Beware the Free Gift Strategy

Offering consumers a free gift is a relatively common marketing tactic.

This strategy is often used to introduce a new product to the market, entice the customer to buy the product bundled with the gift, or even as a means of quickly reducing stock quantities of the gift item.

However caution should be exercised in using the free gift strategy.

Researchers have found that:

Consumers who do not want the gift use that as a reason not to buy the main product (Simonson et al 1994). You therefore need to carefully consider the pairing of gifts to products. Gifts which compliment the main product or are valued by the customer base of the main product are probably preferably gift items. If in doubt some small scale market testing could be undertaken to determine whether gifts are a good match to the main product – talk to your customers and see what they think.

Consumers infer that items given as gifts are cheap to produce and therefore should be cheap to purchase. Consequently, consumers are only prepared to pay a minimal amount for the gift if it is sold as a stand alone item. A normally high priced item offered as a free gift may later be perceived as over-priced resulting in decreased sales. Also the marketing technique of giving a new product line as a free gift with an existing product in order to build a customer base for the new product can be problematic. Customers who received the new product as a free gift, or are aware of the previous free gift offer, are therefore willing to pay much less for the product than what you want or need to charge.

However, research with 146 American consumers found that this can be avoided if the price of the item is given (eg. the price is marked, or even framed as “receive a free X valued at $X”).

Researchers have also found that where a free gift is perceived by consumers to be cheap, consumers can infer that similar items of a different brand are also cheap, reducing the amount consumers are prepared to pay for those items.

In one study where a string of pearls were offered as a free gift with a bottle of alcohol, consumers were willing to pay less for an unrelated brand of pearls. Presumably this was because they had inferred that pearls were cheap because they had been offered as a free gift.

Guidelines for Free Gifts

To avoid the possible negative effects of free gifts, manufacturers and retailers should:
• Always provide cues as to the value of the gift (eg “receive a free X valued at $Y” or bundle items as “Buy X and Y for $Z”)

• Always explicitly provide the value of a free gift if it is a new product likely to be sold as a stand alone product.

• Offer free gifts which directly compliment the purchase item or are valued by the target market.

• Be aware that offering a product as a gift may reduce the amount customers are willing to pay for a similar item of a different brand.

Source: Raghubir, P. (2005). Framing a price bundle: the case of “buy/get” offers. Journal of Product and Brand Management, vol 14(2/3), pp.123-128.