The business of free

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The Free Stamp sculpture, created by Claes Oldenburg and Coosje van Bruggen, has intrigued visitors at its location in Willard Park in Cleveland Ohio since 1991

 

Historically the strategy of giving freebies to gain market share is as old as the free market. For example, the freemium price strategy used nowadays by several digital economy companies is based in providing a service or product free of charge (or almost free) with the expectation to sell premium features or functionalities. Gillette used this approach to create a market for its razor blades in the dawn of the 20th century. At the time this strategy’s impact was so big that it became known as razor and blades business model. A similar strategy was used by Rockefeller’s Standard Oil in the end of the 19th century to create a market for kerosene in China by giving away 8 million kerosene lamps for free (Alice Tisdale Hobart’s novel Oil for the Lamps of China was based on that).

But the fact is that, no matter how old it is, many large and small companies still use this marketing strategy. Smart business realize that and use any opportunity to show their potential clients that they have value to offer. So, how can you give something of value for free and make money at the same time? Well, marketing and sales is one of the most expensive areas of any business. Each client acquired costs a good chunk of money and client retention is key for long term success.

How to use this strategy and turn a profit?

First we need to realize this strategy is not new and there is a lot of history and information available. Names change but the essence is the same. The razor and blade business model is the modern day freemium. However, there are some myths. For example, there is a belief that a company needs strong entry barriers to avoid competition. Things like patents or long and expensive development phases. This is not true because the strategy itself creates a number of barriers. Gillette only started using this strategy close to the expiration of its patent. Even though other companies started selling compatible razors and blades Gillette saw its market share increase. The game console makers use this strategy by tying the game to the console hardware they manufacture. Like in the old days, there are a number of possible solutions to product development problems and competition will always exist.

The same is true for the services industry. Several companies can provide the same type of services, making it easier for your customers to find what he or she needs elsewhere. To stand out it is necessary to somehow differentiate and hook up your warm leads. The free content served should be relevant enough to have perceived value but should leave a substantial amount of value left to make the paid services worth for the clients.

It is clear at this point that the free business model is centered on the marketing strategy of giving freebies to hook potential future clients. Well, the objective of all the marketing activities that a business execute is to communicate the value of a product or service, including giving something for free. However, a well planned and executed strategy should go beyond that, helping to convert leads to clients, retain existing clients and even create entry barriers in your niche.

By suggesting this broader view of marketing my goal is to encourage you to think out of the box and carefully study how giving freebies can enhance your business. First, you can ask the following questions:

  • What are you really selling?
  • What does your client find most valuable?
  • What are your perceived strengths?
  • What are your competition’s strengths?
  • How educated is your potential client about your product or service?
  • What can you give away without reducing your sale potential?
  • What is the cost of the freebie?
  • Can this cost be absorbed by sales without hurting profits?
  • What can you give for free that will decrease your closing cost?
  • What can you give for free that will increase your chances of closing?

Finally, look at this marketing strategy not as a cost item but as an investment. The freebies should do part of the salesperson work, making it easier to get to the close.

 

Jose Cid is a Business Intelligence Consultant, Educator and Coach. Throughout his life he has been helping people inside and outside of the work environment. His motto can be translated into a simple equation: Knowledge + Intelligence + Action = Power ©. Please visit www.josecid.ca for other articles and to know more about the services offered.

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