guarantee generally helps build long-term customer loyalty.Risk vs. Reward. If your cost of goods and your cancel rates are low, promise a full hassle-free, no-questions-asked refund within a specific time frame, (which usually varies by the industry you're in). But if cancel rates are greater than 7 percent of gross sales, or you're concerned about a high cost of goods, ask others in your industry what response lifts and return rates they think they're getting. Then run those numbers through your own profit-and-loss analysis to weigh your potential risk vs. potential reward.Returns vs. No Returns. If the analysis suggests you could lose your shirt, require customers to return products in good condition to get a refund. This reduces cancellations, but it also can slightly reduce up-front response rates and customer loyalty.Partial Refunds and Credit Certificates. These make sense if you have high-priced products, a high cost of goods and small profit margins. But with a low cost of goods and a low cancel rate, they can turn off your customers and increase their perceived risk.Time Limit. Consider promising a full refund even after customers have used the product for a long time. This often can produce a lift in gross response without an increase in cancel rates.How to Promote Your Guarantee. The best place to put this information is toward the end of the sale, such as the close of a direct mail letter, the bottom of a brochure, the end of a television ad or on any Web page that has a "buy" button displayed.To be successful, it's not enough to just offer something for free ("Hey everyone, come and get it—FREE TRASH HERE!") Your incentive needs to be something of VALUE, perceived by your customer as worth $15 or more if bought in a store. It also needs to be an item or service that can be described in a clear, concise and compelling manner. And of course, it should be featured prominently in your promotion, positioned as a FREE gift (emphasizing the word "FREE!")Terms of the IncentiveWhat does the customer have to do in order to get this incentive? If yours is a delayed-billing offer, you can promise to ship it on order ("…and it's yours to keep, even if you choose to cancel.") If it's an expensive premium or you have high cancel rates, you can promise to send it only after payment. Or, when marketing to previous buyers, it can be used effectively as an upsell incentive.Types of IncentivesYou can choose from six different types of premiums:Merchandise PremiumsThere are infinite options available for merchandise premiums, such as electronic gadgets, clothing, luggage, toys, etc. If you try these, be prepared to manage the logistics. Manufacturing and shipping can take several months, and inventory must be planned, tracked and managed accordingly.Informational PremiumsEditorial-based content can be packaged effectively and inexpensively. It's particularly useful for downloadable premiums for online offers—instant wish fulfillment and no inventory to manage!The Product ItselfIncentivizing purchase with free initial shipments of the product can be very effective provided that your cost of goods is low, and it certainly makes the "premium" easy for the recipient to understand.Price-Related IncentivesDiscounts can certainly increase response rates. But if yours is a periodical or continuity offer, they lock you into a lower price in later years. Consider offering an "Introductory Instant Rebate" instead, applied as a one-time discount. Or consider offering free shipping and handling.Mystery GiftMystery gift offers are especially convenient if you use a variety of premiums for different product lines or sources, because you can use them to liquidate excess inventory.Points ProgramsThese are generally most effective as incentives for re-purchase or loyalty programs. However, they do require an investment in awareness, tracking and reward delivery programs. To work, like all incentive offers, the points must be perceived as credible, tangible and valuable.You can find this entire four-part series of articles in the Reference Library at www.directmarketinguniversity.com, as well as detailed offer wording examples and a brainstorming list of 99 more offer ideas.Bill Baird is a direct marketing consultant and the creator of Direct Marketing University, a customizable seminar for companies who want to provide in-house employee training. He can be reached at www.bairddirect.com, or by calling (203) 912 -8958.

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"The Four Components of Every Offer" (510 words)

Bill Baird

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