Make it free, and make money

In an increasingly tough economic climate, so many companies are using technology and ideas to create free products and services that it is changing business models and the economy. It even has its own name: Freeconomics. EMILY ROSS explains

By Emily Ross

In an increasingly tough economic climate, so many companies are using technology and ideas to create free products and services that it is changing business models and the economy. It even has its own name: Freeconomics.

It’s a good time to be a consumer wandering Australian streets. Before you know it, you could be walking along with a pink balloon, a free sundae, sipping a breakfast drink, enjoying free voicemail, listening to a free song download, sending a free email and carrying a free energy efficient light globe to try out at home.

Companies wanting to connect with customers are getting nice and generous (and sometimes quirky) when it comes to capturing new customers or retaining loyal ones.

“It’s not really a free thing,” says director of Maverick Marketing and Communications Glen Condie. “It’s a hook to get people in.”

Of course it is. Why else would News Corporation offer free top-10 music downloads, Telstra BigPond host live web concerts, Virgin Mobile offer its customers free voicemail and super group Coldplay hold free concerts in London and New York?

Free as a hook is hard to beat, especially when free products and services are being pedalled by some of the world’s most exciting new businesses and industries. Think Web 2.0. Think free blogs, open source software, Skype, email, voice-over-internet. Then of course there is Google, which lets you search for anything for free.

Of course nothing is really free. You only get something for free if you buy another, or you would be given something for free if you paid for something else.

But now a new type of free has emerged.

Chris Anderson from Wired Magazine explains that the new “free” is not based on cross subsidising – or shifting one cost to another. It is based on the fact that the cost of the products themselves is falling fast, mainly due to technological innovation.

The new ways that companies have found to subsidise products and the falling costs of doing business in a digital age means that more companies than ever are adopting some sort of free business model.

Now the “free” that was once a marketing gimmick is emerging as a fully fledged economy, and even has a name – freeconomics. And freeconomics is being driven by the underlying technologies that power the web.

For the past two months, a shiny little hot fudge sundae van (a la Mr Whippy) has been trundling around Melbourne suburbs offering free hot fudge sundaes at sports ovals and community events. The hot fudge comes courtesy of Sydney-based St George Bank, which is taking a grass-roots approach to promoting its services outside its home state after market research found Victorians lukewarm on the brand.

Instead of a mass media television campaign, the bank has gone with an icecream van campaign. The van has been an immediate success. Head of St George corporate marketing Sivea Pascale says: “The surprising thing in banking, when you do something that is nice that doesn’t involve a catch, the impact is doubled,” she says.

Very low-key for a $16 billion bank

To hatch the “highly experimental” plan, Pascale had to ask her team “why won’t they [Victorians] consider us?” The bank needed to “get closer and more relevant”, says Pascale. “Our strategy is to give something back and stand out from the other banks.” To solve this problem, a grass roots campaign was needed – no TV ads, just radio and local outdoor advertising. And a secret weapon – hot fudge.

“It was about getting people to think St George was appropriate for them as a bank,” she says. As well as the sundae van, there is a local treasure hunt (a version of the television program The Great Race) to test how well locals know their area, and the bank has a hot air balloon in service. When the balloon lands in a local area, the first person to it wins $2000 off their mortgage, the first 50 receive a $50 bank account with St George. Simple.

Locals can nominate future sites for the sundae van for their community event, which has been an immediate way to track the campaign’s impact. The bank has even received thank you letters.

At one promotion a guest (with a nice lump sum to invest) spoke to one of the St George people manning the treasure hunts about his dilemma. Needless to say the person was personally introduced to the right St George staffer and a new account was born.

Pascale did not want a hard sell at the sundae van with glossy bank propaganda; rather the campaign was about brand presence in the community. This strategy has worked a treat. “Momentum is still building,” says Pascale. The campaign will be measured through brand tracking, and through Austereo, the radio network that is working on the campaign.

A key to freebie marketing is to understand that if consumers receive something for free it is likely they will tolerate having some of their time taken. “The consumer can buy in or out,” says Condie. “The more interesting what the people are talking about [selling], the higher the tolerance level is going to be. They are up for it.”

