Monday, November 18, 2013

The Sorta Counterintuitive Thing About "Free"

I got a letter in the mail the other day with a Salem, NH return address.  It looked *real* (in other words, not just another bill or piece of junk mail) so I opened it, thinking it might be a card from a friend whose fiancee lives up that way.

As it happened, there was a $100 gift certificate to a restaurant inside the envelope.

I thought this was pretty interesting -- they're willing to take the risk on printing, stamping, and mailing letters to people nearby, and then include $100 gift certificates as enticements to eat there, as a way to drum up business.

Does that make them desperate?  The reality could be that it's quite the opposite.  Maybe, in fact, they're so confident in their product that they see the gift certificates as a better form of marketing than local TV and radio spots, AdWords placements, YouTube campaigns, or glossy promos in the local papers.  They've run their numbers, and they know that the Customer Lifetime Value (CLV) of someone who enjoys their product is high.  The tricky thing, perhaps, is making the acquisition.

Giveaways, gimmes, and freebies are well-established ways for businesses to generate buzz, build a brand, gain loyal users, etc.  The tricky thing, though, is that they've gotta be done right.

Eventually, a business that just gives things away should stop pretending to be a business, and just call itself a charity.  So that restaurant should send me that first gift certificate, but if they made it annual thing, I'd condition myself to just wait for that early-November letter every year, eat there once, and call it good for the next 12 months.

If anyone says they truly, fully understand *free* they're lying.  Free is great, and free sucks.  I can fill a room full of Ph.Ds who will insist -- loudly -- that no business should EVER give something away free, because that means they're devaluing themselves, creating off-kilter expectations, distorting their market, etc.  Then, I could fill an EQUALLY big room with another group of experts who would say the opposite.

Bottom line?  It depends.

I am building a business with a heavy dose of initial *free* and yes, sometimes I question my sanity. Whether it is/was the right move, I will only know in retrospect.  That's why I sometimes watch the Steve Jobs 2005 commencement speech in which he insists that things DO make sense's a great source of inspiration.

PayPal got going by paying people a significant sum of dough to use its service.  Again, were they desperate? Were they out of their minds?

With the ease of retrospect and 20/20 hindsight, the answer there is a resounding, "No."  What they did know is that they were on to something.  They also knew there could be resistance among early users who did not understand how its service worked.  They put a whole bunch of chips down on the felt based on those assumptions, and things have worked out quite well for them since.  

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