Was “Crazy” Promotion Worth it?
A Houston furniture store launched a promotion before the Super Bowl where if you bought $6,000 or more in furniture during the promotion and the Seattle Seahawks won, you’d get a full refund on that purchase.
Seven million dollars in furniture purchases later, the Seahawks did win, and Gallery Furniture is on the hook for the refunds. The CEO says he’s “thrilled” with this outcome, because the media — national and local — have made a huge fuss about the promotion and brought a lot of attention to his brand, even though it’s going to cost him $7,000,000 in refunds.
Let’s stop and look at this: What would have to happen for this to be worth it? This kind of exposure is valuable, but it’s not worth infinity. How do we evaluate it?
To begin with, he had, let’s assume, a 50/50 chance of not having to pay anything. The story implies that the company normally sells $140 million in furniture each year, and if they sold $7mm in the week leading to the Super Bowl in what I would assume is a slightly low season (January), that’s probably at least a couple of million more than the average week of the year, which would be $2.6 million. (I’m assuming some of the $7mm would have been bought at a different time anyway, but not all of it.)
So in Case 1, where the Seahawks lose, he makes probably an extra $2mm. No refunds, just increased sales. And probably not much coverage from the media.
But if the company loses its bet, and the wrong team wins, what happens? We’re saying that he would have gotten $5mm or so in those sales regardless, even if in a different week. So he loses $5mm from not only his top line, but his bottom line. He would never have gotten the incremental $2mm, so we can kinda ignore that.
In return, though, he gets promotion via coverage. The local coverage will be extremely valuable, though the national coverage probably won’t be. Lots of eyeballs scattered across a lot of places you don’t serve have amazingly low value. I know this from personal experience.
But is it worth $5mm? He juiced sales by $2mm in one week just by announcing the contest to his existing customers and through whatever paid media he bought. Is it conceivable he could see an increase of $5mm over the course of a full year on a business that sells $140 million annually? Five million would be an increase of only 3 or 4 percent.
I would say yes, that’s conceivable. It could be more, but it doesn’t seem like a huge stretch.
So in one case, he’s up $2mm and in the other, he probably at least breaks even and builds awareness.
If you can live with the risk of something like this, it can make more sense than it appears on the surface!