How a travel promotion nearly killed Hoover

(photo credit: "1920s vintage HOOVER Vacuum Housewife cleaning Wicker Furniture Illustrated Ad Adve... http://wicker.tw/JeGZDt" by Wicker Paradise is licensed under CC BY 2.0)

Join our slack channel for realtime notifications

Hoover - a vacuuming powerhouse with a Royal Warrant

In the 1980's, the Hoover Company, under their parent Maytag (which finalized their purchase of Hoover in 1989), was one of the dominant vacuum and household appliance companies in their market segments, having enjoyed a roughly 50% ownership of the vacuum market for almost 40 years, and were primed for expansion, focusing specifically on UK expansion.

Unluckily, this growth agenda overlapped a global recession in 1990-1992 that severely impacted consumer spend (and hit the UK particularly hard)... so they did what any self respecting appliance company would do when faced with an almost 50% drop in annual revenue ( from $147 million in 1987 to $74 million by 1992), and made a talking vacuum cleaner.

Shockingly, this didn't solve their financial woes. So they did the second thing any self respecting company does when faced with a drop in income... in 1992 they laid off a bunch of employees and launched a crazy marketing campaign.

You see, Hoover's main issue was that their stockpile of unsold inventory was becoming massive... they hadn't counted on a recession driving up unemployment and driving down discretionary consumer spend, so they ramped up production and accidentally ended up with a crap load (scientific term) of aging vacuum cleaners that they absolutely had to sell within a couple of years (because why buy a 4 year old Hoover when you can buy a shiny new Dyson?)

What a conundrum... how do you convince a bunch of people who don't want to spend over 100£ on a new vacuum cleaner (around 260£ in 2020 dollars) during the height of a recession that it is, in fact, a fantastic idea to spend >100£ on a new vacuum cleaner? Well, Michael Gilbey and Brian Webb, two marketing execs at Hoover UK, had a stroke of genius: entice potential customers with a commodity even more valuable (and less recession friendly)!

And here was the lightbulb moment... a travel agency called JSI travel was also feeling the recession pinch, and had gotten wind that Hoover UK was trying to do something crazy to sell more vacuums. They pitched Hoover an idea that fit the bill for wild, crazy, and just a little reckless...

Hoover UK agreed to run a promotion where any customer who spent more than 100£ would be eligible to receive two free round-trip tickets to any destination in Europe. It was a win-win - Hoover would unload its aging product, and JSI would sell tickets to Hoover in bulk to fulfill the promotional terms. No problems at all, right?

Some funny math

So wait a minute... were airline tickets way cheaper in the early 90's or something? Not really... the average intra-continental round trip flight cost ~150-200£, meaning Hoover was potentially on the hook for ~400£ per customer. Something about this deal seems... off, right? I mean a company struggling financially giving away around 300£ for every single 100£ vacuum sold?

No worries - Hoover thought of this. They had a "foolproof" 3-step plan to ensure they didn't lose money: first, upsell the crap out of anyone who bought a vacuum, second, allow JSI to offset the cost of the tickets with trip add-ons (trip insurance, etc...), and third, work with JSI to make their customers hate them. This last point might seem melodramatic, but take a look at the multi-step process to actually redeem the promotional offer below:

Step 1

A customer spends over £100 on Hoover products. They then fill out a lengthy application, and mail the completed application and their original receipt to the content PO Box within 14 days of their purchase.

Step 2

14 days later - Hoover then sends the client a registration form, which the client must fill out and mail back to Hoovder wihtin 14 days of receipt.

Step 3

14 days later - Hoover sends the client a travel voucher. The client must select three different departure airport, destination, and flight time combinations, and send the travel voucher back to Hoover within 30 days

Step 4

30 days later - Hoover has the right to reject the customer's selections. Hoover sends a notice to the customer that their selection has been declined and another travel voucher, on which the customer must select 3 more travel options and mail back to Hoover within 30 days.

Step 5

30 days later - Hoover has the right to decline the customer's second travel selections as well. Hoover mails the customer three travel options of Hoover's choosing, and the customer has 30 days to either select one of the presented options or decline. If a customer declines all of these options, the customer forfeits their prize.

