Giving Away Products and Services to Create Loyalty
A reporter for a major business publication asked me whether businesses that lower prices and give away free services for buyers that are struggling to “give them a break” is a good strategy for keeping them loyal when the economy turns and their financial fortunes improve. Here’s what I told him…
People will buy from companies and stay loyal to them when they keep getting value. However, giving product discounts and services away for free is fraught with danger. To do it right this must be a part of a compelling business and financial strategy. Does Gillette sell razors at a loss to “give breaks” or be “nice” to struggling consumers? No, they do it to make money on razor blades and other products.
Then there’s giving away services. You can give a service away for free if you never want to sell that service, and if the margin on the other services or products is high enough for you to make your desired profit while you give this other service away for free. Yet this is rarely the case and the rest of the business suffers long term when companies try this.
Think about IBM in the 1990s. What if they adopted a policy of giving away services? That would have been the end of IBM, and IBM Global Services – their greatest achievement in recent years – would be a business charity, doling out free help to poor businesses in need!
Now, if you feel the need to lower your price to survive that’s one thing, a sticky decision to make that has many other factors at play. As much as some consultants might say, “Never lower your price or give something away for free!” they’re just being dogmatic and pig headed.
The reality is pricing may need to fluctuate given changes in the competitive and economic environment. But keep in mind that lowering prices and giving things away for free without a compelling strategic reason is not by itself a good choice to build buyer loyalty.
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