Follow by Email

Monday, January 13, 2014

The Great Freebie Debate: Does Giving Away Free Stuff Really Bring in New Business?


The Great Freebie Debate

The idea of giving away free trials and samples of products or services has been around for many years. From high-tech software companies to sidewalk food vendors, it's a strategy that has continued to prove its value through the years. Even after taking into account the associated costs, the ROI has proven attractive for many businesses in both the real world and online.

The Psychology of Free

Objections are a natural part of the buying cycle. No matter how great a product or service might be, prospects are likely to have some reservations about buying it. "Free" acts as an emotional hot button which reduces or eliminates many of these barriers. 


Does the "Freemium Model" Make Sense For Your Business?

According to the ever-trusty Wikipedia, the term "freemium" describes "a business model by which a proprietary product or service is provided free of charge, but money (premium) is charged for advanced features, functionality, or virtual goods."

Does this model make sense for your business? 
Arguments can be made for both sides.

The NAYSAYERS:
The naysayers will argue that giving anything away for free erodes company profits and attracts the types of customers who are always looking for free items or special discounts. Loyalty is rare with these types of customers since they only buy when they can get something free or at an extreme discount.

Daily deal horror stories are a prime example of the negative effects of discounted offers. We've all read reports of business owners who have seen poor results from daily deal coupon sites that encouraged or demanded that they offer extreme discounts in order to take part in a campaign. In rare cases, some have even gone bankrupt as a result of a daily deal discount gone bad.

THE PRO SIDE:
The pro side argues that freemiums encourage prospects to give businesses a trial run they might otherwise never have given them. Freemiums reduce or eliminate the barrier to entry of doing business with your company. If you deliver what you promise, a certain percentage of freemium users will convert to new paying customers who will return again and again.

Companies like Dropbox, Skype, Evernote, Mailchimp, and LinkedIn have built their entire business around the strength of this strategy by giving away the basic version of their product for free to build a customer base. The difference is that these products/services are really good products that free trial participants were willing to pay the cost for once the trial was done! App services for iPhone and Android phones have also used this strategy effectively by offering a free basic version to lure customers and then offering a paid version with more advanced features.

THE MAIN POINT:
For many small businesses, giving away products or services doesn't make economic sense unless there's a strong strategic plan in place first. Free or even heavily discounted products require funding and a strong balance sheet to cover the costs.


One strategy to consider is to have a sales funnel in place before implementation. Customers gained through free or heavy discounted offers are then encouraged to step into higher-priced services and products. This can be done through marketing communications that show the features and benefits of buying these premium services. If you're planning on giving potential customers a Free Trial of your product, make sure that your product is something they can't survive without once the trial period is over.
(Paying Amazon Prime customers know all about this one....)  

There are many unknowns in answering whether or not freemiums will work for your business. What's clear is that the path to success or failure lies with having a sound strategy in place before implementation. Another key component is being intimately aware of the financials, including profit margins, customer acquisition costs, and the lifetime value of a customer. Implementing and testing a freemium on a small scale before rolling it out to a wider audience can give real answers to the viability of this model in your business.


Here at Plum Grove, we're all about the freemium business model. We've got plenty of freebies and free trials for you to get on a regular basis, and we're more than happy to keep giving stuff away to help you out - whether you're a business owner or not.

And let's face it - giving stuff away is kinda fun sometimes.

Until next time,

Peter "The Printer" Lineal
Founder/CEO
Plum Grove
2160 Stonington Avenue
Hoffman Estates, IL 60169
Ph: 847.882.4020 Ext: 133
www.PlumGrovePrinters.com
PeterL@PlumGrovePrinters.com

Like Plum Grove Printers Facebook PageFollow Plum Grove Printers TwitterConnect with Plum Grove Printers LinkedInConnect with Plum Grove Printers Google+
Printing, Marketing & Promotional Products with Powerful Execution.

No comments: