During the early 1980s, the Hoover appliance company held a 50% share of the UK market and was rapidly expanding with the potential to claim a larger share of a growing market. This period of expansion, however, coincided with the UK’s entry into a major economic recession, and Hoover was beginning to face competition from newly established British vacuum companies such as Dyson. From 1987 to 1992, Hoover’s profits fell from $147 million to $74 million, and their share of the UK vacuum cleaning market dropped.
In an attempt to get things back on track, Hoover’s executives decided to create an exciting marketing promotion that would encourage the public to purchase its products. In order to do this, Hoover offered free round trip airline tickets to six European destinations to individual customers who had bought at least £100 worth of Hoover products.
There was a basic problem with the campaign, however.
The most popular Hoover product that met the £100 requirement was the Hoover Turbopower Total System vacuum. It sold for £119.99. Hoover made a profit of about £30 on each sale. Tickets from the UK to anywhere in Europe cost well in excess of £30, so how on earth did the company think this would help its bottom line?
Hoover knew such a strategy would at least increase sales, and hoped that not everyone who qualified for the free tickets would actually pursue getting them.
Hoover also made the application process as arduous as possible in the hope that only a minor percentage of those who bought an appliance would get the flights. To attain the minimum amount of free tickets given away, the following strategy was put into place:
- When a customer purchased a Hoover appliance for at least £100 at certain select department stores, they had to mail in their receipt along with their application within 14 days of making their purchase.
- Hoover then sent back a registration form which needed to be completed and returned within 14 days.
- Hoover would then send out a travel voucher. The customer then had 30 days to choose three combinations of departure airports, dates and destinations.
- Hoover retained the right to refuse the combinations selected by the customer, subsequently insisting that the customer select a further three alternatives.
- Additionally, Hoover reserved the right to also refuse the alternatives and offer a combination of their own choosing. This meant that the customer’s flight would take place on a date and from a location that was likely to be inconvenient, rendering the customer less likely to use the tickets.
Hoover’s slogan for their new promotion was “Two free flights! Unbelievable!”, and it was wildly successful. Hoover products flew off the shelves. A sufficiently-small number of airline tickets were successfully redeemed and the company’s profits were steadily moving in the right direction.
Because of the success of the campaign, the company decided to go even bigger.
On November 1, 1992, Hoover expanded its free ticket offer to include free flights to the United States.
Department stores all over the UK reported scenes of near-hysteria as customers fought with each other in a quest to snatch Hoover products from the shelves. Despite a recession, businesses were unable to keep the Hoover vacuum cleaners in stock. Hoover put its factories on 24/7 schedules, offering employees overtime in an attempt to keep up with the frenzied demand. All told, the sales generated by the campaign were ten times higher than projected.
It turned out that Hoover’s belief that the number of people who would actually seek redemption of the free tickets would be comparatively low — was flawed. The free tickets were precisely the reason for most of the sales. In fact, some customers did not even bother to pick up their orders; they just wanted the free airline tickets.
With only a £30 margin from each sale and a cost of £600 for each redeemed free flight voucher, Hoover stood to lose £570 off of each of these sales. Conservative estimates placed the company’s losses at more than £100 million.
Hoover had no choice but to make the redemption of the vouchers even more complicated.
The company denied thousands of applications on the grounds of being improperly filled out. It sent out request forms on Christmas Eve, hoping to increase the number of customers who would fail to meet the 14-day deadline for the return. Flights that it offered departed on the other side of the country from the residence of the customer.
Consumers rebelled, and after years of litigation, the company was ordered to pay about £57.5 million toward airline tickets for over 200,000 customers. That still left over 300,000 customers who received nothing.
By 1995, the company’s market share had plummeted from over 50% of all UK sales to less than 10%. It went from being one of the most trusted brands to being voted “least reliable” in several consumer reports.
In 2004, the BBC made a documentary, ‘Hoover Flights Fiasco’ as part of the Trouble at the Top series. The show was watched by 1.7 million viewers. As a result, the British Royal Family withdrew Hoover’s Royal Warrant — a high mark of endorsement, signaling that a company can be trusted.
Another unforeseen problem was that sales were not going to pick up any time soon. As a result of the frenzied purchase of so many vacuums, the consumers had a glut of machines that were purchased just for the free flights. A booming second-hand market emerged, as individuals unloaded their vacuums to others. As a result, there was virtually no demand for the new machines that gathered dust on the shelves.
How could something like this happen? The problems seemed glaringly obvious from the start.
My guess is that perhaps incentives may have had something to do with it.
It may be that the sales and marketing people were simply responsible for generating sales, and not at all concerned about the profitability of those sales. So if you’re bonus is tied to increasing sales, then you’ll do whatever you can to increase sales. Now if the accountants had been asked about this campaign before it launched, my guess is that none of this would have happened, and Hoover might still be the dominant name in vacuum cleaners.
But who listens to the accountants?
Now I’m curious to see what kind of promotions the airlines will start offering to encourage people to start flying again.
Hopefully, the airlines, and consumers, have learned the Hoover lesson…
*image from Campaign Live