The Hoover Flights Fiasco and Unilateral Contracts

The Hoover Marketing Promotion

I have written in a previous post, How Not to Run a Successful Loyalty/Reward Marketing Promotion, about what has become known as the Hoover flights fiasco. To explain what happened briefly; in 1992, Hoover ran a promotion that promised two free seats on flights to Europe or America to any customers buying a Hoover product that cost £100 or more.

The promotion was enormously successful in encouraging people to buy Hoover products, but enormously unsuccessful in how much Hoover had to pay for flights. One estimate put the Hoover sales at £30 million and the cost of the flights at £50 million.

In my previous post I raised the question of why Hoover did not simple pull the plug on things when they knew the promotion was not doing quite what they wanted.

One answer, the PR answer, is that Hoover had already suffered serial PR disasters because of the promotion and how they were handling it. Pulling the plug would have just made things worse – exactly how much worse it could possibly have got is debateable, however.

I suggested that there might also be a second answer that is worth exploring, the unilateral contract answer. This answer is all to do with the nature of unilateral contracts, a type of contract that involves one person promising something in return for another carrying out an act.

It may have been the case that even if Hoover had cancelled the promotion sooner there would have been customers who would have been entitled to claim flight tickets because they had entered into a contract with Hoover to that effect, even though they had not yet bought a Hoover product.

 

English Contract Law

English contract law has historically recognised only bargains as creating legal obligations between two parties. A bargain involves an exchange: I give you something and you give me something in return. What we exchange may consist of an exchange of promises – such a contract is usually known as a bilateral contract.

 

Less often encountered, but still important, is the unilateral contract. With this type of contract what is exchanged is one person’s promise in return for another’s act. Rewards are good examples. If you see my advertisement offering £100 for the return of my lost dog (a promise) your returning the dog (an act) creates a contract.

 

In most cases, contracts consist of an offer and an acceptance. One person offers something that another person accepts. In a unilateral contract, the promise is the offer and the act is the acceptance. For example, I offer a reward for the return of my lost dog and you accept my offer by the act of returning my lost dog.

 

Usually, the person who makes an offer (often referred to as the offeror) can change her mind and cancel the offer. In technical contract language, the offeror is said to revoke her offer. However, to revoke an offer the law makes two stipulations: the offeror must communicate her revocation to the other party (who is known as the offeree) before he accepts it. This all seems to make perfectly good sense.

 

Unilateral Offers and Revocations

Let me give you an example of what could potentially form a unilateral contract. I promise you £1000 if you run and complete the London marathon. You make no promise to run the marathon; however, on the due day you are there in the starting line-up. If you complete the marathon; a unilateral contract is formed and I owe you £1000.

 

Just recall what I said about revoking offers: the offeror (I’m the offeror in the marathon case) can revoke an offer at any time before it is accepted by the offeree (you are the offeree in the marathon case) so long as she communicates that revocation to the offeree. Therefore, I can revoke my £1000 offer by communicating my revocation to you at any time before you accept it. If you think about it, this presents a problem where unilateral offers are concerned.

 

With a unilateral contract the question arises at what point does the acceptance take place? The acceptance is an act and an act is something that has a start and an end. An act is not instantaneous. In the marathon case, your act is going to be of several hours duration.

 

Although there are arguments to the contrary, in the marathon case the acceptance is likely to be when you cross the finish line because this is what I asked for – I asked you to run and complete the race.

 

Thus, if acceptance of my promise occurs only when you cross the line, according to the revocation rule I can revoke my offer at any time before you accept it – that is before you cross the line - so long as I communicate this revocation to you. We could, therefore, have a situation where you have completed 26 miles and some 350 yards when I jump out from the crowd and tell you my offer is revoked.

 

If I am allowed to revoke successfully my offer at this late stage, it seems unfair but it seems to be where the principles of contract law have taken us. Does English contract law really allow me to do this?

 

A Way Out of the Unfairness

I should guess that most people would say that allowing me to revoke my offer in the circumstances above would be very unfair. Contractual principles may appear to allow this but surely, many would say, you should be given the chance to finish your act once you have started it. The key points here are that you have acted in good faith in reliance on what I promised you.

 

It seems that English contract law would agree with this opinion. The position would appear to be that where there is a unilateral offer; revocation will not be allowed once the offeree has embarked upon the act. In most cases this seems pretty sensible. The position in English law was explained by Goff LJ in the case of Daulia Limited v Four Milbank Nominees Limited 1978.

 

The judge begins by saying that “…the true view of a unilateral contract must in general be that the offeror is entitled to require full performance of the condition which he has imposed and short of that he is not bound…”. Thus in the marathon case this means that you are entitled to you money only when you cross the line.