Whenever Sydney-based promotions firm Media Tree does freebie handouts in Australian cities, its promotions team is swamped. “We can never keep up with demand,” says Media Tree managing director Michelle Tinyou.

The firm makes fortune cookies, sand sculptures, all manner of samples, street stencils, branded coffee cups and even promotes its clients’ brands in carbon-neutral pedapods (think 21st century rickshaws). Through Media Tree, financial services firm ING offered breakfast drinks to commuters with a recent campaign.

“People are so bombarded with advertising messages,” says Tinyou. “The trick is finding a quirky way to get through the wall. Give consumers things they use in everyday life.” Movie tickets, branded bottles of water, sunscreen sachets and chocolate hampers have been recent favourites.

Jobs website SEEK has also been getting out and about to promote its brand. Media Tree sent promotions teams on to the streets of Sydney and Melbourne with bouquets of free signature pink SEEK balloons. Rather than handing them out willy nilly, the promotions team had to wait until commuters actually approached them. The consumer has to seek out the balloon in line with the company’s “seek and you shall find” slogan. Geddit?

Freebie marketing is by no means a new science. In the early 1900s, cereal entrepreneur William Kellogg began campaigns for free samples of Corn Flakes. All customers had to do for the free sample was wink at their grocer on “Wednesday is wink day”. The classic McDonald’s meal-with-toy Happy Meal has been around since 1979.

In the legal sector, Slater & Gordon has pioneered “free” legal advice. When it first announced a no-win, no-fee service in 1994 the switchboard went into meltdown. “We were overwhelmed,” says Slater & Gordon’s chief operating officer Mike Feehan.

The offer tapped into oceans of potential new clients who could not afford prohibitively expensive legal advice. Today 75% of the firm’s work is no-win, no-fee services. “It has become part of the brand, the access to justice,” says Feehan.

The company receives more than 30,000 calls each year through a call centre and the firm’s website. Staff are trained to help every caller, “mining” for potential cases and also supporting callers who aren’t candidates, referring them on to other tribunals and consumer services.

Feehan likens it to a triage operation. “No one goes away empty handed,” he says. The firm’s marketing campaign includes mainstream television, print and radio, as well as local media for all 26 Slater & Gordon offices. The firm, the world’s first publicly-owned law practice, is on target for 2007-08 revenue of $73 million, beating its forecast.

Current “free” campaigns that stand out include Malaysian Airlines, which is giving away free flights on its surplus seats. Passengers still have to pay taxes, fuel surcharges and airport taxes, but this gimmick will help the airline cover its fuel costs. Then there is Ryanair, which defines itself as a fully serviced travel agency than a seller of airline seats. (See How can air travel be free.)

Think about new web technology. Many web products start life free. Of course the fact that products are free doesn’t mean that someone isn’t making money. Look at Google. Or the media industry.

Wired’s Anderson points out that the most common of the economies built around free is the third party system – when a third party pays to participate in a market created by a free exchange between the first two parties.

And free in media is growing. Last year the New York Times went free. This year the Wall Street Journal’s model will change. In Spain, Disney is offering its Disney channel on Spanish cable television for free. Advertisers will fund the station, the first time the Disney channel has been offered free anywhere in the world.

Clearly not every enterprise can afford major free campaigns to promote their product or service. Start-ups in particular will find it hard to give away things for free because of the capital investment and mass production involved.

After all, anything that is mass produced requires deep pockets to fund the large upfront investment. But you can see the trend here. Offer consumers a great experience within what Condie calls “a branded space” and see what happens. While the company is giving something for free, there are significant benefits for the company. And it could well change your business model.

The guide to great freebie marketing

• Think about it as a first date, you want to make a great impression in a crowd.
• Ask what is the best thing about my brand/product/service, where does the business add the most value for its customers?
• What is going to grab customers’ attention?
• What do your customers enjoy?
• For those not wanting to offer gimmicks, freebie marketers need to think of clever ways to show potential clients what they do; an ad agency needs to offer a few ideas for the business, a law firm a free consultation, a café, a free coffee etc.
• It’s about coming up with an experience that customers genuinely want/need.
• Watch the response of your consumers to your free products or services. What way can you innovate? Are there new ways to make money from being free?

 Read more on innovative marketing