The F-word and Other Derogatory Terms
If customers are coming to you because they don’t have to pay for anything, they aren’t going to return when they do have to pay. This was the battle cry of mine and some of my colleagues who managed a locally-owned small business. Sadly, the owner had a different idea. He hired his brother-in-law to be the marketing director, and in their minds the only way to grow business was to give stuff away for FREE.
FREE is a four-letter word. I won’t deny that giving your products or services away for free is a great way to get new customers to explore your business. The goal is to get them to come in when its cheap, then give them such a great experience, they’ll pay full price for it the next time around. Studies show that approximately twenty-seven percent of buyers make purchases seeking only the best price. About seventeen percent on the opposite end will spend whatever they need to in order to get “the best.” The fifty-six percent in the middle are those customers we most want to persuade. They are the buyers who are looking for value. Sadly, offering things to customers for free does not ensure they will return. If I pay x dollars for a specific experience, why would I pay two or three times that amount for the exact same experience? There goes the twenty-seven, and the fifty-six. But don’t worry about the seventeen, they were never customers to begin with.
COUPON can be a bad word too. While we as employees were working to create a great experience and high value for customers, the folks in charge of marketing were killing our perceived value with coupons. Al Ries and Jack Trout in their book The 22 Immutable Laws of Marketing explain that,
“There's more and more evidence that shows that ‘sales’ (special offers, coupons) decrease income in the long term by educating customers not to buy at regular price. There is no evidence that couponing increases sales in the long run..."
Ries and Trout continue, "Many companies keep rolling out coupons not to increase sales, but to keep sales from falling if you stop.” At one point we had nearly twenty coupons floating around with the word FREE (discount, sale, half price) on them. For a business that makes about a million dollars a year, that can put a serious dent in your income.
BOGO free equals two items at half price. When my coworkers and I would lament about the plethora of coupons, we were told that it was more important that we had customers in our business (paying nothing, mind you) than to have no one at all. I understand the point of view of wanting to get people in the door, but unless the patrons that are purchasing for free or at a discount are returning and paying more money on subsequent visits, the idea is wasted. After running a special promotion in the summer, the owner was convinced that it was a success because it was the highest grossing summer to date. When one of the other managers and I took a deeper dive into the numbers, we found that the “improved” numbers were pretty much the same year-over-year. What made the difference in our success was increases in other revenue sources and an added effort to our loyalty program.
VENDORS are in it for the money. If your organization is working through a third-party-vendor, remember that they only want you to be successful because it makes more money for them. Groupon, LivingSocial, and Yipit all have the same purpose—cashing in on your dollar. Let me give you a brief example from an entertainment venue I used to manage. We offered a Group Special that included entertainment (from us) and food and drinks (from the adjacent restaurant) for up to six people. Retail for the food was approximately forty dollars. Retail for entertainment was also about forty dollars. We sold this combo at a discounted rate of fifty dollars per group. Our savvy marketers decided to run a promotion through Groupon. We pushed the promotion at fifty percent off the already discounted rate i.e., a customer could purchase the special through Groupon for twenty-five dollars. Revenues are split half and half with the vendor, so that left us with $12.50. After ten dollars went to the restaurant to cover food costs, we made two dollars and fifty cents. That’s forty-one cents per person for entertainment that usually costs about seven dollars each. I don’t have anything against Groupon—I’m just reminding you that their goal is to make money for their company, not yours.
So what sort of promotion does work?
Upselling. Google defines marketing as “the action or business of promoting and selling products or services.” In my opinion, the most important word of this whole statement is the word selling. If you are going to run a promotion, don’t discount—upsell! Rather than giving them something for free, give them a little more, but charge them for it. A former employer offered a fifty percent-off discount on Wednesdays. Do you know how we doubled our revenue on Wednesdays alone? We started charging full price! As it turns out, very few people actually purchased on Wednesday because of the promotion. It was really just a perk for good timing. A caution about upselling: whatever you are adding to the deal must be used at the same time as the product originally purchased. If the upsell gives your client anything in surplus, they won’t need to buy the same product from you later.
Rewards. Let me wrap up by saying I do believe there is a time that FREE can be used effectively—for your loyal customers. Kamor Karington, a Las Vegas-based marketing consultant, has said,
“If you’re going to give anything away, give it to someone who’s already been to your place. Taking care of those who’ve already come to you is a much more effective long-term strategy than doing two-for-ones and trying to attract strangers.”
Of course this means that your organization needs to maintain a customer database, so you know who to reward.
What are your thoughts? Do you agree or disagree? Have you increased revenue by adding FREE to your marketing vernacular? What promotions have been the most successful in your organization?