How do you respond when a company hands you something for free? According to TIME’s Martha C. White, you likely buy more, pay more, and talk more.
Thanks to numerous studies into consumer behaviour, White’s article about giveaways shows us that while our first instincts are that giving something away for free will make people not want to pay for it later, we couldn’t be more wrong.
Customers are compelled to reciprocate the giveaway gesture, as you would with a friend who lets you borrow their car, and will end up spending money on the brand. The free gift is seen as a kindness and increases overall sales – to the point where giveaways are often cheaper than more traditional marketing or advertising techniques.
“You feel obligated to buy more. Marketers notice it over and over: Promotional events like Free Comic Book Day are huge moneymakers, even though logic would seem to dictate that retailers would lose money. The reason for this is what marketers call the reciprocity principle. In a much-cited 2005 study, Randy Garner, a professor of behavioral science at Sam Houston State University, wrote that feeling obligated to reciprocate a favor “can occur despite the fact that we may never have requested the favor in the first place.”
Logic dictates that giveaways like 7-Eleven’s Free Slurpee Day, when customers can get a free 7.11-ounce Slurpee, no strings attached, should cost the company money: People come in, get their freebie and walk out. But what actually happens is that a lot of people walk in, try the sample size and then decide to buy a bigger Slurpee that’s not part of the giveaway. According to USA Today, Slurpee sales shot up 38% on Free Slurpee Day even though the chain gave away 4.5 million of the drinks. Likewise, free samples at supermarkets help boost sales at least partially because customers who’ve been given a taste tend to feel obligated to buy the food they’ve been given for free.
When given something for free, you’ll pay more for it later. If an item comes with an inexpensive price tag, we assume it’s cheap quality and isn’t worth good money. But according to a new study forthcoming in the Journal of Consumer Research, if an item is thrown in as a bonus freebie when buying an expensive or luxury good, consumers deem the freebie as a higher quality product and are willing to pay more for the item on its own.
This might seem a little screwy. If we view something deeply discounted as having a low value, why would we assign a higher value on it when it costs us nothing? The answer has to do with the different ways we process information. It’s easy to assign a dollar value to an item that already has a price; researchers call it a “natural anchor.” But without a price as a cue, we tend to get confused, and our brain starts looking for other signs to indicate value. Researchers say if the primary item (the one you’re paying for) is something high-end and pricey like a luxury car, then the buyer assumes that the “free” like a GPS is high quality as well.
You’ll talk more about freebies. The rise of social media has more companies concerned with “word of mouth” marketing and reputation. Getting your customers to say nice things about you is, according to some research, as effective as traditional advertising, and it’s almost always cheaper. And companies like Procter & Gamble are figuring that one of the easiest and best ways to get people talking about their products is to simply give them away. An article in the Journal of Marketing found that people who got a product for free talked about it 20% more. Getting a freebie related to the product prompted them to talk about it 15% more, while coupons and rebates didn’t make a difference.”
Do you find that giveaways generate more sales? How do you feel when you are given a free product?