The worst sales promotion in history

Insight .
The worst sales promotion in history

27 years ago, Hoover offered two free international flights with any £100 purchase. Today, it’s remembered as the worst sales promotion in history.

BY ZACHARY CROCKETT.https://thehustle.co/the-worst-sales-promotion-in-history/?&utm_source=pocket&medium=sponsored&utm_campaign=hoover 

In late 1992, the UK branch of the vacuum manufacturer, Hoover, offered an impossibly sweet promotion: If a customer bought any product worth £100, he’d get two free round-trip flights to the United States. For the 84-year-old electronics brand, it was meant to be an eye-catching way to boost dwindling sales, escape the gloom of a recession, and shrug off increased competition.Instead, it led to the destruction of the company — a precipitous downfall that saw multimillion-dollar losses and customer revolts.
The most trusted brand in England
 
In 1908, a department store janitor named James Murray Spangler was suffering from a mean case of dust allergies. So, he did what any entrepreneurial asthmatic would do: he mounted a motorized fan motor on a carpet sweeper and filed a patent for the world’s first household vacuum cleaner.
Spangler soon sold the patent to his cousin’s husband, William Hoover, who launched The Hoover Company and began selling the devices all over the US and Europe.
For decades, the Hoover brand enjoyed a near-monopoly on vacuum cleaner sales. The machines were so ubiquitous in England that ‘hoover’ became a generic noun (like Kleenex or Band-Aid), used as a synonym for ‘vacuum.’ Its provenance earned it a reputation as one of the world’s most trusted brands.

By the late ‘80s, the company, under the new ownership of Maytag, had expanded beyond vacuums and dominated the British cleaning market. But trouble was brewing.
The UK was entering the throes of a recession, and Hoover, a US-based company with a large presence in the UK, faced stiff competition from sexy newcomers like Dyson. In an effort to compete, they rolled out ill-fated products like a “talking vacuum” that warned users when to change the dustbin. Between 1987 and 1992, Hoover’s profits fell from $147m to $74m. In short order, excess inventory began to pile up in its warehouses — and its 50% market share in England began to dwindle.
The old vacuum company needed to do something dramatic, daring, and attention-grabbing. And just the opportunity came along.

 In the early months of 1991, Hoover’s UK branch was approached by a tiny (now-defunct) travel agency called JSI Travel. Like Hoover, JSI was feeling the squeeze of the recession and was looking for a way to offload cheap flights. So, they pitched the company a novel idea: A sales promotion where anyone who spent more than £100 (~$250 USD today) on a Hoover product at a qualifying department store would get two free round-trip tickets to a destination in Europe.

On paper, it seemed like a win-win: Hoover would sell its excess inventory and boost sales; JSI would sell flights in bulk to Hoover and handle the bookings.
Hoover knew that if everyone who bought a product applied, it’d be in trouble — so it made the process of obtaining these flights as annoyingly time consuming as possible:

1. A customer buys a Hoover product for £100+ and mails in a receipt + application within 14 days of purchase.
2. Hoover sends a registration form; the customer has 14 days to send it back.
3. Hoover sends a travel voucher; the customer has 30 days to select 3 departure airport, date, and destination combinations. 
4. Hoover has the right to reject the customer’s choices; the customer can select 3 alternatives.
5. Hoover also has the right to reject these alternatives and select 3 combinations of its own choosing; if they don’t work, the customer is out of luck.
Hoover advertised the promotion heavily in newspapers and TV commercials with an enticing caption: “Two free flights. Unbelievable!”

By late1992, Hoover products were flying off the shelves and the company’s sales projections were back on track. Then, Hoover made a fatal mistake: it decided to double down.
The trans-Atlantic disaster
On November 1, 1992, Hoover expanded its free ticket offer to include flights to America.

Under a new promotion, that same £100 Hoover purchase could net a UK-based customer two free round-trip flights to New York or Orlando — a package worth £600+ (£1200, or $1,460 USD, today).

When Hoover ran this plan by risk management professionals, the company was warned that it would be an absolute disaster.
“To me it made no logical sense,”  recalled Mark Kimber, one of the consultants. “Having looked at the details of the promotion [and] attempting to calculate how it would actually work I declined to even offer risk management coverage,” recalled Mark Kimber. Unfortunately, Hoover chose to ignore this advice. They decided to proceed, mainly based on two fatal assumptions:
1. Only a small fraction of purchasers would actually jump through the hoops necessary to redeem the flights.
2. Customers would spend far more than the £100 minimum, offsetting the cost.
Initially, things went according to plan. Department stores all over the UK became an “uncivilized scene” as thousands of people clammored to buy the cheapest Hoover products they could find.

