Why do we have an urge to jump for a FREE! item, even when it’s not what we really want? Would we buy something if it were discounted from 100 dollars to 20 dollars? Maybe. Would we grab it if it were discounted from 150 dollars to 0, free? I bet we would! Did you know that Coca-Cola introduced the first coupon for a free glass of Coke in attention 1887? For businesses just starting out, offering your normal service for free is a way to get attention to your products. People tend to be far more forgiving if they haven’t paid. Things that we would never consider purchasing become incredibly appealing as soon as they are FREE! For instance, have you ever gathered up free pencils at a conference, even though you’d have to carry them home and would only throw most of them away? Or something from a hotel in your vacation? Or have you bought 2 of a product that you wouldn’t have chosen in the first place, just to get the third one for free? The answer has to do with the different ways we process information.
Letting people try products free of cost has a lot of benefits:
- Popularizes a new product;
- Creates word-of-mouth so the new product reaches more people;
- Creates feedback about the product that helps refine it;
- Reaches out to new customers who may be hesitant;
- Creates new sales if people like the product;
People love freebies. Let me say that there are many times when getting FREE! items can make perfect sense. When you grab all the free products you can in a department store on Boxing Day. (the madness there!!) The critical issue arises when FREE! becomes a struggle between a free item and another item. According to standard economic theory (simple cost-benefit analysis), the price reduction should not lead to any change in the behavior of our customers. Wrong!! One of the biggest mistakes that business people make is to assume that the process is a rational and logical one. When something is FREE! we forget the downside of the products… FREE! gives us a perception that what is being offered is immensely more valuable than it really is. Why? Because we all have that feeling of loss. It’s in us from our first experiences. What we get and what we give up. Clarifying that “even a penny” could make a difference. When we choose the item that’s not free we get a feeling of fear that maybe we lost again. And so we go for what is FREE! But what would happen if the offer is a free exchange?
The trick to doing Free or Freemium business models right is to ensure that the product/service that we are giving away is of very high value to our customers. Amazon started offering free shipping for orders over a certain amount. Someone who purchased a single product for $16.95 might pay an additional $3.95 for shipping, for instance. But if the customer will buy another product the shipping would become free. More companies switched from pay-per-hour service to a monthly payment schedule and made the customers believe that this was a free bonus. Procter & Gamble hosted an enormous giveaway in New York. Throughout Manhattan, company representatives handed out more than 40,000 products. All are examples of social rewards that strongly motivate behavior. When consumers get something for nothing they respond surprisingly. Who’s been given a taste, tends to feel obligated to buy that feeling they’ve been given for free. Also, we find that consumer's preference for bonus packs over price discounts can be influenced or even reversed under certain circumstances. People perceive getting something free or extra as a reward, while a discount is viewed as just reducing the loss paid out of the pocket.
In all of this, we have a little problem. Social norms. You know that Woody Allen said: „the most expensive sex is free sex.” I agree with him and I will tell you that people will work more for a cause (free) than for money. They will work better if we’ll give them a small gift, (see the employment culture from Google) but if we mention what that gift costs they will disappear. Why? Because social norms are wrapped up in our social memory and our need for community feeling. It’s like opening a door for someone: it provides pleasure for both of us, and reciprocity is not immediately required. Instead, the market norms are different. The exchanges are economically sharped. Means you get what you pay for. Sometimes even you get less than you pay for. But we live on both sides. From time to time, we all need someone to help us move something. Asking a friend to help move a large piece of furniture or a few boxes is fine. But asking a friend to help move a lot of boxes free would make him feel that he’s being used. This social dance is also in the business world. In the last few decades, companies have tried to market themselves as social companions (they’d like us to think that) or as we are a family or at least friends. If customers and a company are a family, then the company gets several benefits…like ah!… LOYALTY!!. Showing your customers that they’re important they will refer more. Consumer behavior research has shown that people like being labeled, and they are more inclined to participate in the companies message if they feel included.
These are notes necessary for inclusion, and they create a deep bond. We need to even make people take action in order to feel they belong to an “elite” group of people. In comparison, we feel less compelled to reciprocate when no one directly interacts with us. Thus, we like the people who give us free stuff. But before we allow our customers to try sample everything in the store, know that offering too much can backfire. With more choices, our ability to simply pick one decline. Another approach is even if we are online stores we can always give small products tossed into orders as free gifts.
What activities your company does to let customers know how much you appreciate them?
But if you’re a company, my advice would be to remember that you can’t have it both ways. You can’t treat your consumers as a family one moment and then when is profitable to treat them market-wise. This is not how social relationships work. Because people will believe that if something goes badly the company will be there for them, to protect and help them. This is not the case…In fact, other than free, “instantly” may be the most persuasive word you can implement into your marketing strategy. And if you are selling outside the digital world use “quick” instead.
…But if you understand the concept you could do marvelous things. Want to draw a crowd? Make something INSTANTLY! Want to sell more products? Make part of the purchase QUICK! Want to go viral? Give products free or something free from the buying cycle.