Sales

There Was a Time When Hoover Vacuums Costs Almost £50,000,000

world-travel

Giving away free stuff with a purchase is a good way to bolster sales and can result in a tidy increase in profits, provided you follow the general rule of making sure the long term projected profit from the promotion is greater than the cost of the giveaway. Appliance giant Hoover learned this seemingly obvious lesson first hand in 1992 when they inexplicably decided to give away free flights worth several times more than most of the products they were selling as part of what has become known as Hoovergate- one of the most disastrous marketing campaigns of all time, today taught in marketing text books the world over.

Though Hoover sells a multitude of appliances and domestic goods, the company is known mostly for its vacuum cleaners. (And if you’re curious, see: Who Invented the Vacuum Cleaner?) So much so in fact that over in Blighty the word “hoover” is an accepted synonym for the device, much to the annoyance of Hoover who, like other companies, fought hard not to have their brand become genericized like Aspirin and Thermos. This generalizing of their brand name largely rose from the near total monopoly Hoover had over vacuum sales in the UK throughout much of the 1950s to 1970s. However, as the end of the 20th century approached, the British arm of Hoover found that sales were beginning to lag considerably from their heyday, with their marketing share steadily declining and warehouses slowly filling with old stock nobody wanted to buy.

In the early 1990s, Hoover’s British arm was approached by a now-defunct travel agent called JSI Travel with a rather intriguing offer to help shift some of this old stock out of the warehouses and into the hands of customers. The idea was to offer two free return flights to Europe with every purchase of any Hoover product worth more than £100 (about £190 today or $235), all arranged through this travel agency. Beyond revenue from sales, much of the cost for the tickets themselves from those who jumped through the many, many hoops to actually get the tickets would be subsidized by JSI Travel selling additional services like travel insurance and hotel packages. JSI Travel also thought it would provide a long term benefit for their small company as it would introduce tens of thousands of people to their travel agency’s services.

Hoover liked the sound of the arrangement and in 1992 launched their free flights campaign, advertising it on TV and in papers across the country with the simple caption: “Two Return Flight Tickets. Unbelievable.”

The offer saw sales of Hoover product explode because, hey, free flights. Slowly, but surely, Hoover’s warehouses began to empty.

Now, if Hoover had chosen to quit here, we wouldn’t really have much to say other than kudos to them on a smart business decision. (And if you’re wondering, see What’s a Kudo?) Unfortunately for them, they got too greedy and hilarity ensued.

After examining the numbers linked to the campaign and realising that only a fraction of the people who’d bought a qualifying product as part of the campaign actually jumped through all the hoops to redeem for the tickets, Hoover decided to extend the promotion and get a little more international, hoping to boost sales even further in the process.

This was despite Hoover having approached various risk management companies to evaluate the promotion and being summarily told it was a horrible idea. For instance, risk management advisor Mark Kimber from PIMS-SCA would late note,

I advised Hoover of the potential pitfalls of the promotion. Having looked at the details of the promotion along with attempting to calculate how it could actually work I declined to even offer risk management coverage based upon the information presented. With such a high value offer for only a relatively small cost to the consumer, to me it made no logical sense.

…nevertheless Hoover chose to completely ignore both mine and the industry’s advice and continue on its calamitous crusade without considering the potential cost or consequences…

Head firmly in the sand, Hoover approached three of the biggest airlines of the day, British Airways, Virgin Atlantic and American Airlines, along with various travel agencies, and entered into negotiations to offer a similar deal as they had previously, only this…