The Economics Of Free

Google has profoundly affected the way business is done the world over.  Besides becoming a frequently used verb (meaning “to search”) in multiple languages, the internet search and advertising giant became an international success on a business model that has never been attempted before.

Google offers its primary service, internet search, for free.  Ten years ago, when Google started, offering anything for free was unheard of, unless you were hocking towels on an infomercial.  Google’s success has shown that such a business model is not only viable, it’s the wave of the future.

While restaurateurs probably won’t start giving away their entire menu for free anytime soon, new economic realities have forced some innovative approaches to luring customers back to the food service industry, and free has played a huge role.

Denny’s kicked off the new approach to restaurant marketing with a Super Bowl ad announcing that Grand Slams would be free for one full day after the big game.  The success of that promotion has encouraged other chains to get in on the act, including Quizno’s, who recently wrapped up a million sub giveaway through a specially created site called millionsubs.com.

A café owner in Ohio even removed prices from his menu and allows customers to pay what they want for the coffee and breakfast items he serves.  Sales and customer visits have shot up as a result.  The practice of pay-what-you-want was invented in Europe, and has become even more popular since the economy started going south.

Of course, it may not work so well if a guest can rack up a few hundred dollars worth of entrees and bottles of wine.

And there are hundreds of more examples of restaurants finding the benefits of giving something away for free.  In a larger sense, however, the advent of giving away products and services for free has become rooted in consumer culture, and once consumers get something for free, they’ll want other things for free in the future.

But the economics of free also make sense, even if they seem a little counter-intuitive at first.

First of all, your customer appreciates the gift, and if they get one thing for free, they are more likely to buy other things from you, either in the future or at the same time they redeem their free item.

Secondly, nothing should ever be free.  If your customer doesn’t pay money for the thing they get for free from you, then they should either be counted on to buy something else either directly or indirectly from the free thing or you should get something from them, like an email address or a survey.

In an information age, collecting data about your customers has become vitally important to the success of any company.  Giving something away for free is one of the cheapest ways to get the information you’re looking for.

Finally, giving something away for free is a great way to create buzz around your brand.  The free publicity chains like Denny’s and Quizno’s have gotten out of their free food promos has more than made up for the cost of the giveaways.

The economics of free are the economics of the future, and the business you can generate from giving away something for free can far outweigh the cost.  And making more money than you spend isn’t anything new: it just makes good old-fashioned business sense.