Loyalty Programs

Giving Stuff Away Makes You Money, According to Science

Giving Stuff Away Makes You Money

When John Pemberton invented Coca-Cola in 1886 he had a hard sell ahead of him. So much so that his bookkeeper started giving tickets away for free tastes. When Pemberton caught on, he was not at all pleased, labelling the givings away as “extravagance”. The tickets were quickly canned but two years later, tycoon Asa Griggs Candler bought the company and restarted the bookkeeper’s idea. He mailed out thousands of tickets and the coupon was born.

Coca Cola’s generosity was generously rewarded. By 1913 it had given away 8.5 million free drinks, and was well and truly one of the world’s most recognised brands. The coupons distributed were the making of the famous beverage and were the making of something else too – our intense love for free stuff.

The science of free stuff

In 2012, Coupons.com ran a study to learn how coupons impact one’s happiness, health and stress levels. What they learnt was that a $10 voucher was enough to spike oxytocin (the feel-good hormone) by as much as 38 percent. Furthermore, respiratory rates dropped 32 percent, heart rates decreased by 5 percent, and sweat levels were 20 percent less than those who didn’t receive a voucher. That’s an impressive result for just $10!

Vouchers and free stuff change the way we think, feel and act. The phenomenon is known as the “zero price effect”, and for companies looking to turn over big profit, it’s worth thinking about.

The zero price effect

The introduction of the zero price effect throws off our normal process for making decisions. Free stuff means there’s no cost – implying only benefit. No matter how small the offer is, free is always positive. So positive, in fact, that judgement becomes clouded.

Kristina Shampanier, who wrote a paper on the subject, says that when people are offered something for free they are “ready to forgo options that are, rationally speaking, better for them.” Think about it. You’re not really a lover of soft drink and you know the high sugar is bad for you, but you’re holding a voucher for a Coca Cola. Do you use it? Of course you do! Free means there are zero consequences, right?

You don’t like mornings, you’re not a lover of crowds and you hate waiting in lines. But Apple are giving away new headphones to the first 300 people that enter the store. Suddenly you’re up before the sun rises and bundled in a swag outside your local Apple store with 300 other people. Why? Because nothing else matters except that you are about to get something for FREE!

Free is a consumer dream, but how do you benefit from free as a business? Doesn’t complementary mean profit loss?

Turning free into profit

Complimentary gifts might seem like obvious money-losers, but they can actually create big wins for companies that run giveaways or free gifts with a purchase right.

Surprising consequences of giving away free stuff include:

Consumers feel compelled to buy more

Despite the fact that your giveaway is free of requested favours, consumers feel like they owe you when you do something nice for them. Give away a free donut and they’ll feel compelled to buy a bottle of water. Give away a set of salad tongs and they’ll likely feel obliged to buy a bowl. The reciprocity principle can turn something that might cost you $3 into a $30 purchase.

A willingness to pay more later

When an item comes with a low price tag, it’s assumed it’s poor quality. If it’s free, however, this notion goes out the window. A free gift that comes with the purchase of an expensive item is deemed just as good quality, even if it’s not. Without a price as cue, our brains get confused. We look around for other signs that might indicate value, and focus our attention on the big ticket item. Because the two are linked, we automatically presume the free gift is a quality item, so we’re more inclined to pay a high price for it later down the track.

The idea that more is better than discount

People see getting something for free as a gain, whereas a discount is viewed as a reduction of the loss associated with purchase. We’d rather gain than lose, even when it’s not economically in our best interest. When the promise of free stuff hangs overhead there’s a tendency among consumers to neglect base values.

Faith in your brand

The simple act of giving away a free trial, such as that undertaken by Coca Cola, ensures the consumer that you are confident in your product. Why would you give something away if you knew there was no way the receiver would come back for more? Free samples show you have faith that customers will love your products and this is positively acknowledged by consumers. They might even skip the the free sample and jump straight into a purchase!

Word of mouth

Getting free stuff makes people happy, and this means they’re likely to run off and talk about it. A lady who just scored a free makeup bag of goodies for spending $200 on MAC products is bound to boast to her friend the next time they’re putting lippy on in the bathroom. That friend will then find herself in the cosmetic department at Myer because she too wants to join in the excitement. She might not know what’s in the bag of goodies – she simply knows she must have it.

Recognising the value in free

The bottom line is that giving things away for free can make you money. Customers gravitate naturally to a free choice, regardless of its intrinsic value. Free almost guarantees engagement as it eliminates any problematic questioning that’s preventing a purchase. Consumers can now sample your value without parting with their hard-earned cash and provided your product is worth a revisit, you can score your brand a fan for life. So what are you waiting for? Start planning your free promotion today.

The following two tabs change content below.
Fergus Koochew

Fergus Koochew

Fergus Koochew is the Managing Director of Edge. With a strong background in consulting and strategy, Fergus has led the digital transformation of the business and is dedicated to helping brands and agencies bring their promotional ideas to life.