Have you ever wondered why companies have giveaways? Do you ask yourself how they make any profit when they’re giving products or services away for free? Well, with a nod to Captain Obvious, people love free stuff.

And they love it, even more, when the giveaway is valuable. Or, at least, if they perceive it to be valuable.

Free doesn’t mean free of value

But, you see, companies know this, and as more studies have come out, their knowledge of how people shop has increased and thus change their strategic approach to the marketing of products and services. According to an article in TIME, companies often make more money on giveaways because “you feel obligated to buy more.” Take supermarkets, for example, the article highlights supermarkets and their free samples which “…help boost sales at least partially because customers who’ve been given a taste tend to feel obligated to buy the food they’ve been given for free.”

They provide just enough of a taste to reel customers in. How many of us have gone for groceries with a list and come back with something (ok, lots of “somethings”) we hadn’t planned on getting because we tried it for free and decided it had enough value to actually purchase?

Take a chance on “free”

You can see this in any industry from supermarket giveaways to whenever a free sample of a book is up for grabs. People are more willing to take a chance on something if they can try it for free to see if they like it enough to actually buy it vs. the thought of an even generous return policy.

I’ve often felt that “free” could be a negative value signal – but the research seems to suggest a different dynamic at work.

As Tools of Change Publishing puts it in an article entitled “Using the Psychology of Free”, you have to understand the psychology of the word and the ideas that come with it to effectively use it yourself. You have to know that “a free product comes with low expectations (“Hey, it’s free!) and neutral perceptions (“What’s the worst that can happen?”). If that product proves useful, expectations are exceeded and perception elevates from neutral to positive (“It’s free and it’s cool/useful/interesting, etc)”.  

Why “free” is worth more to your company

If your customers have a positive experience with something you gave for free, they are, according to an article in the Journal of Marketing, 20% more likely to talk about said free product to another person directly or through social media platforms, and companies are catching onto this. So not only do they increase the chances that you’ll purchase the product after a positive experience (which cost you nothing) but they increase their promotions of the product and brand without spending much at all on product placements or advertisements.

In Chris Anderson’s book, Free: The Future of a Radical Price, an experiment was conducted to show that people’s perception of value was tied to price. A Hershey Kiss and a chocolate truffle were put on the table, the Kiss for a penny and the truffle for 18 cents. Individuals chose the truffle over the kiss because they perceived it to have better value. But when the Kiss was then offered for free and the truffle for a penny, people chose the Kiss.

The experiment proved that when offered two products, one for a discount and one for free, people would almost always choose the product that was free. Because, the truth of the matter is, at the end of the day, people love getting something for nothing and if given the option, they choose free over cheaper.

So the next time you’re looking for a marketing strategy, ask yourself: Is there something of value that I can offer to my customers for free? Something that “reels ‘em in” and exposes the greater value of your other offerings? And then – set up the giveaway and let me know the results!

Self-examination questions:

1. Have you given anything (a product or service) of value away to your customer base? If yes, what were the results? If no, why not? What’s stopping you?
2. What have you gotten for free? Did your experience with that free service or product make you want to purchase it? Why or why not?
3. What’s a product or service that your company can do or provide a customer, that not only meets their needs but makes them likely to come back, ready, and willing to pay?