What’s working in premiums today—and what isn’t working? To find out, I conducted an informal survey of circulation directors and asked them the following questions:

• Is there a point at which a premium stops being an added incentive to subscribe and becomes an outright bribe?
• What works best—an information premium or merchandise? And if you use merchandise, must it relate to the magazine’s editorial content or reader demographics?
• Must a premium-generated subscription also be renewed with a premium?
• Is a person who subscribed because of a free calculator or clock worth less to advertisers than a subscriber who was motivated by the offer of a premium more closely related to the magazine’s editorial content?

These issues were discussed with circulation directors at Advertising Age, Money, Fortune, Rolling Stone, and Business Week. Here is what they had to say:

Ad Age’s “Marketing Genius”

“We may be unique in the publishing industry,” says Dave Kelley, circulation manager for Advertising Age.” I don’t know of many trade publications that send out a premium.”

Kelley’s choice of premium is also unique: a coffee mug imprinted with a mock-up of the magazine’s front page and the headline, [JOHN SMITH] “WINS MARKETING GENIUS AWARD,” which is personalized with the individual subscriber’s name. The mug costs Ad Age $3.60 plus $2.00 for the personalization and $1.34 for UPS delivery—a total of $6.94 per premium.

Ad Age has been offering the personalized mug since 1981. To date, they have given away more than 40,000 “Marketing Genius” cups to direct mail-generated subscribers. And they’ve sold an additional 4,000 mugs to people who wrote in asking if they could buy one, even though the mug has never been advertised as a separate item. “Its popularity is amazing,” notes Kelley.

The magazine has tested the coffee mug against other merchandise premiums (umbrellas, gym bags) as well as against advertising and marketing books published by Ad Age’s parent company, Crain Communications. The mug has been a consistent winner, and Kelley has no immediate plans to test other premiums against it.

The original mug mailing performed well from 1981 to 1983, but response began to decline during 1984. In December of 1985, Ad Age tested a package that stressed the mug offer more heavily and used laser personalization in a unique format. That package is now the control.

The new package’s brochure shows a photo of the mug and is laser-printed so the headline on the mug features the recipient’s name: “This really gave our mug mailing new life,” says Kelley. “The laser package works and is cost-effective.”

Actually, Ad Age alternates two controls in the mail: one with the premium and one without. Kelley explains: “We have a small, finite target universe, and we mail to the same people year after year. So we can’t mail mug promotions all the time, or it would become stale.” Kelley estimates the size of his potential subscriber base at 750,000. Currently, Ad Age has 91,000 subscribers and 400,000 readers.

The non-premium control offers a deep discount instead of a mug. In terms of results, the premium package generates more net paid orders, but the discount package pulls at a lower cost per order. Ad Age’s standard renewal rates of the premium—and non-premium—generated subscribers are identical.

Many of the subscribers who respond to the non-premium package find out about the “Marketing Genius Award Mug” and write in to ask why they didn’t get one. Kelley receives approximately 1,200 such requests a year. His response is to send a special package offering the mug in exchange for an early renewal.

The current premium package mentions the free “Marketing Genius Award” on the outer envelope, brochure, and order form. The order form is labeled “Award Acceptance Certificate,” and the business reply envelope is addressed to the “Award Fulfillment Center.”

“If you use a premium, stress it in your package,” advises Kelley, “but be sure you also talk about the magazine. We want people to subscribe to Ad Age because they want the magazine, not because they can get a mug. We think what the mug does is to induce trial—and that’s the value of a premium.”

Kelley notes that although Ad Age uses a merchandise premium, it relates directly to the editorial product. “It seems that the closer you can attach the premium to the magazine, the better your chances for success,” he says. “All I can tell you is this is the first premium I’ve done successfully.” He adds that the mailing package offering the mug won gold awards from Folio: and AABP and first place in the Direct Marketing Association of Detroit’s 1986 Awards.

Why is the “Marketing Genius Award Mug” so successful? “In the market we serve—advertising and creative people—the ego perhaps weighs more than the national average,” quips Kelley. “That the premium has their names on it and refers to them in a flattering way probably has more to do with its success than the fact that it’s a coffee mug.”

