Wednesday, July 18, 2012
I thought about this topic today when I started receiving special offers from Amazon.com. Much like Groupon, signing up for special deals has a large appeal regardless of which platform you use. I happen to be partial to Amazon so I thought I'd sign up for the program and see what types of offers I would receive.
In just a few minutes the first offer came into my email. Over the next few days there were additional offers from a variety of companies and from a marketing perspective, I couldn't understand how the business's were making any money. And I'm not just talking about the short term, I'm talking Customer Lifetime Value (CLV).
Special offers available through Groupon, Amazon, and other daily deal distributors makes sense if you're looking to get people started with your service. However, making a special offer that you are going to lose money on AND for which consumers buy once or twice a year - especially if its at a low price point - is a total waste of time. You need to consider the long-term impact or opportunity of your marketing program.
Try before you buy The try before you buy model makes a lot of sense if you have a high priced item and pricding tends to be the major obstacle to purchase. In these situations you generally have to remove that obstacle, encouraging users to the try your offer. If this is the case, giving a free or low-cost trial makes sense but isn't right for every product in every market.
I believe free trials make sense for low priced items. A good example here would be toothpaste. Why not give a few samples away? If a user likes it, they will potentially buy that brand for decades to come. This is where the manufacturers make their money. It's certainly not on an individual tube of toothpaste. A customer needs to buy multiple tubes to pay for all of the marketing, advertising, and related costs. Based on my experience, the try before you buy makes sense at the low-price point. However, the middle and higher price points are more complicated.
Medium Priced, Medium Margin
So what happens if you offer a medium priced product and don't have a huge margin? Do you really want to set the precedent of giving it away for free? In these situations I often recommend to my clients giving away a small portion of their product, doing a limited free trial, or simply charging a reduced price for the initial usage period. This can also ring true at the upper end of the market as well. Rolex isn't going to give away a watch but they are likely to offer a 7-day no-hassle return. They know that once you put that baby on your wrist, you likely will never return it.
The other thing to consider is that giving things away for free can work against you. If people are accustomed to receiving something for free, and its enough to hold them over, they may never need to make the full purchase. Although this only applies to a small portion of your target market, it should be considered when developing your 'try before you buy' strategy.
In the software market, 30 day free trials are rampant. But what you'll notice is that you often have to provide credit card information up front. Most people will not cancel their orders due to missed deadlines or laziness and be forced to pay the monthly fee. It's my belief that only a few consumers actually want and actively use the produce they've attempted to use. This is why the "free" trial is still used today by most marketers.
What you can do
Consider what you can do with your offering to get a larger percentage of people to try your product. Consider modifying the 30 day theme. This could include 7-day trials, low cost trials, getting access to only a portion of your product or service... or a free evaluation. Instead of giving your product away for free consider other incentives you can provide.