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When Freebies Work

Posted by Cailin Sandvig on Feb 4, 2015 9:15:00 AM

Is there a situation when giving away your product for free can lead to more profits?  In the world of brick and motar retail, the answer is often yes. 

You are no dummy.  You can do the math.  When you give something away for free, you lose money and profits decrease.  However, in the case of brick and mortar retail, this logic is often defied.  Giving away freebies has the potential to increase how much a customer spends, expand your customer base and improve your revenue. 

Generate Buzz.  Research shows that getting your customers to endorse your products is just as effective at traditional marketing, at a significantly lower cost.  Customers are more likely to take a chance on a business or try a new product when it has been recommended by a friend.  A 2011 story in The Journal Of Marketing shows that consumers are 20% more likely to talk about a product they’ve received for free.  

Guide Purchasing Decisions.  People are more likely to try something new when it is free.  Then they have nothing to lose.  When you provide a product for free you direct your customers’ attention directly to it.   

Develop Buying Habits.  Consumers are creatures of habit.  They make purchasing decisions based on what products they know and are comfortable with.  Providing something for free introduces customers to new things.  Once the introduction has been made, each customer has the potential to become a lifelong devotee.  

Create Value.  When a customer receives something for free, they feel as if they have gained something.  When they receive a discount, a customer perceives a reduction in loss.  Your customers will feel there is more value in receiving a product entirely for free than they would if you offered a 10% discount, even if that discount saves them more money.

Are freebies right for every situation and every brick and mortar business? No. Can you hurt your profits by offering the wrong product at no cost? Yes. Consider the effects each of your offers will have your your business, determine what you want to accomplish and evaluate potential future value each customer can bring to your business. The key is to start small and observe.

 

Topics: Small Business Tips