Cookie Cards in Palatine, IL, started successfully running red envelope specials in 2011. 

For the notoriously slow months of the year, special promotions are almost always worth the time and effort, even with the low return rates that retail bakery owners have come to expect. But one specific type of promotion, the so-called “red envelope special,” has proved to be an incredibly successful pick-me-up, especially during periods when business becomes sluggish.

About four years ago Larry Merritt, of Merritt’s Bakery in Tulsa, OK, was having dinner with his wife at a local Mexican restaurant when the idea struck him. The restaurant was handing out a sealed green envelope to each table of patrons with instructions to save and not open it, and to bring the envelope back to the restaurant in roughly a month’s time. When the customer returns with the envelope during the determined “envelope opening” period, the envelope is opened to reveal a guaranteed prize.

“They were giving away an appetizer or a dessert, dinners, complimentary stuff,” Merritt says. “I was sitting, eating with my wife, and I thought, ‘This’d be real interesting. Do it in a bakery, give anything away from an entire cake to a few cookies. Then I kind of forgot about it.”

A few months later Merritt, former president of Retail Bakers of America and co-founder of RPIA, was asked by a group to give a talk about various promotional ideas. While looking for materials to present, Merritt suddenly remembered the green envelope idea. He presented the idea, with the same key factors aside from red envelopes instead of green, before trying it out himself. “A bunch of people went out and tried it and came back saying, ‘We’re having 30% and 40% return rate results,’ which is just unheard of,” Merritt says. “Most of the time it’s 5-10% max, but people were getting anywhere from 15% to 40%. So I tried it out and I had around a 30% return. I gave out 5000 envelopes and 30% came back — which came out to something like a 20% increase in sales.”

Merritt says some bakers were giving away huge prizes like iPhones and iPads, but he chose to keep his prizes bakery-related. “I gave away $100 and $500 gift certificates,” Merritt says. “Lots of single donuts, single cookies, cakes — it really wasn’t that complicated.”

Cookie Cards in Palatine, IL, gave the red envelope a try for the first time during the 2011 holiday season after they heard about the idea at a baking show earlier that year. Kerri Callahan, creative director for Cookie Cards, also chose to keep the prizes simple and product-related. “We did a wedding cake for this year’s big prize, which can be quite expensive,” Callahan says. “That was a $750 prize, but I wasn’t putting any money out for it. The nice thing for us is that this promotion costs the amount of money in envelopes and little pieces of paper.” Callahan estimated this amount to be just $50.

For the 2011 and 2012 holiday seasons, Cookie Cards began offering the envelopes after Thanksgiving up until Christmas Day, and asked customers to return them anytime after Jan. 1 and before the end of April. Callahan says one prize has guaranteed a returning customer each month: free cookies for a year. “The woman who won that last year — she lights up every time she comes in,” Callahan says. “When she comes in to get her dozen cookies, she buys other stuff every time. When we started the promotion we were a boutique cookie bakery, and we’ve added cakes, cake pops, parfaits and things of the sort, so she’s definitely adding more every single time she comes in.”

The smallest prize Cookie Cards offers during its red envelope special is a free decorated cookie. Other prizes include 10% and 20% off an entire order and a free birthday cake, which serves 8-10 people, for ten years.

This kind of promotion works best as a bolster to months that see slumping sales. “January and July are really slow months,” Merritt says. “There’s the heat in July, and they just want to sleep by the time Christmas is over.” The special doesn’t require a lot of preparation aside from the envelopes and prize slips themselves, and it guarantees a number of returning customers, many of whom tend to purchase other items in addition to their specific prizes.