Against all odds... the strategy worked

Hoover and JSI, between their salescraft and the whole "become the target of all of our customers' deep, deep rage" tractics, actually only saw a ticket redemption of 10%, while Hoover was offloading product like crazy - and who wouldn't, with an advertising slogan like: "Two free flights: Unbelievable."

So the job was done... Hoover ran a successful promotion, JSI pulled themselves out of the recession, and Hoover became the world's incumbent vacuum company.

"But wait... I came for drama, not some sappy feel good story about a successful marketing promotion". No worries! We here at Sh*t You Should Know are here for the drama. That whole Hoover running a successful promotion thing and quitting while they were ahead thing? Total lie (C'mon... have you ever been to a casino? How many people quit while they're ahead?)

See Hoover UK did so well at clearing inventory, they had a cunning idea... what if they make the promotion even more enticing? They had some pretty aggressive growth goals, and the executives at Hoover UK likely saw some fat bonuses in their futures if they could hit these growth goals amidst a global recession. So then this happened:

Oh yeah, they doubled down... big time

The intra-continental European flights worked so well, Hoover decided to up the ante with an even bigger prize - two roundtrip flights to America. Talk about a star spangled incentive!

And boy, if that European flight deal worked, this US flight deal was gangbusters. Product was flying off the shelves, and Hoover could barely keep up with demand despite nearly doubling production staff in their factories.

When funny math stops being funny

The deal for UK->US roundtrip airfare was structured the same as the deal for Europe-only airfare... customers only had to spend 100£ to be eligible for the promotion. Hoover was banking on being able to upsell customers on accessories, higher end models, etc... but this wasn't shaking out as planned.

The most popular vacuum model to meet the 100£ minimum was the Turbopower Total system, which came in at a retail price of 119.99£... and this particular model accounted for a whopping >80% of promotion sales. Hoover's upsell attempts (extended warranties, accessories, higher-tier models, etc...) went largely ignored, and customers mostly walked out of Hoover stores dragging their 119.99£ Turbopower Total systems, and, ostensibly, chucking them in the industrial-sized garbage cans sitting outside each Hoover UK storefront (kidding but maybe not really?)

On each of these units, Hoover made around a ~30£ profit. The issue was that the value of the two round trip fares that were offered as part of the promotion was around 600£, and people were certainly redeeming the offer.

Based on data from Hoover UK's first promotion (with Europe-only round trips), they were expecting around a 5-10% redemption rate. In actuality, they saw a >50% redemption rate, eventually having an estimated half million customers who redeemed their free flight offers.

As far as a vehicle to increase total sales, the promotion worked like a treat - they ended up 10-x'ing their projections and selling 30MM£ more in vacuums and washing machines. However, they also ended up on the hook for 72MM£ in flights for around 220,000 customers.

"...I love it when a plan comes together"

... said no one at Hoover. In order to prevent themselves from forking over almost 50MM£, Hoover engaged in some... questionable practices to prevent themselves from going bankrupt trying to fulfill these flights... questionable practices that Harry Cichy, founder of the Hoover Holiday Pressure Group, tirelessly sought to expose to get customers their just deserves. These efforts culminated in a series of lawsuits that got 220,000 customers their free flights, with an estimated 350,000 more customers having grounds to sue Hoover directly.

Hoover ended up having to charter flights to Florida and New York from American Airlines, British Airways, and Virgin Atlantic, as well as charter private planes to fulfill their dues.

The net result? Michael Gilbey, Brian Webb, and Hoover's European president William Foust were all fired. Hoover's royal warrant was revoked. A series of lawsuits continued to plague Hoover some 10 years later. And a man name Dave Dixon (who some call a hero) held a Hoover van captive in his driveway for several weeks.

As if all that weren't enough, Hoover's long tail sales pipeline was ruined because people were just buying vacuums for the free flights. The UK market was flooded with Turbopower Total Systems (which were a popular hand me down gift for almost two decades after the debacle) and Hoover's sales and reputation took such. a massive hit that they had to sell Hoover Europe to the Italian appliance company Candy SpA.

Truly a sweet end to a sour situation.