In the middle of a recession, shops were selling out of £119.99 vacuum cleaners and Hoover had to put its factories on 7-day overtime shifts to keep up with demand.
“The world has gone mad and it is all the fault of Hoover,” wrote the Observer a month into the promotion. “If left uncontrolled, Britain could soon be knee-deep in Hoover Turbomaster Uprights.”But as paying customers would soon find out, this “deal” was something of an illusion.
“We don’t want blood. We want tickets.”
 
As free flight entries ballooned, Hoover began to realize it had made a terrible mistake. Sales (and entries in the free flight promotion) soon outpaced Hoover’s projections by 10x: an estimated 300k people bought qualifying products — 600k flights that Hoover would potentially have to pay for. And contrary to its projections, customers were notspending significantly more than the minimum £100.

The math was concerning: On the sale of a £119 vacuum cleaner, Hoover made a profit of £30. The two free fights that came with it were worth at least £600. This meant that each customer who followed through with the promotion cost Hoover £570.
Though the company generated around £30m in gross sales from the promotion, the cost of the flights was conservatively estimated to be more than £100m.
So, Hoover began to do everything it could to fleece customers out of the free flights.
It claimed thousands of customers had failed to correctly fill out the forms. It wrote back offering flights that departed from airports hundreds of miles away from customers’ homes. It sent out request forms on Christmas Eve, hoping mail closures would cause people to miss the 14-day deadline to send them back in.

Zachary Crockett / The Hustle
Customers who’d followed all the rules were told their letters had “gone missing,” or that they’d failed to spot some arbitrary deadline buried in fine print.
“The whole idea is to dissuade [customers] from going, because each time they go it costs Hoover money,” one Hoover exec told a participating travel agency.
News soon broke that not a single flight had been granted — and thousands of angry customers began to take action.
One of them, Harry Cichy, formed Hoover Holiday Pressure Group, a coalition to hold Hoover accountable for what they’d promised. It swelled to more than 4k members — doctors, lawyers, pig farmers, and electricians.
“We don’t want blood,” Cichy said in a statement at the time. “ We want tickets.”
In June of ‘93, 42-year-old Dave Dixon took a more dramatic measure: Angered that he hadn’t yet received his free flights, he decided to hold a Hoover delivery van hostage in his driveway in Workington, England. It remained blockaded by his horse truck for 13 days until a high court finally ordered its release.
As the crisis made international headlines, Hoover attempted to shift blame to a handful of executives, the airlines, and the travel agencies they’d partnered with. It firedthe president of its UK division, along with two other senior marketing executives involved in the promotion, and announced a plan to invest £20m into a “free flights fund.”
But these maneuvers hardly put a dent in the backload of unfulfilled offers.
Complete destruction
 
By the end of 1993, Hoover was posting £23.6m in losses on £390m in sales. The once-trusted home appliance king was now the disgrace of England.
“Our production losses forecast for the coming years run into millions of US dollars,” Hoover’s US president, Gerard Amman, told shareholders, “[and] 80% of the total is attributable to Hoover Europe.”
Eventually, Hoover Europe’s corporate parent, US-based Maytag, was ordered to shell out the equivalent of $72m on flights for some 220k customers — and even then, another 300-350k never received their offer.

Hoover’s failed promotion made for juicy headlines in the early ‘90s (The Guardian, The Observer; 1992-1996)
In 1995, Hoover Europe was so shattered from the ordeal that it was sold off to an Italian competitor, Candy, for $106m, at a loss of $81m.
The company’s market share, once over 50%, dwindled to less than 10%, and the public rated the company’s products “least reliable” in at least 6 consumer reports. The British Royal Family even withdrew the company’s Royal Warrant, a mark of recognition for trusted companies. 
Worse yet, a “glut of unwanted, unused second-hand Hoovers” — purchased by people just for the free flights — flooded the market, making it impossible for the company to offload new inventory. “Mentioning the name ‘Hoover’ [at a marketing conference] is rather like shouting ‘Hindenburg’ at a 1938 convention of airship designers,” a Guardian reporter wrote in the aftermath of the corporate blunder.

Nearly three decades later, the blunder is cited in marketing textbooks as a prime example of what can happen when a company falls short on a promise to customers.
And Hoover vacuums, once the star of every living room in the UK, sit in closets gathering dust.


SME