Managing the risk of a billion dollar promotion

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Hold a contest with a billion-dollar prize, and you’ll get people’s attention.

Warren Buffett did that a few years ago when he teamed with Quicken Loans to offer $1 billion to anyone who filled out a perfect NCAA Tournament bracket. The odds of that happening were astronomically long, but Buffett’s role in the offer—providing contest prize insurance—left Quicken with no risk of being forced to pay a billion dollar prize, or any amount even close to that.

The strategy worked. The Billion Dollar Bracket made headlines and engaged many consumers, who were pretty thankful to Buffet and Quicken for offering the chance to play in a fun contest. (And Buffett’s company didn’t have to pay out $1 billion because no one filled out a perfect bracket!)

Clearly, the size of the prize played a role in the Billion Dollar Bracket’s success. It’s common sense: The higher the prize value, the more marketing bang a promotional prize offer will have, whether it’s a bracket challenge, sweepstakes, instant win, or any other type of contest.

But a billion dollars!?

That’s a devastating loss for even the richest companies, which is why Buffett’s promotion insurance was essential in making the Billion Dollar Bracket a winning marketing proposition for Quicken. The insurance mitigated the risk.

Shift the risk with insurance

With prize indemnification insurance, even billion dollar prize promotions can be low risk, with a manageable budget that’s only a fraction of the prize value.

Promotion insurance experts and underwriters evaluate a prize promotion’s risk based on:

  • the value of the prize
  • the estimated number of attempts to win the prize
  • the odds of achieving the feat necessary to win the prize.

They are then able to leverage the support of financial markets to take on some or all of that risk in exchange for an insurance premium.

Financial exposure can be capped at a fixed dollar amount, but you get the benefits of the high prize value. The higher the value, the more consumers you will be able to attract and encourage to take the desired action (e.g., buying, registering on a website, giving a “like” on Facebook, completing a survey, etc.). You’ll also increase your advertising revenue.

The insurance premium for the Billion Dollar Bracket challenge was reportedly only a few million dollars – a drop in the bucket compared to the huge prize, as well as to the hundreds of millions of dollars generated from advertising and participation.

That’s the way it usually is with promotion insurance. The cost of the insurance is tiny compared to the prize value—and to the revenue generated.

Manage costs with promotion expertise

Prize indemnification insurance allows marketers to create meaningful incentive offers without breaking the budget. But even with contest prize insurance, prize promotions can be quite expensive to run, costing in the tens of millions.

In addition to the insurance premium, brands must pay for promoting the contest in various media, as well as for the labor to plan and execute the contest. This cost often forces brands to choose between spending on a promotion or investing in other marketing efforts that could result in increased revenue.

Thankfully, promotional risk management specialists can make this decision easier for marketers. In addition to having the data, experience, and expertise to design a promotion so that insurance costs are minimized, they can manage a strict budget for clients, further reducing cost and risk.

They can also use their knowledge to create promotions that are unique, powerful, and generate buzz, so that you’re getting the most value for your investment.

Dylan MacTavish,Business Development Manager, Insured Creativity.

DYLAN MACTAVISH

I’m the Business Development Manager at Insured Creativity.

I’d love to get your take on this article. To talk more, you can email me at !

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