MAYTAG - MAYTAG BUNGLING A PROMOTION IN ENGLAND In August 1992 Hoover Limited Maytag's British subsidiary launched this travel promotion Anyone in

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MAYTAG – BUNGLING A PROMOTION IN ENGLAND In August 1992, Hoover Limited, Maytag’s British subsidiary, launched this travel promotion: Anyone in the United Kingdom buying more than 100 U.K. pounds worth of Hoover products (about $150 in American dollars) before the end of January 1993 would get two free round-trip tickets to selected European destinations. For 250 U.K. pounds worth of Hoover products, they would get two free round trip tickets to New York or Orlando. A buying frenzy resulted. Consumers had quickly figured out that the value of the tickets easily exceeded the cost of the appliances necessary to be eligible for them. By the tens of thousands, Britishers rushed out to buy enough Hoover products to qualify. Appliance stores were emptied of vacuum cleaners. The Hoover factory in Cambuslang, Scotland, that had been making vacuum cleaners only three days a week was suddenly placed on a 24-hour, seven days a week production schedule—an overtime bonanza for the workers. What a resounding success for a promotion! Hoover managers, however, were unhappy. Hoover had never ever expected more than 50,000 people to respond. And of those responding, it expected far less would go through all the steps necessary to qualify for the free trip and really take it. But more than 200,000 not only responded but qualified for the free tickets. The company was overwhelmed. The volume of paperwork created such a bottleneck that by the middle of April only 6,000 people had flown. Thousands of others either never got their tickets, were not able to get the dates requested, or waited for months without hearing the results of their applications. Hoover established a special hot line to process customer complaints, and these were coming in at 2,000 calls a day. But the complaints quickly spread, and the ensuing publicity brought charges of fraud and demands for restitution. This raises the issue of loss leaders—how much should loss leaders be used as a promotional device? ( Leader pricing is a type of promotion with certain items advertised at a very low price—sometimes even below cost, in which case they are known as loss leaders—in order to attract more customers. The rationale for this is that such customers are likely to purchase other regular price items as well with the result that total sales and profits will be increased. If customers do not purchase enough other goods at regular prices to more than cover the losses incurred from the attractively priced bargains, then the loss leader promotion is ill advised. Some critics maintain that the whole idea of using loss leaders is absurd: the firm is just “buying sales” with no regard for profits.) Maytag dispatched a task force to try to resolve the situation without jeopardizing customer relations any further. But it acknowledged that it’s “not 100% clear” that all eligible buyers will receive their free flights. The ill-fated promotion was a staggering blow to Maytag financially. It took a $30 million charge in the first quarter of 1993 to cover
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This note was uploaded on 06/28/2011 for the course MARK 106 taught by Professor Smith during the Spring '11 term at American Internation College.

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MAYTAG - MAYTAG BUNGLING A PROMOTION IN ENGLAND In August 1992 Hoover Limited Maytag's British subsidiary launched this travel promotion Anyone in

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