Promotional offer too good to be true
In this episode we dissect the story of Hoover and the time they created a sales promotion which is still one of the worst ones in history. But first, what is Hoover and what’s their story? It all started in 1908 when a department store janitor named James Murray Spangler was suffering from a mean case of dust allergies.
He always thought out of the box and decided to mount a fan motor on a carpet sweeper. He then eventually filed a patent for the world’s first vacuum cleaner. Spangler soon sold the patent to his cousin’s husband, William Hoover, who started The Hoover Company. The company sold vacuum cleaners all over the USA and Europe very quickly.
The Hoover company dominated the vacuum cleaner sales for decades and enjoyed a near-monopoly on the industry. Their machines were so popular in England that the name ‘hoover’ became a generic noun, used as a synonym for ‘vacuum’. Just like Band-Aid or Kleenex. As time passed, Hoover earned a reputation as one of the most trusted brands in the world.
Maytag, which is now a subsidiary of Whirlpool, acquired Hoover in the late ‘80s. Trouble was soon to come however as the UK was entering recession. In addition to that, Hoover faced severe competition from newer and fancier brands like Dyson. To compete with them, Hoover rolled out some weird products like the “talking vacuum” that warned users when to change the dustbin but those didn’t work out as planned.
From 1987 to 1992, their profits dropped from $147m to $74m. Basically what happened was excess inventory began to pile up in warehouses and the monopoly it enjoyed in England slowly came to an end because of all the competitors. They knew the only way to survive would be to do something dramatic and which makes everyone talk about them.
And in early 1991, this opportunity came to them. A tiny travel agency called JSI Travel approached the Hoover UK branch. They were also feeling the pinch of recession and were looking for a way to sell cheap flights. And so they pitched this idea to Hoover. A sales promotion anyone who spent more than £100 (around $250 today) on any Hoover product at a qualifying department store would get two round-trip tickets to a destination in Europe.
It initially seemed like a win-win idea where Hoover can sell its excess inventory stock and JSI can sell a lot of cheap flights to Hoover. Hoover of course was aware that if a lot of people could redeem this then they’d be in trouble so they made the process as complicated as possible. Here’s the process simplified for you:
- First a customer has to buy any Hoover product for £100 or more and mail the receipt and an application within 14 days of purchase
- Hoover will then send a registration form and the customer has to fill it up and send it back in 14 days.
- After that, Hoover will send a travel voucher and the customer has to select 3 departure airport, date and destination combinations and send it to Hoover in 30 days.
- And Hoover reserved the right to reject the customer’s choice and if they do, the customer can select 3 alternatives.
- Hoover also reserved the right to reject these 3 alternatives and select 3 combinations of its own and if the customers don’t like them then they’re just simply out of luck.
After finalising all these terms and conditions, they started advertising the promotion heavily in newspapers and TV commercials. And before you know it, the company’s sales were back on track. It was all good till now but then Hoover made a critical mistake, it decided to extend the promotion even more.
On November 1, 1992, Hoover expanded its free ticket offer to cover flights to the USA. Under this new promotion, a UK based customer could get two free round trip flights to New York or Orlando with the same £100 Hoover product purchase. A trip like that was worth £600+ at that time or £1200 today.
They took advice from risk management professionals about this plan and they were warned of it being a disaster. But Hoover chose to ignore the advice and proceed anyways. They assumed that only a small number of customers would actually go through the whole complicated process to redeem the flight. Another fatal assumption they made was that customers would spend much more than the £100 minimum requirement and that would balance the cost.
After the promotion went live, instantly the £119 vacuum cleaners were getting sold out even in the midst of a recession. Hoover put all its factories on overtime to keep up with the huge spike in demand. As the numbers of customers qualified for free flights grew, Hoover started getting worried, and rightly so.
Hoover estimated a certain percentage of customers who would qualify for free flights but that number exceeded their expectation 10x. To be more specific, around 300k people bought qualifying products which means Hoover would have to pay for 600k flights. And contrary to its previous assumptions, customers were not spending significantly more than the minimum £100 to offset the balance.
Hoover was now in trouble. On a sale of a £119 vacuum cleaner, they made a £30 profit. But the two free flights that they would have to gift cost around £600. That means each customer who got a free flight would cost the company £570. Hoover generated £30m in sales from the promotion but when the cost of free flights were calculated, that would cost them more than £100m.
So immediately Hoover started doing everything it could to get rid of the free flights. It claimed thousands of customers had failed to correctly fill out forms. It wrote back offering flights that departed from airports hundreds of miles away from customer’s homes. It also sent out request forms on Christmas Eve and hoped mail closures would cause people to miss the 14-day deadline to send them back in.
Many customers who followed all the rules were told that their letters had “gone missing” or that they failed to spot some deadline. When the news finally got out that not a single flight has been granted, thousands of customers started to take action. One of them formed a Hoover Holiday Pressure Group to hold the company accountable and that at point had more than 4k members.
When the news went international, Hoover tried to shift the blame to a handful of executives, the airlines, and the travel agencies they partnered with. They fired the UK division president of Hoover and a few other top tier executives who were involved in the promotion and announced that they would invest £20m into a “free flights fund”.
By 1993, Hoover had £23.6m losses and the brand went from the ‘most trusted home appliance king’ to the ‘disgrace of England’. Hoover’s parent company Maytag eventually was ordered to shell out the equivalent of £72m on flights for around 220k customers. But even after that, another 300k never received their offer.
By 1995 the company was so deep in losses that Hoover Europe was sold off to Candy, an Italian competitor for £106m. The company’s market share dropped to less than 10% and the consumers rated the products as “least reliable” to make things worse. And as a final nail in the coffin, the British Royal Family withdrew its Royal Warrant which is a mark of recognition for trusted companies.
An unexpected problem also surfaced. People sold off a lot of unused second hand Hoover products which they bought only for the free flights and that made it very hard for the company to sell new products.
After almost 3 decades, this blunder is in many marketing textbooks and is a prime example of what happens when a company can’t deliver its promises to customers. And Hoover vacuums, once the star of every living room in the UK, sit in closets gathering dust.
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