 

The judge continued by saying that “…there must be an implied obligation on the part of the offeror not to prevent the condition becoming satisfied, which obligation it seems to me must arise as soon as the offeree starts to perform.” Once you start to perform your act, therefore, I am unable to revoke my offer. Certainly, then, at the point the starters gun fires, I am unable to revoke my offer.

 

The question then is: what has this all got to do with the Hoover case?

 

The Hoover Case and Unilateral Contracts

Unilateral contracts are sometimes called “if” contracts or “if then” contracts because their form is always the same: if you do this then I’ll do that. If you run and complete the London marathon then I’ll give you £1000; or if you buy one of our Hoover products then we’ll give you two flight tickets from the UK to Europe or the USA.

 

Hoover had originally made their offer in August 1992 and it was set to run through until the end of January 1993. There is nothing preventing you revoking an offer even though you have said that you’ll keep it open for a certain period of time. Therefore, Hoover could have revoked their offer at any time before it naturally came to an end in January 1993.

 

What would the position have been had Hoover attempted to cancel their promotion – that is, to revoke their offer – in, say, December 1992? The question is whether such a revocation would be effective? From what was said above, a unilateral offer cannot be revoke once the offeree has begun the act that was requested in the offer.

 

The revocation would be effective with regard to anyone who had not begun the act of buying a Hoover before the point of revocation. Let’s say that the point of revocation was the 12 December 1992. That all seems straightforward enough doesn’t it. If you started the act of buying a Hoover product prior to that date; you’d be entitled to your flight tickets. But what would constitute the act of buying a Hoover Product?

 

The Requested Act

If the act of buying is handing over your money in a store then most of what follows is redundant. The act of buying, however, may be something more complex than that and may start even before you walk into the store. Let’s go back to the marathon.

 

I ask you to run and complete the marathon. It is highly improbable, not impossible but certainly highly improbable, that you’d simply go out and run a marathon without at least a few weeks training – perhaps 3 – 6 months training would not be unreasonable. The rationale for the rule against revoking once the act has started is that it is unfair to the offeree. It is unfair to the offeree because he relies on what he is promised and adjusts his position accordingly.

 

If I promise you £1000 to run and complete the London marathon your preparation for this may take up a considerable amount of time and be considerably expensive – you may need to buy sports clothing and who knows what else. Thus there may well come a point where your preparation is sufficiently detrimental to you – in terms of cost - that I will be unable to revoke my offer and deny you the opportunity to complete the act that was requested.

 

You can apply similar reasoning to the Hoover case. Let’s just stay with a fairly simple situation that could have occurred. It is quite conceivable that a potential purchaser may have decided that he would not buy a Hoover until the New Year. There could be any number of reasons why he might so decide. He may wish to save some money each week, for example. It is possible to think of multiple variations on such a theme as this that – should Hoover have cancelled their promotion - the fertile minds of customers denied their free flights might construct.

 

Conclusion

I’m not sure that the people at Hoover sat around discussing the jurisprudential niceties of unilateral contracts. I expect that the reasons that the promotion was allowed to run its course was that Hoover thought the PR damage was already pretty bad and a cancellation could only make things worse.

 

I’m pretty sure that someone did a calculation and came out with a worse case position in terms of the likely numbers of people who might take up the flights offer. However, I can’t believe that the figure of £50 million would have been arrived at and accepted.

 

I wonder, though, if someone with an astute legal mind might just have raised a warning about the problem of unilateral contracts. She might have reasoned that an early cancellation might cause greater problems. Hundreds, perhaps thousands, of frustrated customers might argue that they had begun the act of purchasing a Hoover. This would bring further bad PR, heavy legal bills and, potentially, defeat in the courts, should things have gone that far, in many cases.

 

 

It’s interesting to speculate what might have happened had Hoover cancelled their promotion. What is almost certain is that any ruling that a court made – should litigation have occurred - would have been restricted to a very narrow point of law, which would have focused a light on other contentious questions of unilateral contracts: Questions to which I will return in future articles.

 Garry Costain is the Managing Director of Caremark Thanet, a domiciliary care provider with offices in Margate, Kent. Caremark Thanet provides home care services throughout the Isle of Thanet. Garry can be contacted on 01843 235910 or email garry.costain@caremark.co.uk. You can also visit Caremark Thanet's website at www.caremark.co.uk/thanet.

How Not to Run a Successful Loyalty/Reward Marketing Promotion

This Is Marketing Genius

If I were to tell you that I've got a sure fire marketing strategy that you can use to increase substantially the sales of your products and services: would you want to hear about it? Of course you would.

If I told you that I'm going to give you the benefit of my advice free of charge: would that please you? Of course it would.