Fortune’s multiple premiums

Fortune’s current direct mail package offers three premiums. Fortune Fax, the primary premium, is a combination address book and daily planner and includes a credit-card size calculator. A second premium, Fortune Financial Planner, consists of a series of worksheets the subscriber can use to calculate cash flow, taxes, and net worth. Investor’s Guide, the third premium, is a special issue of the magazine published in October 1987.

“We use multiple premiums to create an additional incentive to buy and also for display purposes,” explains Fortune circulation director Ken Godshall. “If you have multiple premiums, the direct mail subscription agents give you more promotion space in their packages. So a second premium helps us get a greater ‘share of mind.’” New subscribers who order through subscription agents or in response to Fortune’s TV commercials receive Fortune Fax and Investor’s Guide but not Financial Planner.

Premiums for Fortune and other Time, Inc. Magazines are purchased by a separate premium department at the company. Most items come from Hong Kong. By centralizing premium purchasing, Time enjoys substantial volume discounts. Godshall says the cost is approximately $4-$5 for Fortune Fax and less than $1 for Financial Planner.

“The Fax is an important part of our offer.” Godshall says, “Our experience is that there are a lot of potential subscribers who need just a little extra something to make them subscribe. These relatively inexpensive premiums related to business are effective. They increase trial subscriptions, and we find we can sell more efficiently with a premium than without one.”

Adds Godshall, “The Fortune Fax and Financial Planner, like most of the premiums we have used in the past [including desk items and financial software], relate to the interests of our target reader. We want Fortune-compatible readers—not people ordering just to get a free gift.”

Like many publications, Fortune has increased its use of premiums over the past several years, and advertisers have occasionally expressed concern about the quality of subscribers generated through premium offers. Research, however, shows no evidence of a decline in the typical Fortune reader.

“We’ve kept close track of our subscriber quality over the years to make sure premiums haven’t affected it, and basically, we don’t think they have,” says Godshall. “Median age has not changed that much; personal and household income have increased smartly in line with our competition; the percentage of managers reading Fortune has increased slightly; and the level of education is virtually the same as it was several years ago when we used premiums less extensively. So subscriber quality has not declined as a result of using premiums.”

Market research designed to measure reader involvement also indicates no adverse effects from premium usage. According to Godshall, the number of hours readers spend with each issue has remained the same, while the number of times each issue is picked up and the percentage of subscribers who claim to have read three of the last four issues has increased slightly.

Most important, readers responding to Fortune surveys say that premiums are way down on the list of reasons they subscribe. Number one on the list is keeping up with business news, number two is to get information they can use on the job, and number three is that Fortune is enjoyable to read. Getting a premium was number 12 out of a possible 16 reasons featured in the research survey.

“Apparently, the premium doesn’t dominate the reasons they decide to buy,” says Godshall.

No matter how successful the Fortune Fax may be, Godshall plans to continue testing premiums. The reason? After a major campaign or two, he says, the premium gradually becomes less effective as more of the target audience buys the magazine and gets the item. He estimates that the average Fortune premium will start to fatigue after one or two years of use. The magazine is currently testing an information premium that consists of three booklets containing reprints of past articles.

Although premiums have been a part of circulation promotion for more than a decade, Godshall notes that their use has grown dramatically during the past five years. He adds, however, that premiums have probably peaked and that magazines will use them on a more moderate basis in the future. Alternatives to premiums, he notes, include deep-discount offers, risk-free trial issues, short-term subscription offers, and sweepstakes.

“We all need some incentive to get the consumer to act,” Godshall observes, “and every publication has one or more of these techniques in its arsenal of direct response marketing weapons.”

A “starter kit” for Money

“Our current premium, which is a proven winner, consists of reprints of editorial material that is virtually timeless and of key interest to our readers,” says Diane Potter, circulation director of Money magazine. “We offer a set of ‘how-to’ booklets that give subscribers a head start on getting a hold on their finances, and this is a natural extension of our magazine.”

The premium, called The Financial Advisor, is made up of three special reports: How to Invest and Win, How to Retire Worry-Free, and How to Save on Taxes. Each booklet contains 16 pages of reprinted articles from past issues, and the booklets are updated every six months to keep the information and topics timely.

