Sept. 6 (Bloomberg) -- Loyalty points, frequent-flier miles, corporate-branded umbrellas, tote bags, stress balls and other trifles: All are contemporary versions of an old and very effective marketing strategy. We have always been suckers for free stuff.
Many of us remember pulverizing dry cereal to dust in an attempt to retrieve a free prize at the bottom of the box. Older generations were drawn to the miniature books, plastic charms and base-metal tokens sealed inside boxes of Cracker Jack. The mix of caramel-coated popcorn and peanuts was often an afterthought.
That strategy was hugely successful, but it wasn’t new. Rueckheim Bros. & Eckstein, the maker of Cracker Jack, was probably inspired by American confectioners of the 1870s, who targeted young customers by selling “prize packages” containing cash, jewelry and prints. Plus candy.
Confectionery supplier John H. Miller & Son, for example, offered 21 different prize packages in its 1876 promotional flier, including the Great Watch Novelty, which guaranteed that one out of every two boxes contained a new silver coin, and one in 100 held a new watch. Other candy-filled prize packages contained marbles, charms, puzzles, whistles, pop guns and assorted other gimcracks, the manufacture of which was a lucrative business in its own right.
W.C. Smith of Buffalo, for example, specialized in confectioners’ toys for “penny goods,” and Chicago’s Dowst Brothers Co., which would later produce the TootsieToy line of cast-metal cars and airplanes, began their business producing thimble-sized tokens in the shape of rabbits, boots, flowers, horseshoes and boats for candy boxes.
Confectioners, in turn, may have been inspired to offer incentives by the publishers of children’s serials, who in the 1870s began encouraging young readers to “canvass” -- that is, to solicit subscriptions from their friends -- acting, in effect, as cheaply paid agents. Successful canvassers were promised remuneration in the form of choice prizes. The magazine St. Nicholas promised a pair of ice skates (five subscribers), a telegraph (10 subscribers), a tool chest (15 subscribers), a piano (300 subscribers), or free tuition to “any school or academy in the U.S.” (500 subscribers).
Each year, publishers of the Youth’s Companion dedicated an entire issue to a catalog of prize offerings for readers: train sets, dolls and dollhouses, sleds, cast-iron toys, magic sets, miniature steam engines, kaleidoscopes, miniature printing presses and more.
Publishers took their cues from the incentive programs that marketers had been using since the mid-19th century. Such programs were used to attract the patronage of adults rather than children. Soap maker B.T. Babbitt, a friend of P.T. Barnum, is credited with using the first incentive strategy in the U.S. in 1851, offering free lithographic prints with bulk purchases of soap.
Other entrepreneurs soon followed, promising free things from the practical to the fantastical along with the purchase of books, food items and other consumer goods. The American Tobacco Co. even induced amputees to purchase their products by offering them artificial limbs. In one plaintive letter to a trade journal in 1911, a man missing one leg at the knee implored his fellow members of the Brotherhood of Railroad Trainmen to contribute their tobacco coupons: He needed to amass 40,000 of them in two years.
From a business perspective, incentives have been a smart strategy from the start. They have a way of persuading us to buy goods we otherwise might not have, to buy them in greater quantities than we had intended, or to waste valuable time standing in line for a free item we have no use for.
As Dan Ariely explains in “Predictably Irrational: The Hidden Forces That Shape Our Decisions,” paying nothing for something is “a source of irrational excitement.” It overrides the rational part of our brain that would calculate how much something offered for free might actually cost us. “Most transactions have an upside and a downside, but when something is FREE! we forget the downside,” Ariely writes. “FREE! gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is.”
Not surprisingly, incentive goods, however popular, tend to be quite shoddy. Take the mid-19th-century book dealers that successfully sold remaindered books (that were themselves otherwise of little value in the market) by offering worthless trifles (imitation silk handkerchiefs, electroplated pen and pencil sets, and so on) along with them. People were more interested in the gift than the item they were purchasing.
When incentives actually are quality goods, their value is typically low compared with the amount of consumer investment required to get them. The free toaster famously offered in exchange for opening a bank account was quite modest compensation for, potentially, a lifetime’s worth of loyal patronage.
We continue to be seduced by free stuff, our consumer selves having evolved little over time. Children today are often enticed by the prizes that accompany McDonald’s Happy Meals, which also serve as clever tie-ins to toy lines and new films.
Now, though, most incentives exist in abstract form, as frequent-flier miles and loyalty points with tightly controlled and often opaque redemption procedures. These incentives also come at a price that extends beyond the mere cost of purchase, because we blithely trade valuable contact information and personal details for something as mundane as a promotional T-shirt.
Now, as then, marketers know that we can’t resist free things, even as they end up costing us more and more.
(Wendy Woloson is an independent scholar and consulting historian. Her most recent book is “In Hock: Pawning in America from the Revolution to the Great Depression.” The opinions expressed are her own.)
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