Let me then tell you what my piece of marketing genius involves. It involves a very clever loyalty/reward marketing scheme. A scheme that you might call a buy one get two free promotion. A promotion that involves you selling one of your products or services and giving away two of somebody else’s products or services.

Like I said; this is a sure fire way to increase your sales. It really is a little bit of marketing genius. I should consider charging outrageously for this advice.

Now that you are armed with this information: are you going to give my promotional scheme a shot? Of course you’re not.

I know what you’re thinking. You’re thinking that this is not a piece of marketing genius it's a piece of business suicide. Who in her right mind is going to sell one product or service and give away two others? Not just any two other products or services but two others that are from another company!

I appreciate why you might be a little sceptical, perhaps even a touch cynical. No marketer would ever dream of doing something like that: would she? Even if she dreamt up such a scheme, she’d never be foolish enough to run it by her bosses: would she? Even if she ran it by her bosses they’d never accept it: would they?

Surely running with a scheme like this would demand a catalogue of crazy miscalculations and a display of ineptitude on a colossal scale? Precisely. Let me, then, tell you about the Hoover flights promotion fiasco.

If you saw this offer: buy one Hoover get two flights free…

…would you refuse it? It is very difficult to believe many people would refuse an offer like that. Believe it or not that’s exactly the offer that Hoover made in the UK in 1992. And yes people found it difficult to resist.

The promotion promised two free seats on flights to Europe or America to any customers buying a Hoover product that cost £100 or more. It would be just a tad of an understatement to say that Hoover sold a lot of units.

The public went wild for Hoover vacuums. Something like 200, 000 were sold – or if you like about 500 jumbo jets worth of free seats. Hoover had to take on extra staff to meet the production demands. However, as The Independent reported in 1998, although there were winners – airline companies and the tax man:

“The cost to Hoover…was enormous. The [£30 million] of sales generated by the offer was dwarfed by the [£50 million] it spent on airline tickets. And the publicity heaped on the company was devastating. In the end Hoover paid the ultimate price…when its European arm lost its independence.”

If it’s too good to be true…

…it usually is too good to be true, but not if it’s Hoover offering flights in return for the sale of one of its products: back in 1992 this offer was true and it was good. It was good if you were a purchaser of a Hoover. It wasn't so good if you were any other stakeholder in Hoover.

The obvious question is how such a scheme got the go ahead? My guess is that it was a horrendous miscalculation. Those making the decisions probably had discussions around how many people would actually take up the flights and concluded that a large number of people simple would not take up their seats, particularly if the terms in the small print are sufficiently onerous. They hadn't counted on the Hoover purchasing public's tenacity. As the BBC reported:

‘The promotion was simply too generous. Spend just £100 on any Hoover product and two free return flights…could be yours - though only if you were determined enough to make it through the maze of small print and Hoover's travel agents' attempts to sell you profitable extras designed to offset the cost of the promotion.”

When it became clear that people were not being put off by the small print hurdles Hoover made the monumental PR blunder of putting further obstacles in the way of people wishing to fly. As Rob Page explains

“As the numbers of vouchers piled in to the travel agents, they created another rewards marketing blunder, they made it more and more difficult to redeem their rewards.  One of the biggest “Do’s” in loyalty/reward marketing is to make it easy and fun.  The agents were instructed to stop the bleeding by not accommodating travel requests (such as airports and travel days) and by strictly enforcing the small print.  Consumers were no longer having fun and demanded that their rewards be redeemed.
The outcome was a total disaster and Hoover’s Free Flights Rewards program quickly became a Free Flights Fiasco.”

A Great Marketing Disaster

The Hoover case is used in marketing classes all over the country – and abroad - as a perfect example of a marketing disaster and how not to run a loyalty/reward scheme.

One question that is less often asked is why Hoover didn't just pull the plug when things were going from bad to worse to career ruining calamity? If it is addressed, the answer that question that is usually explored is that to have pulled the plug would have added further PR woe to what was already a cataclysmic marketing disaster.

Another answer that might be explored in law schools rather than marketing schools is that it may well have been too late to cancel the campaign in many cases. Had Hoover cancelled the campaign they may well have encountered one of the thorny issues of English contract law.

The thorny issue is all to do with something called unilateral contracts. Had Hoover cancelled, some of its customers may have been able to argue that they were already contracted with Hoover for the flight tickets even thought they had not yet purchased a Hoover.

And that nugget of English contract law will form the subject of another post.

Garry Costain is the Managing Director of Caremark Thanet, a domiciliary care provider with offices in Margate, Kent. Caremark Thanet provides home care services throughout the Isle of Thanet. Garry can be contacted on 01843 235910 or email garry.costain@caremark.co.uk. You can also visit Caremark Thanet's website at www.caremark.co.uk/thanet.