Is Your Franchisor's Free Offer Your Costly Giveaway?

Businesses promote "free" for the promise of greater revenues. Presumably those taking advantage of "free" will purchase other items at the time or revisit an establishment in the future. In practice, however, the intended or desired consumer behavior often differs from the reality.

A free slice of pizza or drink will certainly increase business. After all, there is unlimited demand for "free".

Most businesses simply assume that those taking advantage of "free" are likely to purchase other items either now or in the future. These businesses do not consider that it is more likely those who frequent a business because of "free" do not do so because of anything other than price.

As such, they are more likely to simply seek out the next "free" or lowest cost offer. Within some industries there is a constant battle among local businesses to one up each other in offering free or cheap. To these operations "free" becomes a cost of doing business rather than a way to build business. A race to the bottom, in terms of price, rarely provides positive results for any of the participants.

Another approach, often utilized by operations which offer higher cost products and services, is to offer a significant dollar or percentage discount for new business.

While the intent of this may be to attract new customers, such an approach could easily alienate regular customers who feel that newer customers are receiving a better deal. The end result is more likely to be a loss of business from past customers upon which success of the operation is dependent.

Successful businesses tend to increase traffic in other ways. McDonalds, for example, may reduce prices on select items (sometimes through couponing) but does not simply give away their product. Starbucks rarely discounts. They do, however, provide patrons with product samples in order to stimulate sales of certain items.

Many businesses lack the management control systems to understand the actual cost of "free" and also to track and evaluate the results of their marketing efforts.

Investing in good management control systems is the foundation upon which successful businesses are built.

This foundation allows businesses to better understand what marketing efforts result in improved results as opposed to costly giveaways that do not result in improved profits or sales.

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