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How to make direct mail premiums work for you by Hugh Chewning

As direct mail professionals, we sell benefits, not features. Yet, just like the door-to-door salesperson, we have "tools" we can use to close the sale. They are:
List
Offer
Package
Copy
Timing

How do premiums fit into this? They are part of the offer and no sales tool, other than our list selection, is more important than our offer. So, when we test adding a premium to our package—or test a new premium—we’re using one of the most powerful sales tools at our disposal: the offer.

When should you test a premium?

There are only two occasions when you should test premiums.

First, test premiums if you're not using them now. And second, if you are using premiums, test new ones.

Many organizations hate premiums. But most donors and customers love them. And since this is a customer-driven business, I suggest you test premiums.

Think about it. If nothing else (other than lists) affects your results as much as the offer, shouldn't you be testing new offers as often as possible? Sure, there are other ways to affect your offer, but premiums aren't to be overlooked.

What is a premium?

1. A prize awarded for a particular act.
2. Something offered free or at a reduced price as an incentive to buy.

Premiums can be free name labels, a free book, CD, or practically any other merchandise. They don't have to have a high monetary value, but they must have perceived value.

Even better, try to tie in a premium to the organization's purpose or service. For example, the American Diabetes Association offers a cookbook of low sugar meals. An auto club offers an emergency road kit or tool kit. And an Internet Service Provider offers a free digital camera.

But as desirable as it might seem to tie the premium into the organization's objectives or brand, don't overlook the "greed factor." A calculator, radio or CD player—even though they have no connection with the organization—may work better than a premium that seems a natural tie-in. It's something you have to test.

Like the mailing itself, the important thing isn't that we like the premium. What's important is, does the premium work?

Premiums and non-profits

My experience is that commercial mailers have fewer hang-ups about testing premiums than non-profits. Non-profit fundraising executives often worry about their "image". Yet rather than being so concerned about what someone at a cocktail party might think, it's not image alone that supports a group's worthy projects. Net dollars pay for research, food and wheel chairs. And premiums are an excellent way to boost an organization's net dollars.

Premiums have worked for national, regional, and local non-profits since 1907 when the forerunner of the American Lung Association began using Christmas seals to generate donor support. One organization, DAV, credits premiums—name stickers—for increasing their annual net income from $10 million to $27 million in just five years. Successful businesses have been built on the right premium.

Premiums work so well that most of the letters I write include some type of premium. Why? Because premiums make my clients more money than mailing without one.

How to choose your premium

Premiums don't have to be expensive gifts. Often the best ones are unused merchandise sitting in a warehouse or a nearly forgotten informational pamphlet that's begging to be used. As long as you can give the item a perceived value, it can be a valuable tool in increasing your mailings' response.

But, will direct mail premiums work for you?

There's no magic answer. You have to test them. Just don't make the mistake of concluding that "premiums don't work" if your first test doesn't work. You may have selected the wrong premium or not used it properly in your copy.

Too many people stick a premium offer into their letter's P.S. and think they have done enough. Wrong. The premium is part of your "package," not just the letter. You need to work it into the outer envelope, the letter, the response form and, depending upon the premium, maybe a special insert.

Measuring success

Make no mistake about it. Premiums can increase your net dollars! Sure, they make your mailing cost more. But whether you're a nonprofit or commercial mailer, you have to decide whether you're in business to save money or to make money.

Here's a true story… Years ago, I went to a county fair with a friend. As we were walking down the fairway, a "barker" came out and offered us one dollar for 50 cents. Immediately, I accepted the offer. Yet my friend refused. Why? She said, "I don't want to spend the money."

Unfortunately, that's how too many people look at their direct mail. They don't want to spend more money even if it means a larger profit. Yet it's worth remembering that premiums are part of your mailing's offer. And other than list selection, nothing will have a greater influence on the success of your mailing than the offer.

If you're satisfied with a .01% or .02% improvement in results, then save the cost of a premium and test the color of ink on your envelope or copy changes on pages 2 and 3 of your letter. But if you want major improvements to your mailings' profitability, test changing your offer by including a premium.

You have at least 3 ways to test a premium. You can test them…

1. On the front-end
2. On the back-end
3. On a “Fast 50”

Front-end premiums

When testing a "front-end" premium, you're giving it away in the mailing. For example, a fundraiser might include free name labels in the mailing, or a computer software dealer might include a free CD in the mailing.

Other examples of front-end premiums I've successfully used include: pamphlets, certificates, membership cards, name stickers, decals, pens, greeting cards, note cards, seeds, note pads, key chains, bumper stickers, and iron-on patches.

