What's Wrong with 'Free'

"Free." Some say it's the most powerful word in the English language. Others romance it as a magical marketing term. For poor, bloodied businesses struggling through tough economic times, using "free" to lure leery customers can be tempting indeed.

You might want to think twice about that.

Don't get me wrong. As a consumer, I like getting something for nothing. In commerce, however, there's really no such thing—anything of value costs somebody something. When companies make a gratis offer, what they're really doing is muddying the cost-benefit equation and making it more difficult for their prospects to make a clear value determination. It's kind of like getting a big tax refund; it feels like found money, but offering a no-interest loan to the government isn't to your advantage.

Still, there's no doubt that "free" can be irresistible to consumers, especially those who are adept at gaming the system without purchasing anything. (They sure aren't the ones you want to attract.) Few advertisers recognize the damaging effects that free offers can achieve, even when they do lure people to buy. You might call them the "Three Ds."

Free is dangerous. Price isn't just a reflection of value; it's an indication of it. When something is offered free for any length of time, people begin to value it less. Over time, this makes them unwilling to pay a premium for it—or pay for it at all. It may seem at first as if "free" helps your value proposition, but it ultimately hurts it.

Remember when it felt really special to get a free basic cell phone when you signed a two-year service contract? Now we've come to expect it. Similarly, many newspapers are struggling with their online properties, trying to charge readers for content after having offered it free for years. Watch: As e-commerce companies increasingly offer free shipping and more hotels offer free high-speed Internet service, both will become ever-more difficult to charge for. We'll still pay for them—via costs that are buried in other charges.

Free is duplicable. If you can offer something for free, so can your competitors. The more people pick up on your offer, the more quickly your competitors will match it. What might begin as a temporary tactical advantage can quickly become an industry albatross— can you say "frequent flyer program?"

Years ago a local grocery chain began doubling the value of coupons people brought in from their Sunday-morning circulars. The move attracted a lot of attention and competing chains soon matched the offer. Soon enough a coupon war was on, and it didn't end until triple- and even quadruple-coupon offers decimated the chains' razor-thin margins. They finally called it quits after losing millions of dollars. This story has been repeated thousands of times in hundreds of industries, from fast food to industrial equipment.

Free is deceptive. Not to your customers, although I could make a case for that. It's deceptive to you. It's easy to forget that there are four marketing Ps: If your product, place, and promotion don't add up to something of clear value, you can't expect pricing to bail you out. Car dealers have historically been the poster child of this approach, shouting and screaming about free giveaways and low prices when the bigger problem (and significant opportunity) is how awful the car-buying experience tends to be. It's as if they're blind to what ails them.

Other companies that advertise seasonally or otherwise infrequently can misunderstand the danger, too. Instead of steadily building brand equity around a real value proposition, they expect to measure the immediate impact of every ad. That makes it natural for them to turn to the "magic word," not realizing that such a short-term focus often compromises their long-term prospects. Offering something for nothing seems so easy, when in reality it can be one of the hardest things to recover from.

"Free" is fine in small doses for limited periods of time, such as a free initial consultation or a free sample of a new product at the supermarket. It's both smart and polite to offer something at no charge as a gesture of courtesy or appreciation to existing customers, from free parking to an occasional thank-you gift. Doing so can have a positive effect, precisely because it's after the sale: Customers have already accepted your price-value proposition as reasonable, and the value of what you're offering them doesn't call that into question.

It's when you offer something for nothing as an enticement to buy that the danger sets in. If you try to fool your prospects by making your pitch about what's "free," you'll also be fooling yourself. Instead, focus on demonstrating real value and how you can get prospects to part happily with their money. You—and they—will be better off.

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