Choosing a promotional risk management provider

You’ve decided you want a third party to take on some of the risk in your sales/consumer promotion. The next step is to approach a provider who can help you put in place a fixed fee contract or arrange over-redemption insurance. How do you find a provider?

There are a number of promotional risk management providers in the UK and they can easily be found via a Google search, by phoning up the Institute of Promotional Marketing (IPM) or by asking your sales promotion agency. It’s easy enough to get a list of names and telephone numbers.

Before you approach any of the providers, even ones who are members of the IPM, it’s very important to do your homework as not all of the providers are created equal.

Using fixed fee as an example, think about the commercial aspects of the transaction. You are asking a third party to assume all the risk of your promotion for a fixed amount of money. Consider how experienced they are in assessing that risk and whether they can meet their financial commitment to you if your promotion, or for that matter any other promotion on their books at the time, over-redeems.

Review a set of their accounts and look to see how much cash they have in the bank. If they don’t have much of their own cash, do they insure all their risks with a reputable insurer?

Fixed-fee contracts are about as close to a UK risk management product as you can get without it being regulated by the FSA. You therefore need to look at the provider as if they were a financial institution: an insurance company or a Lloyds syndicate provides the most relevant equivalent. Review a set of their accounts and look to see how much cash they have in the bank. If they don’t have much of their own cash, do they insure all their risks with a reputable insurer?

Are those accounts full or abbreviated? If there is no Profit & Loss account, the chances are that they are abbreviated accounts, which means that the provider is taking advantage of exemptions available to companies defined as small by the Companies Act. If you are responsible for a big brand, do you feel more comfortable working with a provider with larger or smaller financial resources at their disposal?

The accounts will often tell you who owns the company. Is it privately owned by individuals or part of a larger group of companies?

The accounts will often tell you who owns the company. Is it privately owned by individuals or part of a larger group of companies? If your promotion were to massively over-redeem, consider the financial and other resources available to the private company compared to the company which is part of a larger group. Could it make a difference to their ability to meet their financial commitment to your brand?

Consider how long the provider has been in business. If it has been trading for a long time, there is a good chance that the business assesses risks realistically and only takes on ones it can manage.

Another important question, but one you are likely only to get an answer to by speaking with the provider, is what are its internal risk management guidelines, processes and procedures? Are they written down and regularly reviewed by qualified internal and external auditors?

In its contract with you, the brand, does the provider agree to be completely transparent in their dealings and will they accept a clause in the contract allowing you to appoint an independent auditor to audit their accounting systems and records on an annual basis? If you have been introduced by a sales promotion agency, will the agency accept the same clause in the contract you have with it?

Once you have gone through the above steps, you will have a good idea of the characteristics you want your provider to possess. Finding one which can demonstrate them to your satisfaction then becomes very much easier. Taking a systematic approach also means that you are likely to increase your chances of finding a provider (or providers) most suited to working with your brand. That sounds like a good place to start for all concerned!

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