Why do companies offer free stuff at the same cost?
One of the questions we received from listeners as part of our “I’ve Always Wondered” series is about why companies are willing to give you extra for free.
Eileen Lee wrote us to ask: “Why is it that, every once in a while, my favorite brand of shampoo, food or drink gives me an extra 20 percent free? Why would a company do this?”
Lee is a statistician and demographer who is finishing up and publishing her master’s thesis. She’s a very careful shopper, dissecting special offers and deals. And she’s very particular. For example, her chicken nuggets have to be dinosaur shaped. Why?
“I like biting the heads off,” Lee says.
Eileen and I are on a virtual shopping date. I’m at my favorite store in Wheaton, Maryland, just outside Washington. She’s at a store near Los Angeles, where she’s from. We head to the shampoo aisle. Eileen spots a get-more-free deal right away.
“Yeah, Organix – they have some oil of Morocco shampoo and it’s 50 percent more free,” she says.
So will she buy it?
“No, I’ve used their stuff before,” she says. “I don’t like it. It makes my hair feel weird.”
Eileen’s got a brand of shampoo she likes, and sticks with. Ditto for toilet paper and detergent. We go down aisle after aisle, looking for a get-more-for-less deal she likes. We don’t find any. Hence her question.
“What made me ask the question was that I never fall for that,” she says. “If I see an extra 20 percent, and if it’s not the same brand I’ve been using or the same particular series of brands, then I wouldn’t even think of choosing it.”
So Eileen never goes for those deals. But, turns out, lots of other people do. That’s part of the answer to Eileen’s question.
“It gives you an effective discount that’s very tangible and enables you to differentiate your product from the others on the shelf,” says Ira Kalb, assistant professor of clinical marketing at the Marshall School of Business at the University of Southern Calfornia. “And it sways people to your brand.”
You want consumers to try it and get hooked on it. Pepsi was among the first companies to experiment with get-more-for-free in the 1930s.
“But they hit upon this idea that they would have a package twice the size but they’d sell it for the same price as the Coke, which was a nickel,” says Robert Schindler, a professor of marketing at Rutgers University.
Pepsi promoted the deal with this radio jingle:
Back in the grocery store, Eileen says I’ve answered her question. But she’s still not interested in the get-more-for-less deals. Now, manufacturer’s coupons? That’s different.
“Because then I can actually calculate if it’s actually cheaper,” she says. “Whereas with the 20 percent free, I have to calculate, OK, what was the normal price and am I getting more product?”
But that’s an I’ve Always Wondered question for another day.
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