Part I, The Thinking · Chapter 4

Friction Funds Generosity

How to fund a bigger promotion: claim gates, slippage and promotion insurance

A phone in one hand

In February 2007, Virgin Mobile wanted to give new customers a reason to choose them that actually felt like Virgin: generous, a little cheeky, impossible to mistake for a phone company being sensible. The ordinary options were all on the table, and they were all fine. A gift card. A cashback. A pair of movie tickets and a thank-you text. Fine was the problem. Shoppers had seen every one of them, priced them at face value, and quietly folded them into the deal before the deal was even on the table.

The answer was not in the phone business at all. It was in the family. Virgin flew planes.

So from 11 February to 31 March 2007, a customer who took a handset on a Phone On Us plan, online or over the phone, could claim a return flight on Virgin Blue. Free, taxes included, worth up to five hundred dollars. Not points, not a partner discount, not a voucher toward something: a seat on the family airline. A phone in one Virgin hand and a boarding pass in the other, and for seven weeks the two brands did not so much cross-promote as simply agree to be one brand. The offer felt inevitable the moment it was said out loud, which is what the best brand promotions feel like, and almost none of the ordinary ones do.

A five-hundred-dollar promise on a phone plan is not a promotion so much as a dare, and this chapter is about the machinery that makes a dare like that safe to sign.

Here is the path a customer walked. Activate the phone. Within five working days, an SMS arrives carrying a unique code. Register the code and submit the claim form online within 21 days. A booking form arrives in the post; fill it in with three travel preferences, each at least sixty days in the future, and post it back within sixty days of activation. Then the flight is booked against those preferences, subject to promotional seat availability. Travel within twelve months, on the listed direct routes, outside school holidays, public holidays and special events.

Read cold, that is a lot of steps. Read as engineering, every one of them is doing a paid job. The claim clocks sort the people who want to fly from the people who merely liked the word free, and they do the sorting early, in minutes at a keyboard, not months later at an airport. The advance-booking rule and the blackout dates are what let an airline release seats it could actually spare, which is the entire reason a five hundred dollar ticket could ride on a mobile phone plan. The three preferences trade certainty for availability, and say so in plain sight.

And none of it was hidden. The terms opened with a box titled IMPORTANT POINTS, and the first things in it were the catches: selected routes, promotional availability, no school holidays, sixty days to claim. The conditions were not the fine print of the offer. They were the offer, stated before the dream was. People will accept work in exchange for something they actually want. What they will not accept is discovering the work after they thought the wanting was over.

Virgin got a headline no gift card will ever buy, and a customer who never got around to claiming lost nothing: they got the phone plan they signed up for and an offer they chose not to use. The whole thing ran on the fuel with the worst reputation in marketing: friction.

The expectation problem

Here is the shift the industry has been slow to price in: the standard rewards have stopped persuading. Cashbacks and gift cards used to be a reason to choose. After years of saturation, shoppers treat them as part of the price rather than on top of it, and an expected reward changes nothing at the shelf, because the shopper had already counted it before they arrived.

The way out is concentration, not addition. Spread thin, the money buys wallpaper: a small predictable reward on everything, noticed by no one. Concentrated, the same money funds an offer people tell other people about. Nobody has ever told a friend about a gift card. Free flights got talked about.

The tool that makes concentration possible is friction. That is an uncomfortable thing to say out loud, so it is worth being precise about what friction actually does.

The paradox, named

Ask a room of marketers about friction and you will hear the instinct we all started with: less friction, more entries, better campaign. That is half the story, and for a Breaker (chapter 2) it is the right half. The other half we learned by watching offers succeed because of their hurdles, not despite them.

Friction does three jobs at once. It protects the budget: a claim that takes some effort filters out the people who are gaming the offer rather than buying the product. It raises the value of the reward: a prize that took a little work feels earned rather than gimmicky, and the behavioural research on effort has been saying so for decades. And, the job the industry discusses least, it concentrates the spend. Every point of friction lowers redemption. Every point of redemption you do not pay for is budget you can move into the reward itself.

That is the whole trick of the free flights. The gates funded the generosity. Without them, the same money would have bought a nice gift card. So the sentence we ended up using in the office, and eventually in pitch rooms, is that friction is how you fund generosity, and the craft is in where you put it.

Promotion insurance: the person who buys the risk

Gates do a second job that no customer ever sees, and it is the part of this chapter that changes how you design offers. A promotional liability can be insured. Before an offer opens, the cost of every reward that will ever be claimed can be placed with specialists whose trade is pricing promotional risk, for a fee agreed in advance. From that moment, if every single customer claims, the claims are the insurer’s problem. The brand has bought certainty, and somebody else has sold it, at a price they set themselves. That price is not a margin anyone hopes for. It is calculated from how the gates are expected to behave.

Sit with what that means. An underwriter cannot price a promise that says anyone might fly anywhere, any time. An underwriter can price claim windows, blackout periods, listed routes and limited seat availability, because each of those turns open-ended goodwill into an event with a probability. Friction architecture does not only shape shopper behaviour. It is what makes a liability priceable at all. A gate you can model is a gate somebody will insure, and a promise somebody will insure is a promise a client will sign. That is the machinery that turns an impossible headline into a purchase order.

It also settles who carries what. In an insured build, the customer carries some effort, disclosed up front, and is repaid with a reward worth having. The brand carries a fixed cost and no risk. The insurer carries the redemption curve, at a price it sets itself. Nobody in the chain is exposed to a surprise, which is precisely what Hoover forgot to arrange.

