How free is free? Make sure you're not paying more

Before you go, we thought you'd like these...
Before you go close icon
Businesses from ballparks to bookstores are trying a new tactic to bring in customers: They're giving stuff away.

While giveaways can be good for business in terms of promotional buzz -- KFC got oodles of publicity for its Oprah-boosted grilled chicken giveaway, even though the promo itself was a train wreck of poor planning -- its bottom-line benefit is more nebulous.

The concept of freebies is a double-edged sword for businesses. On the plus side, customers usually think the free item is worth more than it actually is. It's a value perception: What's a better value than free? Nothing ... unless the sample or widget or whatever other token you're getting makes you overlook the prices of what you're actually paying for. Businesses like to make a big show of giving away goods or services that don't cost them very much in the first place, so don't be shy about reading between the lines of their "generous" offer. Also, any item you have to buy at the same time to get your freebie is likely to be at full price.
Some companies -- KFC's Oprah-chicken debacle is a prime example of this -- fail to budget how many free items they'll need or how much the promotion is going to cost them, which means they'll have to make up the shortfall (probably by charging you more) in the future.

The other down side for companies is that giving things away is kind of an addiction, in the sense that once you start, it's very hard to stop. Customers mentally roll the freebie into whatever they're paying for ancillary items, so when that free deal vanishes, they feel like they're paying more for less. This gives executives all sorts of headaches, especially if customers are tweaked enough to complain, air their gripes online or stop buying from their company. In this sense, giveaways are a sign of the desperate times we're in; a retail Hail Mary pass, if you will.

Bottom line: Scoop up those freebies while you can, but don't let the F-word distract your deal-seeking radar. Remember, you've usually got to buy something to get something, and if that something is higher than you'd normally pay (or if it's not something you'd normally buy at all!), then that freebie could cost you more than you think.
Read Full Story

From Our Partners