by Adam T. Sutton, Reporter

About three years ago, Amanda Stone, Manager, Marketing, Houlihan's Restaurants, and her team wanted to extend their holiday sales surge into January. Traffic to the national restaurant chain typically declined after New Year's Day.

They tested a "Secret Envelope" program which gave customers envelopes in December containing mystery prizes, such as certificates for free entrees. The envelopes could only be opened inside the restaurants on a return visit in January.

After a huge success, the team turned this one-time test into a biannual event. On average, 15% of the envelopes were redeemed, which is "a huge, huge response," Stone says.

The team estimates that 60% of people who redeemed an envelope would not have come to the restaurant otherwise. Incremental traffic, minus the cost of providing prizes and printing envelopes, drove an approximate 900% ROI for the program, Stone says.

For the team's most recent December effort, the program drove 13.8% of January's store traffic, as analyzed through point-of-sale reporting, and increased the team's email databases by about 1% (see more on this below).

"That number might seem pretty low, but our databases are fairly sizable, so we were very pleased with this figure," Stone says. "We really, really like this program. We couldn't believe our eyes at first, but now we've replicated it five times."

Below, we outline six steps your team can take to create a similar program.

Step #1. Aim to increase purchase frequency

The team gave envelopes to customers with their bills when they purchased in a set time period near two major holidays:
o Anytime in December
o Between Mother's Day and July 31.

The strategy is intended to increase customer retention and repeat purchases.

"We think of it as a reward for our current guests," Stone says.

The strategy also helped the team avoid the appearance of discounting. The team has avoided discount campaigns in the past, but felt compelled to test discounts because of the recent slow economy.

Giving the envelopes only to current customers avoided conditioning potential customers to think of Houlihan's as a discount chain.

Step #2. Provide instant gratification

Each envelope contains one of many prizes, such as a certificate for:
o Free mini dessert
o Free small plate
o $10 off the total bill
o Free Houlihan's product for one year
o $100 spa gift card
o New shoe wardrobe
o $1,000 cash
o Free trip to Las Vegas

The majority of prizes, such as the free mini dessert, were redeemable immediately in the store. Customers could have these prizes applied to their bills in the restaurant -- providing immediate gratification. The larger prizes, although less frequent, drove excitement.

- Boost prizes after proving concept

The team previously offered only one grand prize -- free Houlihan's products for a year -- along with the smaller prizes. By closely tracking response and return on investment, the team knew it could add additional high-value prizes to increase excitement without risking a loss.

Step #3. Design an eye-catching envelope

The envelopes distributed by the team were bright yellow, making them easier for customers to keep track of.

The envelopes clearly explained the program's rules, such as:
o Envelopes must be brought back to the store unopened
o They must be brought back within the specified dates
o Legal fine print

This year's envelope employed a light, fun tone, proclaiming in oversized capital letters "Not that your shoes are ugly," and following with the text, "...but who couldn't use a new shoe wardrobe? A trip to, say, Vegas? Free Houlihan's for a year?"

Lastly, the envelope listed all the prizes being offered (see creative samples below)

- Build email list with prize

The envelope contained a certificate describing the customer's prize and asking them to fill out a form to "Enter to Win (Again)." This time, participants were vying for a shopping trip for the customer and three friends.

The form included a request for the customer's email address -- which is how the team increased its list 1% in its most recent December effort (see creative samples below).

Step #4. Work with a lawyer

Houlihan's is a national restaurant chain that operates in several states with different laws on contests and promotions. As a result, they had to work a lawyer who was experienced with promotions.

"[The program] is considered a sweepstakes and we have to be bonded and registered in the states that require it," Stone says. "We have to draw up the odds on how many we are going to print, how many franchisees participate, [etc]. There's quite an extensive role legal plays to ensure the program is set up correctly."

Your team will also want to consult an attorney to help set up your program and ensure that all the necessary disclosures and fine print are in promotional materials.

- Set a letter-opening procedure

The team required that either a manager or a "hospitality concierge" be present when a letter was opened. Having someone in a managerial role with an understanding of the contest rules present was important to ensuring the rules were followed and that customers' questions were answered.

Step #5. Maintain a steady seasonal schedule

The team decided to run this effort twice a year. They did not continually hold the contest for several reasons.

First, doing so would decrease the program's seasonal impact. Second, an ongoing discount program could skew customers' perception of Houlihan's quality. Third, having an ongoing prize program would reduce revenue.

The team also kept the biannual event on the same schedule to avoid skewing sales figures in unpredictable ways, which would complicate the analysis of this promotion and others.

- Use slightly different rules for seasonal differences

For its December efforts, the team only issued envelopes in December and accepted them in January. In the spring campaign, however, it handed out and accepted envelopes throughout the Mother's Day-July 31 period.

"In January, most people realize that it's a new day and a new year, and there's more of a cue that it's time to start redeeming," Stone says.

Step #6. Establish a fulfillment and tracking system

The team assigned a team member to ensure that all major prizes were fairly and legally distributed.

For example, for the prize of "free Houlihan's for a year," the team member made sure winners signed affidavits to receive a $100 Houlihan's gift card each month. Scheduling and managing the prizes is vital to ensuring customer satisfaction.

- Monitor response

In stores, the team programmed its point of sale system to record when prizes were redeemed, helping to monitor the campaign's response.

Also, managers stapled the certificates to the customers' checks and mailed them to Houlihan's corporate office for recording. This monitoring helped the team track redemption rates and trends, such as whether customers spent more when given a discount.

Useful links related to this article

Creative Samples from Houlihan's "secret envelopes" campaign

Members Library -- Direct Mail and SMS Combo Lifts Rewards Program Membership 5%: 5 Steps

Members Library -- One Promo Gift, Many Campaigns: 8 Steps to Recycle Offer and Double Conversion Rate

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