Potter has conducted extensive premium testing and finds that for Money, the editorial premium works best. Merchandise premiums—including a calculator—were less successful than the reprints, and books performed even more poorly. In one split test on insert cards, Potter tested the Financial Advisor against an offer with no premium. “The premium significantly boosted response and paid for itself,” she observes. The current control mailing combines the Financial Advisor premium offer with a sweepstakes.

Based on test results, Money will continue to offer reprinted editorial as its premium. “Premiums do work,” says Potter. “They can add value to a subscription offer and boost response. Premiums don’t change who wants your magazine, but they do serve to convince fence-sitters—prospects who are undecided—to give you a try.” While other circulation directors complain of depressed response rate, Potter says Money has never been stronger in terms of response or subscriber base.

Money’s renewal efforts are a mix of premium and non-premium offers. The renewal premiums tend to be financial worksheets the reader can use to calculate net worth or manage tax payments.

“We find we can renew a premium-induced subscriber without a premium,” says Potter, “but, as in any business, if you find something that brings in even more business and pays for itself, why not use it? Our readers are pleased with what the magazine offers, so if they can get more of it in a premium, they will.”

Because the Financial Advisor is an editorial premium, Money’s advertising department is not concerned about the effect of a premium offer on subscriber quality. “The advertising department views the premium as simply another statement from the consumer that our editorial is valuable,” says Potter, adding that the Financial Advisor can, in a sense, be viewed as a “starter kit” for new subscribers. “Offering article reprints is a way of saying to the new subscriber, ‘You’ve missed a lot of great editorial in the past; now you can catch up with it,’” she notes.

Another advantage of the editorial approach is low cost. “Editorial premiums are certainly on the low end of the price scale,” says Potter. “We look for a premium to pay for itself—to break even or better—and the Financial Advisor does.”

Interestingly, Potter does not necessarily recommend editorial premiums for every publication. “Each magazine must know its consumers and what’s right for them,” she observes. “The key is understanding your reader and the benefits your magazine provides to him or her—and speaking to those benefits when you sell.”

Rolling Stone’s nostalgic appeal

Editorial premiums are most often thought of in association with news, informational, or how-to publications, but rarely with feature or entertainment-oriented magazines. Yet, Rolling Stone has had tremendous success with its two editorial premiums: First Issue Reprint, a reprint of the 1967 premiere issue, and Classic Portraits, a collection of 30 classic Rolling Stone covers (each suitable for framing if removed from the book).

Cost is 50 cents for the first-issue reprint and approximately $2 for the cover collection, even though the latter is printed on high-quality stock. Rolling Stone owns exclusive rights to the material, which keeps it affordable.

Focus groups cannot forecast results, but they can let you know if you have a potential disaster on your hands.

Although Rolling Stone uses direct mail, subscription agents, and other sources, most subscriptions are generated through direct-response TV commercials running primarily on MTV, says Diane Morgenthaler, circulation director. To accommodate MTV’s programming schedule, Rolling Stone alternates its two-minute direct response commercial with a one-minute version. Both versions offer the two premiums, and the commercials have not been split tested.

In the early years of Rolling Stone, says Morgenthaler, a “roach clip” was used a premium. “We’ve come a long way since then!” she notes. “Through research, we have developed a fine premium that meets our audience’s desires and is related to our editorial product. Our readers enjoy the magazine, are nostalgic about rock stars, are visually oriented, and appreciate fine photography”—hence the appeal of the first-issue and classic-covers reprints.

Rolling Stone has used Classic Portraits for several years. The book is updated every 18 months or so and continues to pull well with no drop in response. In 1987, to take maximum advantage of its 20th anniversary, Rolling Stone added the first-issue reprint to its basic offer as a secondary premium. The item was an instant hit with new subscribers.

According to Morgenthaler, 1987 was Rolling Stone’s best year ever in direct response television. “Our 20th anniversary was gangbusters for us. The celebration generated loads of extra publicity and hype, and we saw the results in the response to our TV commercials.”