Front-end premiums often generate a higher response rate, but they are more expensive since you're paying to send the free gift to all recipients—respondents and non-respondents alike. ("Free Gift" is worth the repetition.)

It's also true that front-end premiums can reduce the average order/contribution since some responses will be guilt-motivated.

Front-end premiums may even "lock" you into premium mailings when it comes time to renew these donors/buyers. But, because they generate a higher response, they're great if you want to build your donor/customer file.

Yet the bottom line is still net dollars. If you're increasing your net dollars, your added expense, a smaller response rate or average order doesn't matter. You're still putting more money into your pocket—or into the organization's worthy causes.

If you don't believe that net dollars are the final measurement of a package's success, the next time you go to the grocery store to buy food for your family, try paying the cashier with response rates or average order. Net dollars—over the life of the donor or customer—rule.

Back-end premiums

With a "back-end" premium, the recipient must respond to receive the free gift. For example, a magazine publisher might offer a free book for people who respond before a certain date.

Other back-end premiums I've used include: coffee mugs, calculators, American flags, calendars, ball caps, plaques, lapel pins, membership cards, digital cameras and books.

An advantage of back-end premiums is that you're only fulfilling the premium to those people who buy/contribute so your costs are reduced.

Additionally, customers/donors who respond to back-end premiums are often a higher quality of customer/donor with a higher lifetime value.

A potential "disadvantage" of back-end premiums is that they may not generate as many responses as a front-end premium and they require additional fulfillment costs.

Fast 50 premiums

A "Fast 50" limits the premiums to the first fifty people who respond. (You can also have Fast 100s, Fast 75s, etc. There is nothing sacred about "fifty" but it's what I use and it works.)

Fast 50 premiums can be the best deal of all. Because you're limiting your premium to the first 50 people who respond, your costs are lower than either front-end or back-end premiums. Yet because every one receiving the mailing is eligible, your copy can have the same "hype" as any other premium.

Typically, I see a 25-30% lift when adding a Fast 50 premium. It seems to make little difference whether I offer free gifts to the first 50 respondents or free gifts to the first 50 respondents from each state.

Remember, with front-end premiums, back-end premiums or a Fast 50, our objective is the same—to produce the highest net income for your organization.

Conclusion

When testing premiums, you're changing the package's offer so the return on investment can be immense. And when used intelligently, there should be no stigma associated with premiums.

What premium should your organization test first? It's still hard to beat the hand-held calculator but you've got to test and see what's best for your group. It's simply a search for balance—perceived value vs. cost.

Do you test front-end, back-end or Fast 50 premiums? Ideally, you will test all three and see what works best for you. If you can't do that, ask yourself, "What is my objective?" Are you trying to build your file quickly? If so, front-end premiums or a Fast 50 may be the way to go.

But whatever you decide, do the math first! It makes no sense to test a premium that's so expensive you'll need a 500% lift to break even.

Here are a few final, and worth repeating, points:
The prospective donor or buyer isn't obligated to make a donation just because you enclose a premium. And while the response rate may be higher, the average contribution/order is often lower.
A lower average contribution/order isn't reason enough for you to shy away from testing premiums. It simply means that you need to give extra attention to your efforts to upgrade the donor or resell/cross-sell the buyer.
Many first-time buyers/donors may require another premium to continue responding.Once you're in the premium business, you may always be in the premium business. But, on the good side, with a premium, you may recruit a donor/customer who would not have responded otherwise. And as long as premium offers are out netting non-premium offers, you're still way ahead.
Judge the effectiveness of your mailings by keeping careful records on the cost of your mailing—and fulfillment—and the total dollars received. Net dollars is the bottom line. Don't think what works for another group will work for you. Test different premium offers—and non-premium offers—to see what is the most cost-effective offer for you. When evaluating your test results, and projecting results for your future mailings, you must include the cost of your premium and its fulfillment.
Do the math before you mail. Know how much the premium must increase response to break even with the control. If it's not a reasonable amount, select another premium. Finally, remember your premium is only one part of your direct mail package. You must still follow the essential principles of traditional direct mail packages—list, offer, copy, package and timing. While a premium can improve your results, a premium alone won't guarantee success.

Hugh Chewning is president of Chewning Direct Marketing, Irvine, California, which offers direct mail strategy, consultation and copywriting services. To reach Mr. Chewning, please call 949-854-2942 or visit his site at www.cdmdirect.com.