Charging Zero Is Better Than Free
Free giveaways are a well-heeled marketing tactic, particularly amongst startups and SMEs that are desperate to attract more customers. However, they're problematic for multiple reasons:
- You're trading certain cash (the giveaway) for uncertain cash (future sales).
- They can attract freeloaders, deal-seekers, and other undesirable "customers".
- Convincing people to pay for something that they previously got for free isn't easy.
- They can taint market perceptions (we often associate "free" with "low quality").
- It can be tempting to rely on them and end up competing on price indefinitely.
Is there any way to enjoy the best of both worlds and attract more customers without incurring these risks?
Researchers from Korea University and Pukyong National University believe that there is and it's elegantly simple: charge zero for whatever you're promoting instead of giving it away for free. Experiment participants strongly favoured "zero charge" promotions over free giveaways.
When we receive something for free, we're subconsciously inclined to focus on what we're gaining (i.e. the giveaway). However, when we're charged zero for something, we tend to focus on what we're saving (i.e. the usual cost of the offer). And we're psychologically hardwired to value loss avoidance over equivalent gains.
Here's a similar tactic that can work particularly well for business-to-business entrepreneurs: charge full price, but discount by 100%. Your clients won't pay anything, but they'll still see the regular cost and this will reinforce your value while building goodwill.