Slippage: designing the fall-away

The industry has a word for the people who never claim: slippage. It gets said quietly, as if the business model were a secret. It should not be. Every insurance policy, every airline seat sold as a sale fare, every gym membership is priced on the gap between the people who could use a thing and the people who do. A promotion is no different. There are two honest tests for whether yours is designed or merely hoped for.

The first test is whether everyone at the table knows how the offer makes its money. In an insured build the answer is structural: the liability is priced and sold before launch, so nobody in the room needs the shoppers to disappoint. The generosity is real precisely because somebody has done cold arithmetic on it. An offer that only works while the client believes redemption will run higher than the model says is not slippage. It is a lie with a spreadsheet.

The second test is where the fall-away happens. A well-set gate stops people early and cheaply: before they have spent an evening, before they have paid anything, before they have told their kids. That is what the claim clocks in the flights offer were for; a customer who was never going to fly found out at step three of six, at no cost, with their phone plan unaffected. A badly set gate does the opposite. It lets people carry hope, effort and sometimes money deep into the process, then drops them at the end, where it hurts the most and photographs the worst.

And a good gate has a ladder back. An invalid claim should not simply die: the claimant should be told what is wrong and given a date to fix it by, and reminded before that date. A gate you can appeal is friction. A gate you silently fall off is a trap, and the difference is the complaint file.

The reference case for the badly set gate is the cautionary tale everyone in the trade knows, and it used our headline. In 1992 Hoover offered free flights in the UK with a modest purchase, priced the offer on the assumption that hardly anyone would claim, and then met a public that claimed anyway. The company spent years fighting its own customers, and the episode now teaches itself in business schools. The lesson is not that free flights are dangerous. The same headline ran in Australia in 2007, with every gate stated before the dream. The lesson is who the maths is designed to survive. Hoover carried its own liability, unpriced, and engineered for the customers not turning up. The Virgin offer was engineered, gate by gate and in plain sight, for the day they did.

What a prize buys

The size of the reward sets how much work you are allowed to ask for. People will fill in two forms and wait for a phone call for a five hundred dollar flight. They will not upload a receipt for a stubby holder, and the entry numbers will tell you so with great honesty.

Years ago we noticed, in those entry numbers, the point where a reward stops being worth its own claim process. We started calling it the Insult Threshold, and it explains more dead cashbacks than any creative failure ever has. A small reward behind a heavy process does not read as value. It reads as admin, and shoppers answer admin with silence.

So the sweet spot moves with the prize. A big reward can carry high gates. A nervous budget needs them. A category already running hot with frustration needs the gates lowered before it needs anything else. In earlier versions of this thinking we sketched the trade-off as a table with illustrative percentages, and we have retired it. Real redemption rates exist, but they belong to the brands whose promotions produced them, and an invented table is worse than none. The shape is not in dispute: the more work you ask for, the fewer people finish, and the bigger the prize, the more work they will do.

The audit

Where friction actually gets set, most weeks, is not a strategy meeting. It is a form. Somebody adds a field because the brand team would love the data, somebody else adds a checkbox because legal suggested it, and by launch day the claim process has quietly become the real offer.

Tuning Note

For every field you ask a claimant to complete, ask three questions. Does it protect the budget? Does it raise the perceived value? Or does it just annoy people? Date of birth for a five-dollar voucher fails all three, and creates privacy obligations you do not want (chapter 16). The flights form asked for date of birth and passed the test: age was an eligibility condition. The question is never how many fields. It is whether each one has a job.

Treat every field as if it costs entries, because it does. The argument is only ever about how many, and that argument should be settled with your own completion data, not in the meeting.

The rest of the toolkit

Friction is one way to concentrate a budget. It has three siblings, and the best campaigns tend to use them together.

Cashback arbitrage. A cashback lands like a discount at the shelf without touching the shelf price, and you fund the claims, not the volume. The Insult Threshold cuts both ways here: a cashback so small or so fiddly that claiming feels like being played is not a saving, it is an offer nobody believed.

The self-liquidating premium. The customer pays for the prize. Buy the packs, add fifteen dollars, take the cooler bag worth fifty at retail. Sourced properly, the promotion costs close to nothing, the shopper still wins the trade, and the brand gets volume without touching the marketing budget.

The insured promotion. You want a headline your budget cannot survive, and there is an industry that exists to sell you the gap: the liability, priced and sold before launch for a fixed fee. Prize indemnity on a million-dollar draw is the most familiar version. It gets a fuller treatment where it belongs, in chapter 7.

The conditional offer. The reward triggers only if something external happens: the team wins, the temperature hits forty, the first hundred today. Engineered with caps and cover, it turns a transaction into a story people follow. The Headliners chapter takes it further, along with the other thing the flights had going for them: a partner whose brand made the offer feel inevitable rather than bolted on.

What the four share is that none of them spends less. They spend the same money in a shape the shopper actually feels.

Where this leaves the brief

Back to the free flights, because every chapter in this book ends up back at a brief. A bigger budget would not have produced that offer. What the brief needed was an idea that belonged to the brand, somewhere to put the friction, the nerve to price the fall-away in the open, and a reward at the end big enough to justify the walk. Friction is one lever of five, and when the full board arrives in chapter 6 it will be sitting in the middle of it: the most misunderstood lever, and the one that pays for the others. Chapter 7 is what happens when a client asks for something impossible and you pull all five at once.