For all that's been said and written about entrepreneurs through the years, here's one safe generalization you can make: Entrepreneurs love their coffee. With some obvious exceptions, like the ever-buzzing small-biz scene in Utah, you can safely surmise that founders galore are lining up at Starbucks each morning. 

Which means that for the past several weeks, during the Starbucks for Life contest (in which 14 entrants win a free daily item at Starbucks for the next 30 years), those founders were probably wondering: How do you calculate the ROI of a contest involving long-term giveaways? 

Of course, it's one thing to hold a sweepstakes like this--where the total retail value of the giveaways is nearly $1.8 million--when you're Starbucks: $4.2 billion in Q4 revenues, with more than 21,000 retail stores in 66 countries. It's quite another thing to hold a contest when you're a retailer with one or two stores.

How, then, can you measure if contests are a smart move? And, if so, what's the right amount to give away? For answers to these questions, Inc. spoke to Leonard Lodish, emeritus professor of marketing at Wharton. In addition, we interviewed Kimberly Kissam and Alexis Kissam--sisters who co-founded Massachusetts-based Isabel Harvey, a successful boutique with stores in Wellesley and Nantucket.

One reason Isabel Harvey has thrived--increasing sales by an average of 35 percent annually in the last three years--is that it excels at luring in-person visits through email marketing campaigns. Those campaigns include promotional contests such as Daily Glitter (a different discount, every day of December) and Try Your Luck Tuesday (in-store discounts based on dice games or other games of chance). 

Here, then, are three tips for luring customers with contests and sweepstakes--and measuring the results--courtesy of Lodish and the sisters Kissam. 

1. Consider your cost of customer acquisition. 

Remember, too, that not all acquired customers are created equal. Some are literally worth more than others. Under ideal circumstances, you want to acquire repeat customers who consistently buy from the store (or the site).

You also want the contest to help you measure and assess these customer behaviors. Because the Starbucks competition requires using a card or a mobile app, Starbucks can ostensibly use the contest to learn just how valuable its contest participants are "in terms of incremental profitability over time," says Lodish.

"Then they can compare it to the general cost of acquiring customers," he adds. "And if the equation makes sense, it's a good deal for the company."

In other words, Starbucks in all likelihood knows how much it costs to acquire the type of customer who will visit the store almost daily for the next 30 years. This is the sort of customer who provides the "incremental profitability over time" Lodish is referring to. If the contest is a more cost-efficient way of acquiring that incrementally profitable customer, then it's a no-brainer to run it. 

2. The contest should help you measure customer behavior. 

Using store cards or mobile apps like Starbucks does is one way to do it. But you can also use your eyes and ears, the way brick-and-mortar retailers like Isabel Harvey do. In addition, you can examine things like the "open rates" on emails promoting the various contests.

For example, for its Daily Glitter contest, Isabel Harvey sends its customers an email every day in December. Each email contains a discount offer redeemable that day only--that is, until the store closes for the night, or until midnight if you're buying online. For example:

  • The Dec. 11 email indicated 30 percent off an Ethiopian leather tote bag. The email provided a picture of the bag, along with the proviso that it was available in two other colors. In addition, the email provided a discount code for online shopping, and a reminder that there was free shipping for all of December. 
  • The Dec. 3 email provided a "Buy 3 Get 1 Free" offer on Nicolette bracelets, which were depicted in a photo. It also included the discount code and the same reminder about free shipping. 

Same-day promotions like this make it easy for the Kissams and their employees to gauge which discounts have the most appeal. Any retailer can tell you what "normal" Tuesday afternoon store traffic looks like, compared to what it looks like when there's a tempting discount on Ethiopian leather totes.

Likewise, because it's an email marketing campaign, the Kissams can compile hard data about their open rates and the demographics of customers who use the discount code. 

While the Kissams haven't precisely measured their average cost of customer acquisition, they have gained a general understanding that the contests are a far more efficient means of gaining new customers than, say, radio advertising. 

"I just had to have this ad," recalls Kimberly Kissam of the time, two years ago, when Isabel Harvey spent $2,500 on radio advertising. Alexis Kissam was opposed to expenditure--and she turned out to be right. The ad had no tangible impact on sales or store traffic. "But we never would have known unless we tried," adds Alexis. 

More important, the co-founders took the larger lesson to heart. They realized that promotional discounts like Daily Glitter were a far more effective way to lure long-term customers to the store.

3. The contest should reinforce your branding and positioning in the marketplace. 

You can see in the Starbucks contest how the gleeful images and messages reinforce what you could generally call a "happy holidays" theme that's consistent with the rest of Starbucks' seasonal marketing at year's end. 

Likewise, Isabel Harvey is keen about using its giveaways to reinforce the store's distinct brand. "We're constantly brainstorming how to connect with our customers in a way that is different from any other retailer," says Kimberly Kissam.

For example, the giveaways in Daily Glitter are decidedly not bottom-of-the-inventory items. If anything, they are coveted items with the power to excite customers (such as four Nicolette bracelets or an Ethiopian leather tote). Luring spenders to the store and promoting the brand are the aims of the contest.

That is a far cry from the "clearance" concepts that underlie most retail discounts.

"Customers don't want to see all the stuff that didn't sell," Alexis Kissam said. Moreover, the sisters have found--not surprisingly--that photos of attractive jewelry and accessories lead to higher open rates of promotional emails. 

Furthermore, the last thing you want a contest to do is upset your loyal, longtime customers--the ones who were spending money at your store without any promotional incentives. "If your contest is really just a discount, that's not smart, especially if it's not consistent with your image or brand positioning," says Lodish. 

As an example, he cites a Harvard Business Review article he wrote with Carl Mela, a professor of marketing at Duke University's Fuqua School of Business. The title of the article--"If Brands Are Built Over Years, Why Are They Managed Over Quarters?"--sums up the point: Contests, whatever their nature, are short-term events, usually coupled with discounts or giveaways. No matter how beneficial they seem, you can't let them undermine or muddle the long-term brand you've established--or are hoping to establish.

Published on: Jan 6, 2015