By Gordon Hecht, Serta Simmons Bedding
It is said that “free” is the most powerful word in advertising.
And since the job of advertising is to bring footsteps to your door and eyeballs to your website, you probably want to use that word to drive door swings, then leave it to the sales team to convert those shoppers into customers and then raving fans.
But giving away free items or services may be a misstep on the ladder of success.
Allow me to explain:
Maybe it’s because we’ve got the winter blues, or maybe it’s because we’ve been shut in our house for a year, but for the last few weeks my ever-lovin’ bride and I have been in a purging mood. For those who have not Marie Kondo’d their condo, that means donating, selling or throwing away anything in your home that doesn’t bring you joy or isn’t being used (aka useless).
We learned quickly that it’s just plain too hard to donate things these days. While it’s a noble endeavor to give to the less fortunate, most agencies aren’t accepting used clothing, housewares or furniture. So we moved to Plan B and posted our excess merchandise on social media.
Our stuff was sorted into two groups: Things for sale and things for free. The folks who responded to the “for sale” items set a pick-up time, showed up promptly and paid with cash. The people wanting the free Hecht-ware were more cavalier about getting their new treasures. They asked a lot of questions about the items, wanted to know if we would deliver them (!), and almost all broke their pickup appointments. Some even texted us nastygrams when told that the object of their desire had been claimed by someone else. (“Why didn’t you hold it for us?”)
I’m not a sociologist and I don’t play one on TV. But it occurs to me that when you assign a value to something … it becomes valuable! Conversely, when things are free or at no cost, they have no worth and become worthless. The people who paid for my stuff were more respectful of my time and appreciated what they were getting. The freebie people couldn’t have cared less.
Likewise, giving away products or services for free does a disservice to your business and merchandise. Everything in your store has a value, and while I’ll never say never, giving it away for free makes it worthless and reduces the value of your brand.
A rule of profitability in retail states that “When someone gets something for nothing, then someone else gets nothing for something.” Whether it’s delivery, haul away, or accessories like pillows or protectors, each has a cost to your business and a value to your shopper. They only lose their value — to your customer and your sales team — when you give them away.
It’s understood that closing a sale with a first-time customer is more important today than ever. And I’m not against using bonus merchandise incentives to get that sale. But those bonuses can still have value when your sales team properly frames the inducement. Which pitch do you think has more impact?
- “I’ll throw in delivery for free if you buy now.”
- “I can save you time and money by including our full-service delivery, normally $99, for no extra charge on an order placed today.”
But there’s a high cost to discounting. Every time your sales team discounts an item or gives merchandise away for free, they shred your profit margin. Retailers that work on a 50-point margin (a 100 percent markup) gain a gross profit of $50 for every $100 they sell. A 10 percent discount comes right off the top and reduces the gross profit from $50 to $40, or a 40-point margin. A 20 percent discount takes margin down to 30 points. In terms of cash, a $100 discount is a discount off the gross margin.
Free merchandise giveaways have a similar effect. Think in terms of “10-to-1.” It takes about 10 retail dollars to make up the loss of one free merchandise dollar. Tossing in a pillow with a $20 dealer cost means you’ll have to create another sale for $200 to earn back the net profit dollars.
Free yourself from free! Build value by bundling packages of services and products that make sense to your shoppers and lessen confusion in the selling process. Think of McDonald’s “Happy Meals” and Taco Bell Combos. The toys or the cinnamon crisps aren’t free; they are value-added inclusions.
Explain the value of each item in your store. Make sure your team knows why delivery service costs upwards of $99 or more. Know the value of each accessory item and quote the full price first.
There’s never a real need to give sumthin’ for nuthin.’ But if you know someone in the market for 83 VHS tapes, a maroon leisure suit or a Veg-O-Matic, I’m flexible on price.
Gordon Hecht is Senior Regional Manager/Strategic Retail Group at Serta Simmons Bedding and a regular contributor to YSN. You can reach him at email@example.com.