When free is not REALLY FREE!
Freebie marketing, is a model wherein one item is sold at a low price (or given away free) like a printer in order to increase sale of a complementary good like inkjet cartridges. Computer printer manufacturers have made sure that their printers are incompatible with low-cost ink and refill cartridges. This is because the printers are often sold below the market price to generate sales of proprietary cartridges
Many in the marketing field make extensive use of the freebie marketing business model, as many products are promoted as having a "free" trial, that encourage consumers to sample the product and pay only for shipping and handling.
Freebie marketing, is a model wherein one item is sold at a low price (or given away free) like a printer in order to increase sale of a complementary good like inkjet cartridges. Computer printer manufacturers have made sure that their printers are incompatible with low-cost ink and refill cartridges. This is because the printers are often sold below the market price to generate sales of proprietary cartridges which will generate profits for the company over the life of the equipment.
In fact, in certain cases, the cost of replacing disposable ink or toner may even approach the cost of buying new equipment which includes cartridges, although the cartridges included are often 'starter' cartridges that are only partially filled. Methods of vendor lock-in include designing the cartridges in a way that makes it impossible for others to refill. King Gillette, the razor king quickly realised that a disposable razor blade would not only be convenient, but also generate a continuous revenue stream. He sold razors at an extremely low price to create a market for disposable blades.
Freebie marketing has been used in business models for many years. The Gillette Company still uses this approach, often sending disposable safety razors in a mail to young men nearing their 18th birthday, packaging them as freebies at public events that Gillette sponsors. Comcast, the DVD maker gives away free DVRs to its subscribing customers. However, the cost of giving away each free DVR is offset by a $19.95 (Rs 1200) installation fee as well and $13.95 (Rs 840) monthly subscription fee to use the machine. Based on an average assumed cost of $250 (Rs 15,000/-) per DVR box to Comcast, after 18 months the loss would balance out and the company will begin to generate a profit.
In recent times, video game consoles have often been sold at a loss while software and accessory sales are highly profitable to the console manufacturer. Many in the marketing field make extensive use of the freebie marketing business model, as many products are promoted as having a "free" trial, that encourage consumers to sample the product and pay only for shipping and handling. Advertisers of weight reducing products targeting dieters hope the consumer will continue to pay for the product to be shipped at inflated prices, and this business model has witnessed success.
Websites specialising in sampling and discounts have proved to be very popular with economy minded consumers, who visit sites which utilise freebies as bait. Tying is a variation of freebie marketing where one has to buy one product to get another product. It is often illegal when the products are not naturally related. Some kinds of tying, especially by contract, have historically been regarded as anti-competitive practices. The basic idea is that consumers are forced to buy an undesired good (the tied good) to purchase a good they actually want (the tying goods), and so would prefer that the goods be sold separately.
Another common example is how cable and satellite TV providers set up contracts with content producers. The production company pays to produce 25 channels and forces the cable provider to pay for 10 low-audience channels to get a popular channel. Since cable providers lose customers without the popular channel, they are forced to purchase many other channels even if they have a very small viewing audience. A free sample is a portion of a product (could be a beauty product) given free (without any payment or obligation) to consumers at shopping malls, supermarkets, retail stores or other venues.
Sometimes samples of non-perishable items are included in direct marketing mails. The purpose of a free sample is to acquaint the consumer with a new product so that the customer is able to try out the product before purchasing it. Many consumer product companies now offer free samples through their websites to encourage consumers to regularly use their products, for example oil paints that are offered as free samples. It is also possible to purchase products in small "trial size" containers.
This is common with toiletries such as shampoo useful for vacations where large bottles or other containers would be impractical. These are often provided in hotel rooms for the guests. One of the best free sampling that I witnessed happened in the California bay area. We had driven down to a huge cherry orchid. The orchid was full of trees with ripe cherries. Coming from India it was a very pleasant sight. The visitors could eat as many cherries as they wished, but cherries plucked and placed in a basket will have to be bought at 2 US dollars a kg.
I had never eaten so many cherries in my life. A very good way of getting the customers to try your product! Eenadu, a popular telugu daily and one of the leading newspapers in India had a humble and quiet beginning in the seventies. Eenadu’s promotion was very unique. The paper was delivered free of cost to the readers for a month. And Eenadu was delivered promptly in the morning. Ramoji Rao, the owner of Eenadu hit two birds with one stone. He made the readers sample his product and also demonstrated his efficient distribution chain.
Cine Blitz, the popular Hindi film magazine had a very unique sampling technique. In the eighties, Cine Blitz was priced around thirty rupees and it offered a hindi film song cassette free. At that time the cassettes were costing 50 rupees and the readers lapped up the unique scheme. It was win-win for all concerned - Cine Blitz improved its circulation, the readers got a free cassette and the movie makers got free pre-release publicity.
Unfortunately Cine Blitz committed a faux pas. It did not understand the value proposition, “Were the readers buying Cine Blitz for the cassette or the cassette for the magazine?” the writing on the wall was clear. The readers were buying the magazine for the cassette. They perceived value for the cassette and not for the magazine. Finally Cine Blitz dropped the idea of a free film cassette and the sales of the magazine dropped too.
It is a good lesson for companies to clearly think out their strategy and not jump into any promotional activity in haste.
Cookie Queen is another example that pops into the mind when we talk about free sampling. Cookie Queen handed out free cookies for many years before they became popular. The range of cookies are now world famous. The American Entrepreneur wrote about her experiences in dealing with the Japanese. For the hygiene conscious Japanese, accepting even free samples was a taboo. But the plucky lady convinced the skeptical Japanese to sample her cookies and today her brand of cookies continues to do well in Japan.
Super markets in USA are a world in themselves. They are so gigantic that browsing the stores on any day is equivalent to a three day workout. The management hit upon a brilliant idea to tap the hunger visitors have while shopping, offering free sampling of food. One can see nattily dressed men and women who conjure mouth watering dishes and offer the same as samples to the shoppers. The shoppers taste the product and many end up buying it.
At the same time, once their hunger pangs diminish, the shoppers spend more time in the supermarket, thus leading to more sale and more profits! - The author is a professor in marketing at Siva Sivani Institute of Management, a premier B-school in Secunderabad, India.
By:Dr M Anil Ramesh