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NMOA Direct Marketing Article
Why do Premiums Out Perform Discounts and Rebates?
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 the item.

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 answer.

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 offer them.

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

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 the tools.

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 tough.

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 choice?
• Are you creating or buying multiple bonuses, instead of just one?
• Can you link bonuses to fast response? (time, limited quantity, first time buyers, etc)
• 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 investment.

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.


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