The current premiums are so successful that Rolling Stone has no immediate plans to test new ones. “If we did test, it would not be on TV, because it’s too expensive to create two different test spots offering two different premiums. We would probably use insert cards or direct mail to test a new premium, even though we don’t do a lot of direct mail.”

Premium ideas are generated in brainstorming sessions and then presented to focus groups for feedback. “Focus groups cannot forecast results,” says Morgenthaler, “but they can let you know if you have a disaster on your hands by revealing a problem inherent with your choice of premium or with people’s perception of its value.”

Rolling Stone does not use a premium in renewals. “We have an absolutely fabulous renewal rate without a premium.” Morgenthaler notes, “I would try a premium if I needed it. But, with renewals as good as they are, I have no reason to add a couple of dollars to renewal costs.”

The effect of the premium offer on subscriber quality has never been an issue because, as Morgenthaler points out, the premium is the magazine—literally. Has this convinced Morganthaler that an editorial premium is always best?

“I think that any circulation director who could find an editorial premium that would work for his or her magazine would use it,” she says. “For one thing, it’s easier to sell your publisher on an editorial premium than on using electronic merchandise.”

“In our case, our subscribers have a strong affinity and emotional involvement with the magazine, and I’d like to continue to play to that if I can. So if I could find a suitable editorial premium, I’d try that before merchandise. That’s not to say that if they ever get compact disk players down to a reasonable price I won’t try an electronic premium some day!”

Must the premium be related to the editorial product to work? “On some magazines, a totally unrelated premium can be profitable,” concedes Morganthaler. “Here, you are selling the item as added value for the price of your subscription. However, the item must still appeal to the demographic profile of your subscriber. My personal preference, however, is to relate the premium to the editorial product and reinforce the relationship between our reader and the magazine.”

Business Week’s premium policy

Kitty Williams, vice president of circulation at Business Week, says the publication has a firm policy concerning premiums. “The premiums we use must always be business-related,” she explains. “We are sensitive of the demographic profile of current and potential subscribers, and we feel strongly that other kinds of gimmicky premiums—say, a Rubik’s Cube, or something similar—are not appropriate for our audience.”

Business Week has tested three basic categories of premiums: merchandise, including a desktop solar calculator, desk clock, and “Office on the Go” (a portable kit containing tape, ruler, and other desk items); books, including The One Minute Manager and In Search of Excellence; and a set of article reprints packaged as the Business Week Executive Portfolio.

The winner? The solar calculator—which has been offered in various Business Week mailings for five years, according to Williams, who adds that “nothing has ever come close to it” in performance.

One strong appeal of this item, she says, is that the calculator is solar-powered and requires no batteries. Because Business Week buys the calculator in large volume, the price is in line with what other publications are paying for their premiums.

Book premiums have not tested well. “Once people make a decision to purchase something to read, they don’t want to be forced to make a second ‘purchase’ at the same time,” Williams explains. “Books aren’t tantalizing enough: they’re not ‘sexy.’ By the time we were able to get our In Search of Excellence package in the mail, the book had gotten so much press it was stale. We were faster with The One Minute Manager, but it still didn’t pull well.” Another possible danger of using a best seller is that potential subscribers may have already read or bought the book by the time it’s offered as a premium.

As for Executive Portfolio, the article reprint offer flopped domestically but did well internationally, and it is now the control premium for overseas subscription offers. Why the difference? “Overseas, there is not a lot of U.S. business news available, so people are eager to get their hands on anything they can read,” Williams theorizes.

Business Week’s current control is a computer-personalized Wallace “CIM” mailer. In this format, the outer envelope is opened by tearing along a perforation: to remove the contents, the reader pulls on a tab. Inside is a combination computer letter and tear-off reply element, a buck slip featuring the solar calculator, and a business reply envelope.

Says Williams, “We’ve tried everything from standard packages to triple postcards. For us, this is the package that, for whatever reason, beats everything else.” Every piece mentions the calculator and reminds the reader that the premium is sent upon receipt of payment.

Business Week has tested these mailers with and without the premium offer. Not surprisingly, response is significantly depressed without the premium.

“Everybody expects a premium,” notes Williams. “You cannot market in today’s circulation environment and ignore the lift of premiums.”