Rafi Mohammed

A Dream for Red Sox Fans, A Nightmare for Jordan’s Furniture's Insurance Company

Posted on October 30th, 2007 (0 Comments)

Last month I wrote about a pricing promotion run by Jordan’s Furniture, a unit of Warren Buffett’s Berkshire Hathaway company. The four store Boston furniture retailer offered to refund all sofa, dining table, bed, and mattress purchases made between March 7 and April 16 if the Red Sox won the World Series.

It was an interesting promotion as it tapped into customers’ risk taking behavior. Instead of waiting for yet another monthly 10% – 15% off sale, they could forego a mundane discount in exchange for the chance for gratis furniture if the Red Sox prevailed in 2007. As it turns out, 30,000 customers participated in this furniture gamble and are in store for big refund checks.

Jordan’s has long maintained that it purchased an insurance policy to cover the possibility of a payout – though they refuse to name the company or its policy fees. In my September blog, I “ball parked” the cost of this policy at 10% of all sales…which seems reasonable. Earlier in the month, the Freakonomics blog investigated the costs of obtaining this type of insurance. Park Avenue Home Furnishings, a Libertyville IL furniture retailer, offered a similar promotion if the Chicago Cubs won the World Series. Lloyds of London insured the promotion for 2% of retail sales. But when the furniture company wanted to extend the promotion to cover the possibility of the White Sox winning the pennant, Lloyds demanded 18% of retail sales. ABC news quotes a promotion insurance company claiming they would have charged a 30% premium for the Red Sox challenge.

While Jordan’s refuses to reveal how much this promotion is going to cost its sleepless insurance company. CEO Eliot Tatelman provided the following hypothetical equation for the Boston Globe: “if the average order was $1,000, that would be $30 million in sales.” Of course some customers gambled big time. Tatelman revealed that one couple purchased over $100,000 of furniture to get in on the promotion. A New Hampshire motel also reportedly purchased “a large amount” of furniture. While it’ll be a big payout, if the insurance company happens to be a Warren Buffett company, we know that Warren is “good for it.”

This was a brilliant pricing promotion. Instead of running yet another 10% off sale, Jordan’s creatively tapped into consumers’ willingness to go for a big payout. This promotion garnered millions of dollars in free publicity – not just now, but even when the promotion was running earlier this year – its nouveau nature attracted the press’ attention.

Of course, the big question is whether Jordan’s will run the same promotion next year. As CEO Tatelman told the Boston Globe this morning: “I would love to, but I don’t know if I can. What insurance company is going to insure me now?”

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