Listener Marcus Fox brought up an interesting point in the BeanCast forum last week. 

After hearing our discussion about loyalty in episode 108 of The BeanCast, he reflected upon his father. He told a story about how his dad would drive out of his way to buy petrol from a certain brand, just because he could earn a set of drinking glasses for frequent purchasing. I invite you to read it for yourself.

Now the jury is out as to whether such behavior is "loyalty" or just "incentivized purchasing." But it did remind me of a story from my own marketing past.

It Was All A Joke

A bank my agency was helping back in the 90s (yes, I'm old) wanted what every bank wants: new checking customers. DDAs (demand deposit accounts) are the holy grail of banking. A checking customer is the most locked-in type of client. We switch banks for loans or credit cards without thinking, but moving our checking account is a hassle we rarely attempt unless we are moving to a new state where our bank doesn't do business. And that mythical place, my friends, becomes more rare with each bank merger. So when I say a bank wants a checking customer, it's kind of like a 15 year old with unfiltered Internet. Need I explain?

As is usual when a bank pursues new checking customers, this particular bank was willing to pony up some significant cash to sweeten the deal. A $50 bounty even back in the 90's was not a rare thing, so that's what we were given as an offer. We felt good about it, of course. It was competitive. It was desirable. And we felt like we could secure a fairly good response.

In fact, we felt so good about this offer that we felt compelled to poke a little fun at offers from the past. So the mail piece that was developed featured a choice of either a toaster (the ubiquitous joke of banking offers) or the cash. It was all tongue-in-cheek and designed to show just how much we wanted the customer, contrasting this lousy offer with the real one to make it look that much better.

Then the toaster orders started coming in. Not just one or two. Hundreds. 10 to 1 in favor of the toaster.

Mind you, this was a joke offer. We didn't even have more than a couple toasters on hand, purely to fulfill the inevitable pranksters. But the toaster offer clearly won the day. So off we went to the discount stores to secure as many toasters as we could get our hands on.

The Importance of Gifts

I've often wondered about this incident. I certainly still believe that the cash offer was solid and would pull better in most situations. But why did the toaster do well in this case? My only answer is that giving away an item is more than an incentive — it's like receiving a gift. And people like getting gifts. It makes them feel special. It makes them feel known. 

I think it all comes back to why you don't hand your wife cash for her birthday. (At least not in healthy marriages.) It may satisfy the minimum requirement of gift exchange, but it doesn't show that you care. And that's the real difference a "gift" offer can make.

Zappos could just spend lots of money on incentivizing purchases with discounts and promotions. But it means more when they send a free pair of shoes or refund on an item they don't even carry. It says more about their character than a sale ever could. It says they care.

It's why Gevalia still gives out coffee makers instead of discounts. A good coffee maker is the last mile for selling a lifetime of coffee through the mail, and it enhances the value of the real offer. It says, "We understand that what you really want from us is a good cup of coffee."

What "Free" Really Means

We talk about how "free" is the most powerful word in marketing and yet we forget why it works. It's not because people don't like to pay. It works because we take time to figure out what the customer really needs in that specific instance and we fulfill that need. It works because giving the right gift builds relationship. And if done right, it builds brand experience.

I think we've lost sight of this basic truth. We don't think of the word "free" as meaning a gift anymore. We now use the word to mean "give away the product" or use it describe a crippled demo version of our application. None of that is free. It's just another way of giving away $50 to incent the customer into spending money with us. It's another way of saying "discount."

We've exchanged "free," the most powerful word in marketing, for "cheap." Why? The answer is simple. It's easier.

When you discount you can still make your numbers for the quarter and drive sales. You can still create repeat purchase. And you don't have to waste time figuring out who your customer really is. All it takes is the knowledge that everybody wants to spend less. You don't need focus groups and research to know this. It's a given.

Some might argue that's enough. After all, response is all you need to justify a program. But I fear it's also a dangerous shortcut when overused. It's the road to commodity and reduced margins. And it doesn't build a brand identity or customer relationship. 

So why do toasters work better sometimes and cash offers work better at other times? Every customer audience is different. But it's worth answering the question for your own audience. Because even though we've become very sophisticated at capturing the sale, most of us are still terrible at capturing the heart. So maybe it's time to throw in your own version of a toaster offer and see what happens?