Tuesday, July 12, 2011

Hesitate Giving Away the Store

Free works in funny ways. This means retailers are at risk of misunderstanding how to best use an offer of a free product.
     A case in point was yesterday’s 7/11 offer by 7-Eleven to give away Slurpees. According to a USA Today article, when 7-Eleven did the freebies last year, paid sales of Slurpees climbed an average of 38% for the day across locations.
     Is the lesson that your best alternative for building sales in your store is to give away the store? Well, as you’d expect, it’s more complicated than that.
  • The free Slurpee the consumer got was just over seven ounces. It’s designed to arouse a shopper’s appetite without satisfying the craving. The senior brand director for Slurpee has said, “You get a taste of it, and you choose to have more.” If the product and amount are at that sweet spot, you giving it for free can increase profitability from the add-on paid sales.
  • Like the recent Chick-fil-A food giveaway, the 7-Eleven promotion was framed as a celebration. 7/11 is declared as the retailer’s eponymous birthday. Consumers were encouraged to go to www.slurpee.com to download party hats and confetti. If your giveaway is part of a celebration and you merchandise properly, the additional items people buy will more than make up for your costs of the freebies. Free can activate a desire in the shopper to pay you back.
  • Looking at a climb of 38% for the one day isn’t sufficient. If you experience that sort of boost when giving away a product, assess if it was a move of sales from surrounding days, such that the net gain is not substantial.
  • Before offering an item for free, do the rest of the math. I’ll call it the Groupon calculation. Offers of free products, like the deep discounts of Groupon and its sister programs, can draw in crowds for a day. However, don’t find yourself wanting to believe, “We lost money on every sale, but we made it up in volume.”
     The idea of free can produce craziness in people aside from retailers. In discussing the seemingly irrational drive to get something for nothing, the USA Today article includes this quote: “Economists are wrong about almost everything.”
     I regret to say this silliness apparently came out of the mouth of a fellow psychologist. Maybe it was caused by brain freeze from drinking his Slurpee too fast.

Click below for more:
Keep Discount Conditions Strict Enough
Guard Your Promotions Against Being Gamed
Bundle Pricing, But Limit BOGOs

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