Direct Marketing Article
Why do Premiums Out Perform Discounts and
By Travis Lee
"Too many marketers deal with premiums almost as an afterthought. This is a
huge mistake. I know for a fact that premiums can and do drive sales, and
that a change of premium, with no other changes, can dramatically alter the
results of a promotion. For this reason, just as much careful thought should
be given to the premium as to the main offer."
– Dan Kennedy, Power Points #34
Research has shown that a direct mail letter with a premium offer can out
pull a sales letter alone by as much as 300%! Before we get too far into why
they work so well, some of you may be thinking, "What is a premium?"
A premium is anything of value your prospect/client/patient receives for
taking some action that you want. Often, the best premiums are not even tied
to whatever it is that you're offering! It's often an unrelated item for the
personal use of the buyer and not even for their business (if you're selling
B2B). The key is that is has perceived high value. It may not cost a lot,
but it should look like it cost a lot.
When offering premiums, a picture is worth a thousand words. Always include
a picture of the item, as this is much more effective than simply describing
There's a reason why for years Sports Illustrated gave away a sneaker phone.
There's a reason they now give away your choice of any of the 32
professional football team shirts. Why? Because Sports Illustrated knows
that premiums work! They've be doing it for decades now.
The Estee Lauder Company set the standard with their "Gift-With-Purchase"
strategy that is now rampant in the cosmetics industry, and others. The
allure of ‘something for nothing' has always enticed consumers. Doesn't it
make sense to appeal to this very basic, controlling emotion?
Why do Premium Offers Improve Direct Mail Response?
First and foremost, everybody wants something for FREE! It is a simple human
instinct that appeals to our need for self gratification. That's the simple
Premiums cost very little, but have a high perceived value. You can very
often offer premiums that your prospect perceives as very valuable but costs
you very little in ‘real' dollars. Remember, you are only sending a picture
of the premium to the whole mailing and then giving the actual gift only to
those who respond!
With this in mind, you certainly don't want to alienate a customer, so make
sure your premium (free gift) is as described in your literature.
Premiums can Lower Your Cost per Transaction!
This is a very interesting thing about premiums. And you're probably
thinking it's counter-intuitive that a premium would lower your costs, but
here's how it lowers your cost per transaction.
Let's say you mail out 10,000 sales letters, with no premium and you get a
2% response rate. That would be 200 responders. Let's further assume you can
be profitable with 200 responders. Now let's say you offer the premium, and
response goes up to 3%. This is not an out-of-the-ordinary response when you
offer a premium. You now only need to send out 6,700 pieces of mail to get
the same 200 responders as you did without the premium. And, for easy math,
let's say each mailing cost $1.00. You would save $3,300 on just the single
mailing. If you assume your premium cost you $5 each for the 200 responders
for a total cost of $1,000. You're still saving $2,300!
The Best Premiums are often
Unrelated to Your Product or Service
Most people think their premium needs to be something they sell. This is a
myth that needs to be addressed and debunked right now. In almost all
instances, a premium unrelated to your product will outperform a premium
that IS related to your business.
Here are a couple examples. For years in my main business I have sent out a
free Big Key Calculator to responders to my mailing. I sell to independent
retailers and I don't sell calculators! Yes, they could use it in their
store (or home, or wherever), but it is in no way related to what I want to
For years, Sports Illustrated gave away sneaker phones. This is in no way
related to what Sports Illustrated offers, a weekly sports-news magazine.
They simply matched the premium with their target demographic. They didn't
offer two month's free of the magazine, or a free report about sports. IT'S
A CHEAP, BARELY SERVICEABLE PHONE! It's not a product they sell!
Have you ever received an offer from Omaha Steaks? They almost always offer
a premium with a purchase, and it's an unrelated product. I don't know about
you, but I sure don't want a free report on how a cow goes from the pasture
to my plate. However, a free meat thermometer might be just the ticket to
make sure my steak is nice and rare!
