When does it make sense to give away your product?

It's long been said that you get what you pay for. But in today's cutthroat marketplace, you at times get what you don't pay for as well. From free software to free cellular phones, it sometimes seems as if there's a frenzy of freebies showering down on today's consumers. We're not talking just about samples of a new and improved detergent, either. Giving away products or services is now a growth strategy adopted by start-ups and large corporations alike.

Nowhere is that clearer than in the battle of the Internet browsers. Netscape in less than three years became a household word (and a Microsoft headache) by allowing consumers to download its software from the Internet for a free trial period. Later, Microsoft began simply giving away its competing product.

The lesson? When you're racing to become the standard in a fast-growing, lucrative marketplace like the Web, free trials are a great way to grow your market share--if you can afford them. Indeed, the browser war Netscape launched at one point led Microsoft's Bill Gates to comment to the Wall Street Journal, "It's all free software. Economically, it's one of the most unusual markets that there has ever been."

But is the browser market so unusual nowadays? Or are today's consumers beginning to count on getting something for nothing? Some experts suggest as much. "Every company should find something to give away for free--whether it's a service, a consultation, information, or a product," notes Jay Conrad Levinson, author of the Guerrilla Marketing book series. "Customers expect more today and will continue to expect more," agrees marketing expert Martha Rogers, who cowrote The One to One Future and Enterprise One to One with Don Peppers.

That phenomenon poses special challenges for small companies with equally small marketing budgets. When is giving customers a freebie a smart marketing move, and when is it an unwise expense? Before plunging ahead with any free offer, consider the following questions--as well as your company's finances.

Are you likely to work with this customer again? Since 1982, Wendy Rosen has been fashioning the Baltimore-based Rosen Group into a $4-million crafts-industry mini-conglomerate. The company's services range from hosting a crafts trade show to providing promotional consulting for craftspeople. Though she gets paid for those services, Rosen also offers an 800 number dispensing free basic business advice to artists. "We offer enough services that one is bound to be useful to them," she explains. "Today we may not be able to solve their problem with one of the services we sell. But tomorrow, we will."

Are your costs for each additional unit low? That's one reason so many software companies are able to sell "shareware," which customers pay for only if they're satisfied and, often, only if they want features like technical support.

Are customers balking at trying your unusual, unknown, or complex product? Not long ago Maurice Lepenven, president of Quantum Electronics, in Warwick, R.I., was having trouble selling his air-purification systems. Customers were apprehensive about purchasing a $700 to $900 system, because they didn't understand the science behind it. Lepenven reports that sales improved substantially once he began approaching restaurants and supermarkets with a free trial offer.

Are there key decision makers whose interest in your product could prove invaluable? When the founders of Nanelle Inc. wanted to nationally launch their waffle cookie designed to top cups of coffee, they chose a 1994 specialty-coffee trade show--and a free sampling targeted for maximum impact. According to Nanelle cofounder Ellen Pegg, she and her partner approached the firm catering the coffee break after the show's keynote addresses. The caterer agreed to allow Nanelle to distribute some 1,500 free samples of its StroopWafel cookies with the coffee served to industry buyers. The samples won the New York City-based start-up the buyer interest it needed.

Can you trade a freebie for something you want more? For the past year and a half, SBT Internet Systems, in San Rafael, Calif., has been selling software that enables companies to set up Web sites and conduct electronic commerce. However, the company finds it is best remembered for offering to build an Internet home page free for any chamber of commerce in the country. Of course, there's a catch: the chamber must agree to grant an SBT rep an audience with its members--typically an evening seminar on Internet opportunities for local businesses. "The free thing we did was definitely the most powerful in terms of getting people engaged," notes SBT president David Harris.

When Freebies Aren't Wise

Obviously, it doesn't always pay to give away your product or service. Below are some instances in which marketing experts urge caution:

  1. When you're selling a "credence" good, such as long-term financial advice, whose quality is not readily apparent. In that case, a free offer is likely to make customers suspicious of quality.
  2. When few recipients will prove loyal customers. Giveaways can be a great strategy for customer acquisition, but only if you can retain enough of those customers long-term.
  3. When you have a top-of-the-line service whose perceived value would diminish with a free offer. High-end consulting is one example.
  4. When your product is just plain too pricey, too seldom purchased, or both. There's a reason cereal makers give away product samples and car manufacturers don't.
  5. When you sell a perceived commodity. If you can't hope for much future loyalty in exchange for your gift, what's the point?

Alessandra Bianchi is a contributing writer at Inc.

Resources: For a quick primer on the smart use of freebies in a small business, check out chapters 22 and 23 of the 1993 edition of Guerrilla Marketing for the '90s: Secrets for Making Big Profits from Your Small Business, by Jay Conrad Levinson (Houghton Mifflin Co., 800-225-3362, 1993, $12.95). Levinson gets to the point quickly and practically; he covers free samples, free gifts, and free seminars in just 16 pages.

JAY CONRAD LEVINSON, Guerrilla Marketing International, 260 Cascade Dr., Box 1336, Mill Valley, CA 94942; 415-381-8361

NANELLE, Ellen Pegg, 636 Sixth Ave., Suite 4-E, New York, NY 10011; 212-242-5360

QUANTUM ELECTRONICS, Maurice Lepenven, 110 Jefferson Blvd., Warwick, RI 02888; 401-732-6770

MARTHA ROGERS, Marketing 1:1, 700 Canal St., Stamford, CT 06902; 203-316-5121

THE ROSEN GROUP, Wendy Rosen, 3000 Chestnut Ave., Suite 300, Baltimore, MD 21211; 410-889-2933

SBT INTERNET SYSTEMS, David Harris, 1401 Los Gamos Dr., San Rafael, CA 94903; 415-444-9996