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Coupon Over-Redemption Insurance
A Fortune 500 company decided to run a promotion highlighting one of its product lines. The terms of the promotion were simple: purchase a certain amount of the specified items and receive a certificate in the mail for a future purchase of similar items.
The Marketing Department anticipated a small response rate based on prior programs and budgeted accordingly. With Marsh's assistance, the client also purchased over-redemption insurance in case the program was more successful than anticipated, thus capping their bottom-line cost and transferring the risk to the insurance company. While the client was responsible up to the amount of the deductible, the insurance company would pay for all redemptions exceeding this amount up to a $1 million limit.
The in-store promotion ran for two months and required consumers to write in for the certificate, showing a proof of purchase. Upon receiving the certificate by mail, consumers had four months to redeem the coupon at the same store.
Contrary to historical data, the promotion was extremely successful and substantially over-redeemed. However, the client benefited from Marsh's ability to transfer this unexpected and unbudgeted expense to the insurance market.
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