The use of premiums—or giveaways—has increased significantly over the past two years, according to a survey conducted by Inside Direct Mail.

This trend flies in the face of the movement to cut marketing costs. For publishers, it means stripping packages down to voucher formats and then adding the premium. The voucher itself removes the editorial sell completely, and the premium also stands in front of the magazine so that it can't be seen. And yet this is allegedly working.

Look at the math. Without any premium, you get a 2% response. With in-mail costs (including lists) at, say, $350/M (on a quantity of 500M), your gross order cost is $17.50. You test a premium that costs you $2.00 each to fulfill. To lower your cost per order by 10% and justify the premium, you'd need a 2.55% response or 25%+ increase.

If you spend $3.00 per net order on the premium, under the same circumstances, you'd have to increase response to 2.75% to make it worthwhile. However, if your costs for the package were $500/M instead of $350/M, use of the $3.00 premium would have to increase response to only the 2.55% level.

So the more expensive your original package, the more you can probably afford to spend on the premium.

Editorial-related premiums are, of course, normally much cheaper to fulfill than $3.00 or $2.00. If you deliver the premium online, your costs become miniscule. The question is whether the edit premium is sexy enough to boost response significantly. TEST: modest nonrelated premium @ $2.00 versus edit premium at $.25.

Edit premium boosts response from 2% to 2.2% and lowers cost per order for the $350/M package from $17.50 to $16.16. To achieve the same $16.16 cost per order, the $2.00 premium offer must pull a 2.48% response.

Using Premiums as a Reward for Fast Response

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Lee Marc Stein is an internationally known direct marketing consultant and copywriter. He has extensive experience in circulation, insurance and financial services, high tech, and B2B marketing.