Promotions 101: Choosing the Best Prize for your Contest Winners | ESG

Choosing the Right Prize for Your Sweepstakes

The Importance of Strategic Prize Selection

When you run a sweepstakes or contest to promote your company or brand, choosing the right prize is crucial. The prize not only needs to attract participants but also needs to align with your brand and appeal to your target audience. A strategic approach to prize selection can greatly enhance the success of your promotional campaign. Even better for your bottom line, it will increase your brand awareness, drive loyalty, and can even increase your sales. Reach out to us for a free quote to see how we can help you select the right prize for your sweepstakes.

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The HGTV Example

HGTV’s “Dream Home” Sweepstakes is a notable example. According to this piece from 2023, out of 21 winners, the majority opted for the cash alternative or sold the house within a year. Only six winners kept the house for longer than a year. This suggests that while the dream home is an enticing prize, the reality of maintaining such a property leads many winners to choose a more practical cash prize.

When we work with clients who want to give away an eye-catching prize with a high approximate retail value (ARV), we always talk about the value of offering a cash substitution as a prize alternative. This is because the tax implications for most people are too burdensome. The Internal Revenue Service (IRS) considers a prize won in a sweepstakes or contest to be “additional income” which the sponsor or the sponsor’s designee, which is often a sweepstakes administration company like ESG, must report to the IRS via a 1099-MISC Form. Actually, any prize value over $600 must be reported which is why in addition to having winners complete an Affidavit of Eligibility they also must fill out an IRS Form W-9. Taxes on a $1,000 prize are a lot easier to manage than taxes on a $1,000,000 prize. This is especially true because the tax law in the United States varies based on income so we can never tell a winner exactly how they will be impacted by winning a prize that has a very large ARV.

Why This Strategy Works

It’s reasonable to assert that HGTV is actively promoting a sweepstakes that delivers a prize that it knows very well people won’t end up choosing. Is this unscrupulous or deceptive? Not really. Despite many winners opting out of the dream home, HGTV’s strategy remains effective. Here’s why:

• Brand Alignment: The dream home prize is true to HGTV’s brand, promoting the idea of luxurious and aspirational living.
• Alternatives Offered: HGTV offers a cash alternative, ensuring that winners have a viable option if the house isn’t practical for them.

If the cash alternative wasn’t provided, then the entire sweepstakes could be run askew of truth in advertising guidelines/rules. A sweepstakes should never offer an illusory prize; doing so can lead to an investigation by a state regulatory agency or an Attorney General. The good news is that the cash alternative being offered, doesn’t have to be the exact same value as the prize. In the case of HGTV, the house is usually valued at over $1,000,000 but the cash alternative often ranges between $500,000 – $750,000.

Understanding Contest Participant Desires

Henry Ford’s quote, “If I had asked people what they wanted, they would have said faster horses,” highlights the importance of understanding underlying desires rather than surface-level requests. Participants might initially be drawn to the idea of a dream home but later realize the practical benefits of a cash prize. By offering both, HGTV meets the initial attraction and the eventual practical need.

Not all brands can afford to award a prize that is high in value one time let alone repeatedly like HGTV does. Luckily, a well-chosen prize doesn’t have to break your bank. It can drive sales by encouraging customers to take action, whether it’s making a purchase, signing up for a newsletter, or engaging with your brand on social media. The anticipation of winning a valuable prize can motivate customers to participate, resulting in increased sales and a higher return on investment.

Conclusion

HGTV’s approach shows that offering a more sensational prize, like a dream home, garners more interest and media coverage than a straightforward cash prize. The cash alternative ensures that participants still walk away satisfied, regardless of their final choice. When planning your sweepstakes, consider a prize that aligns with your brand, excites your audience, and offers practical alternatives. This strategic balance will ensure your sweepstakes are both appealing and effective.