In the late 1980s, the UK was entering into a recession and dwindling profits started affecting Hoover, the leader in the British cleaning market. Between 1987 and 1992, Hoover’s profits fell from $147m to $74m. The 50 percent market share was tanking fast.
What to do? They devised a clever strategy 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.
To keep the claims low, they made the process as complicated as possible:
- A customer buys a Hoover product for £100+ and mails in a receipt + application within 14 days of purchase.
- Hoover sends a registration form; the customer has 14 days to send it back.
- Hoover sends a travel voucher; the customer has 30 days to select 3 departure airport, date, and destination combinations.
- Hoover has the right to reject the customer’s choices; the customer can select 3 alternatives.
- 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.
Did it work? Hoover’s products were flying off the shelves and the sales trajectory was back on track.
They say, too much of a good thing is bad. That’s what Hoover did next.
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+ (£1,200, or $1,355 USD, today).
In comparison, the profit per product sold was £30.
The risk management professionals hired by Hoover dismissed the idea even before hearing it. “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.”
However, Hoover still went ahead with that idea.
Two faulty assumptions:
- Only a small fraction of buyers would jump through the hoops to get the tickets.
- They would buy significantly more than £100 worth of Hoover products to offset the cost.
Unfortunately, neither of them came true.
Around 300,000 people made claims—doctors, lawyers, pig farmers, and electricians.
The average purchase was still the qualifying order value of £100.
People were simply buying the tickets.
As a result, though the company generated around £30m in gross sales from the promotion, the cost of the flights was conservatively estimated to be more than £171m.
To make up for its costly mistake, it claimed forms were not filled in correctly or went missing, sent mail on holidays to delay the forms’ return, and when all else failed, they offered inconvenient airports for customers to fly from.
Ultimately, with the help of Harry Cinchy, who set up the Hoover Holiday Pressure Group, the betrayed customers took Hoover to court.
Hoover’s American bosses stepped in, fired the president of the UK division, and had to take charge of the situation.
Hoover Europe’s corporate parent, US-based Maytag, had to pay out the equivalent of $72m on flights for some 220k customers — and even then, another 300k-350k never received their offer.
“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.”
Due to widespread public dissent, Hoover’s market share fell from 50 percent to less than 10 percent. The company was publicly rated as the “least reliable” in at least six consumer reports.
The British royal family even withdrew the company’s Royal Warrant, a mark of recognition for trusted companies.
Once a star in every UK household’s living room, Hoover became a disgrace of England.
Moral of the Story: don’t promise unless you can deliver.