Free vs Really, Really Cheap – The Power of a First-Time Offer

“Free” is powerful, but is it effective? Bonus offers and free giveaways are effective tools for moving people to act. All of us can think of examples of “free” First-Time Offers being used by businesses.

There’s simply no debating the fact that “free” can attract attention to your offerings.

But, there’s a less common follow up question that many business owners don’t ask. Are you attracting the right kind of attention?

In this blog with explore:

• The Power of “Free”
• Attention Isn’t Created Equally
• Really, Really, Really Cheap
• Teach Prospects to Act Like Customers

The Power of “Free”

Recognizing the power of “free” is no great feat. Smart people have researched and written the subject extensively. One of those people is Dan Ariely, a Duke behavioral economist and author who conducted a series of studies on the science of decision making.

In his book Predictably Irrational, Ariely describes a set of experiments in which he asked people to choose between two different chocolates with two different prices. Ariely’s subjects were asked to pick either a Hershey’s Kiss for one cent, or a LINDOR Truffle (an objectively higher quality confection) for fifteen cents. Three out of four of the people studied chose the half price LINDOR Truffle over the Hershey’s Kiss.

In the next study, he reduced the price of each type of chocolate by exactly one cent making the Truffle fourteen cents and the Kiss free. Even though the price difference was the same – fourteen cents – the sales numbers flipped. More than two thirds of the people now chose the Kiss over the Truffle.

Ariely conducted several other tests to make sure the difference in “sales” performance wasn’t due to convenience. He eventually concluded that the reason more people will choose a free Hershey’s Kiss over a discounted LINDOR Truffle is aversion to loss. As the low hanging fruit, the Hershey’s Kiss presented nearly zero risk making it a compelling offer.

Attention Isn’t Created Equally

Professor Ariely’s experiments make a compelling argument for the attention-grabbing power of “free”. But it also tells us about the people who made up the two groups of customers. First, the people who chose the free chocolate will take a freebie when offered, no surprise there. Second, the people who still chose to pay for a LINDOR Truffle are more interested in quality than price.

Sure, “free” can get many people to give you some of their attention. But what kind of attention do you want? Given a choice between someone who’s motivated by “free” or someone who’s motivated to pay for quality, who would you like to have as a customer? Personally, I like customers who are comfortable exchanging money for value.

Really, Really, Really Cheap

Attention isn’t created equally because customers aren’t created equally. Unless you are looking to be the next Amazon, there’s a relatively small group of people who you actually want to become your customer. Attracting the attention of people who you can’t help would be a waste of time. For most businesses, dealing with masses of unqualified inquiries can expend valuable resources on prospects who will never turn into actual customers.

Then, there’s a whole other group of prospects who are hard to serve. These are prospects who are technically qualified leads but are harder to work with. Usually, these prospects show a marked lack of respect for your time, lack of value for your skills, or a negative outlook on other vendors in your space. These prospects are regularly attracted by free offers but become costly customers for your business to serve.

We talked about these prospects at length in our blog post titled “You Can’t Catch Them All”. To make a long story short, if your goal is to build a stable healthy business, then it’s important to make sure you’re taking on high quality customers.

Teach Prospects to Act Like Customers

You teach your prospects an important lesson when you charge for your First-Time offer rather than giving it away for free. You teach your prospect to start acting like a customer.

There’s an important psychological change that happens when we exchange money for services. No matter how small the price your relationship to the prospect is instantly altered. As long as someone is a prospect, they’re subconsciously judging you, trying to decide whether or not you’re worthy of their trust. As soon as you conclude a transaction with your prospect, they become a customer. Where the relationship between a vendor and a prospect is one of caution, the relationship between vendor and customer is one of growing trust and partnership.

Once you’ve made that first small sale you’re ahead of your competition. You get to offer your customer additional services while your competitors are still trying to convince their prospects of their trustworthiness. Established sales teams carefully craft their customer journey to teach prospects to become customers. They do this by using smaller offerings to reduce the risk their prospects may perceive before offering bigger and better sales. Serve and build trust with the customer first before you try to expand the relationship.

Wrapping Up

At the end of the day it’s a question of quantity or quality. Some of the most successful businesses in the world use “free” to make millions, and even billions of dollars each year. Lots of very smart people disagree with me and say more people will respond to a free offer, and they’re absolutely right.

Personally, I’d happily trade an army of leads for a few great customers.