I was recently interviewed for publication on the subject of giveaways... it was an interesting discussion so I thought I'd reproduce my responses here...
There are 3 basic giveaway strategies that I can see: short-term promotion, long-term product and industry shake-up.
Short-term promotion giveaways are what Ben and Jackie call "bite-size chunks." That's where you give away samples of a "for-sale" product in order to generate buzz, trial and referral. In a nutshell, it's sampling. So Tivo gives free recorders... Krispy Kreme gives out donuts... Typepad gives free 30-day trials... and consultants who blog (like me) give away free intellectual property. Obviously this strategy is only effective when the product or service is worth talking about, and if the promotion is executed well. Poor execution is a sure-fire way to hurt your brand.
The long-term product strategy is to make one product in your portfolio entirely free and make up your revenue elsewhere. This strategy is often quite useful in subscription or commodity industries like phone service (Skype). Give away what people take for granted and can get anywhere (and inexpensive for you to provide); find out what they value and charge for it. The strategy works because, hey, who doesn't want free stuff? And second, a customer who has more than one service from a company is much less likely to switch to a competitor. In the case of search engines like Google (giving away free storage) and Yahoo! (giving away free email and web sites), their primary revenue model is based on advertising. They get more from advertisers if they can offer more eyeballs; free stuff attracts eyeballs. Software companies use this strategy often; Adobe gives away the PDF Reader but charges for other features. Sun gives away Java. The list goes on.
The last form of giveaways is the industry shake-up. Look for an acceptable, ingrained industry revenue source that you can eliminate. A good example is NetFlix, which changed the movie-rental business by eliminating late fees. The 'giveaway' in this case is more of a benefit than a product; NetFlix is giving away time.
What can your business give away that will generate trial, buzz and purchases? What industry-accepted charges can you eliminate and turn into a competitive difference?
I also love giving away samples of intellectual property. Just never forget the two things that make a consultant rich: first, never tell everything you know....
Posted by: Chuck McKay | July 23, 2005 at 11:18 PM
This is realy a very nice and informative article. I really learned a lot from it.
I'm into Online Marketing and this article had given me a clear insight into various marketing strategies.
Great!
Posted by: Rakesh Ojha | May 27, 2005 at 01:04 AM
Long term strategy give away, I do not think you can just give away something taken for granted. I take electricity for granted, it is a commodity but I still pay the bill every two months.
In my opinion, you can only consider giving something away as a part of a long term strategy if:
1. The marginal cost of the product is low (in the case of skype, close to zero).
2.A You will boost the sales of complementors (skypein, skypeout) and the overall gross margin (including the total cost of the freebies) is positive in the long term. Or
2.B There are no complementos but by giving away something. You will be able to lock-in your customers and induce them to pay for the service later on. At least enough customers that will cover all current and future expenses and still get a return.
This is particulaly important when we consider the case of network externatilities where the higher the customer base the more clients are willing to pay for your products or services.
In the case of Skype. The company is currently making money from selling local calls and offering a free service between Skype users. They are happy and we are happy (while building our skype contact list). What will it happen once we each have a 100 user Skype list and the company starts charging us a flat fee for using their services? Chances are that most of us will end up paying for it.
Industry Shake Up give away. Do not see much difference with the Long Term Strategy one. Skype is, for example, allowing you to talk to other users without paying a line rental. Should not they fit into this category as well?.
Regards,
José Antonio
Posted by: José Antonio Hernández | May 26, 2005 at 06:35 AM
S.W.A.G.
"so what...another giveaway..."
There's definitely a fine line between giveaways of value and free "junk."
AOL is a perfect example...who cares about another disc full of 1,000 hours...
Posted by: Dee Rambeau | May 23, 2005 at 02:42 PM
I've had the most success with giveaways that are high value and low cost. Some examples:
*Books -- retail "value" of $10-$12; cost (in quantity) $0.75
*Stuffed bears -- Retail value: $12; cost: $2.50
*CDs -- Retail value: $15; cost: $0.99
Almost just as good -- a high perceived value item that's self liquidated. The books noted above were sold for $0.99 and the CDs sold for $1.99 -- making up all the costs of the "giveaway". We moved 100k books and 125,000 CDs. Not bad.
Posted by: John | May 12, 2005 at 11:10 AM
Good post.
I recommend seeding givaways often (I call sampling "seeding" for no good reason other than I like the way it sounds) because it offers useful feedback for a new product launch.
The other givaway I like is what I like to call an installed base givaway. It can also be viewed as part of a profit pyramid. This fits into your "long term" strategy. The company gives away product that they can either upgrade to a more useful version or the givaway can provide the company with an installed base that will be to their advantage in the future. It's a win/win to coin an overused buzz word.
Examples include:
-MS Outlook Express. The upgrade MS Outlook is much more useful.
-Apple gives away the iTunes program to gain an installed base.
Cool stuff - Thanks JR
Posted by: Bruce DeBoer | May 12, 2005 at 09:49 AM