You should know enough about your target niche to offer an appropriate
premium. Some will obviously work better than others. If you're selling a
high end, high priced luxury car, a $25.00 gift card to Wal-Mart probably
isn't the right premium. However, a leather briefcase with a perceived value
of $125.00 (your actually cost is probably less than the $25.00 you'd spend
at Wal-Mart) could probably do the trick!
The Premium Can Be the Focus of Your Sales Pitch
If the right premium is matched correctly with your list, your premium can
often drive the sale. World famous retailer Murray Raphel called this the
"psychology of second interest."
Selling the second interest can be included in many sales processes, but it
extremely applicable with premiums. How may Cracker Jack boxes did you buy
as a kid (or for your kids) just to get that cheap little toy inside? Or how
about McDonald's Happy Meals just for the prepackaged toy?
Premiums can Boost Your Referrals
As marketers, you know (or should know), that you will almost always get a
better ROI from your current clients. Knowing this, you can ask your current
clients to refer their friends, family and business associates to you! You
can offer a FREE gift for each new client they refer. The best place to
start to get new business is to ask your current happy and satisfied
clients! Offer them something of high perceived value, and they'll refer
their friends to you!
Two part premiums are a great way to cut the clutter, AND make sure you get
the follow up response you're looking for. One of the best I ever was for a
financial group. It went to a highly selected list of CEO's and CFO's. They
were sent a glass case and in it was an autographed baseball with spots for
two more. If the prospect called and schedule an appointment they received
the second ball. They were given the third ball when the sale was finalized.
And they didn't go on the cheap here either. The balls were signed by Hall
of Famers Stan Musial, Hank Aaron and Willy Mays! The total cost for the
signed baseballs and mailing was around $17,000, but it generated over
$60,000,000.00 in business for the group. This certainly cut the clutter,
built a relationship and helped close the deal.
This is just one of many ‘Two-Part' premiums you can offer. Sending part of
something demands the reader to respond for the second part. Here are a
couple more ideas:
• Mail the headphones only, when they respond they get a free CD DiscMan,
iPod etc. and guess whose sales message is on there!
• Mail an empty tool kit case. When they call for an appointment they get
Rules for using Premiums
The first thing you need to do it you haven't already is find out the
lifetime value (LTV) of your average client. You need this vital information
about your business. Going into a marketing campaign without knowing your
LTV, is like entering an archery contest and not knowing where the target is
located! How do you know where to shoot? How hard? How high? How low? Pretty
Let's say my average sale from a first time client is $100.00. I know that
they'll be worth $200 each year for 5 more years, the average length of a
professional relationship in my business. That client is worth $1,100 to me.
I now have a basis of where I can start my marketing campaign.
It is also vital to know your average sale. $5, $50, $5,000? How much of
that are you willing to give away for a purchase? Or an appointment? Do you
close well? If so, you just need to get more appointments and premium may be
just what you need to give you that bump. You simply need to find the
premium to match your budget. If your LTV is smaller, use an appropriate
smaller premium. If you have a large transaction size, a more lavish or
expensive premium may be in order.
Some questions to ask yourself when adding
premiums to your offer.
• Does the bonus(es) have a high perceived value?
• Can you make bonuses by breaking out parts of your product?
• Are you going to use non-linked bonuses?
• Are the bonuses set up to be more desired than the product?
• Are you using bonuses to enhance purchase of upgrade (deluxe) product
• Are you creating or buying multiple bonuses, instead of just one?
• Can you link bonuses to fast response? (time, limited quantity, first time
• Are you offering unannounced bonuses either at purchase or after?
At 3D Mail Results we've identified some of the best premiums you can offer.
Premiums that create action and response, with a high perceived value, with
little cost to you, and more importantly increase your sales and return on
There are literally dozens of options for direct mail. Visit
Direct Mail Masters Kit
to get an idea of the many different types of direct mail premiums you can
use in your direct mail.