Several companies use freebie marketing online to increase conversion rates. For example, Comcast offers a free DVR to customers who sign on to receive the Comcast DVR service. The average wholesale price of the DVR is around $100, but the lifetime value of the DVR service is worth hundreds of dollars (depending on location); therefore, offering this free DVR quickly pays off for Comcast. Dish Network recently tried to top this by offering free HD for life to new customers. Clearly, for the freebie incentive to work, the company needs to have a monopoly on the freebie it is offering. HD channels, for example, are currently a hot commodity, and they cost a lot to access, so offering HD for free is a strong incentive. However, offering free samples of cologne with every purchase, which cosmetics store Sephora does, is not an example of a strong incentive. You can pick up free samples of cologne in lots of stores, so this incentive does not add any value for the customer.
Ideeli.com, the members-only company mentioned earlier in this chapter, offers many “free giveaway” incentives. To celebrate its third anniversary, the company offered three lucky customers a $1,000 shopping spree. Not only did this help to increase conversions, it also enhanced customer loyalty. And because Ideeli.com is constantly giving “freebies” away, users are logging on to the site regularly to participate in the giveaways and contests.
A recent client of ours, SwissOutpost.com, offered a freebie incentive of a Swiss Army LED Microlight with any purchase on the site (see Figure 7-11). Most visitors considered the incentive a nice free gift that they could enjoy. However, we found that to get their free gift, users had to follow specific steps not outlined on the main web page: they had to add the gift to their cart, and then continue shopping for more products on the site. This caused major FUDs. Users would see the incentive and choose items to purchase from the site, but when they viewed their cart before checking out, they would not see the incentive because they hadn’t added it to their cart. As a result, they would abandon the site.
Ultimately, the decision of whether to offer freebies on your site depends on what you are trying to achieve. Sometimes spending hundreds of thousands of dollars for merchandise you will be giving away to customers in exchange for a large uplift in revenue makes financial sense. For service companies, sending small gifts or sweets to prospective clients as a way to market their service makes financial sense.
Of course, freebies that are given out with a contingency aren’t always as effective as freebies that are given out with no questions asked. Many service companies offer free advice upfront (free estimates, etc.) just for contacting them. These service companies are well aware that every contact they receive results in two or three contracts, which compensates for any time they spend giving customers “free advice.” So, for instance, if I want to get my roof shingled, I will likely contact only the companies that will give me free estimates and advice, and not the companies that will charge me for the consultation. Again, incentives are effective only when you fully understand your business processes and what you are trying to achieve as a result.
As a final example of the power of freebies, Gillette developed a razor that required replacement blades. As an incentive to customers who purchased the razor, Gillette offered to give them a set of free removable blades. However, customers would need to purchase more blades to continue using the razor. This long-term strategy paid off, allowing Gillette to gain loyal customers for years. Gillette distributed huge quantities of the blades for free, sending them as promotional gifts to customers and giving them away at stores and tradeshows.