The Cost of Free
Re-evaluating the value of a dollar
A similar story unfolds every Tuesday in every Caffe Nero coffee shop across the United Kingdom. The story has a name, which is “Tuesday Treat. Enjoy a hot drink on us”. Starting at just before noon and continuing way into late afternoon, queues of Tuesday free aficionados snake out of Caffe Nero outlets. All the people in these queues have a lifestyle variable that is exactly the same (and is a delight for all segmentation experts) — they are all O2 mobile network users. In 99% of cases, you will not find a single non-O2 user in these queues, because they would be paying and will avoid going into a Caffe Nero shop on a Tuesday afternoon.
What is the aftermath of this “Tuesday Treat…….” story? With Black Friday almost upon us, the word aftermath is quite fresh in everyone’s minds. The aftermath is a group of tired, angry, frustrated and hassled baristas, who have spent close to four hours giving out free drinks (with all the frills and fancies that you can add to a hot cup of coffee), adjusted payment terminals for all kinds of cellphone angles, screen resolutions and brightness and have punched in hundreds of codes manually (when the cellphones have failed). That is the just the story on the ‘giving’ side of the till. On the ‘receiving’ side of the till Caffe Nero has hundreds of customers who will never pay them a single dime (but will come back again next Tuesday). They also have a significant loss of sales from paying customers (and with a higher likelihood of being brand loyal) who didn’t set foot in the store during this Tuesday afternoon frenzy.
I am not blaming anyone who is an O2 user and has joined these queues. I myself use some of my American Express offers in Caffe Nero, but they are once every 2–3 months and gives me half price on some selected items or lets me try a new innovation free for the first time. Everyone has the right to exercise a fundamental choice — to spend or not spend money on any form of conspicuous or non-conspicuous consumption.
We have a “cost” of “free” exemplified here. O2 subsidises Caffe Nero for its Tuesday free drinks marathon. Caffe Nero gains nothing — no brand preference, no strengthening of equity and no increase in share of purchase (if O2 strikes a deal with Starbucks, then the queues will simply shift outside their stores). It does get something though — extremely high level of dissatisfaction among baristas for every Tuesday (akin to Monday morning blues), disruptive and chaotic in-store atmosphere, extremely high waiting times and irritable customers (yes, even when we are getting things for free we somehow have high expectations). Does O2 gain anything? In all likelihood nothing apart from lots of app scanning. Will a consumer buy a O2 connection because it gives a free Caffe Nero drink every Tuesday? Absolutely not but he or she will if it offers the most favourable deal on the iPhone X (everything else in a mobile connection is a commodity).
I am a Caffe Nero loyalist and the Tuesday scenario is a combination of my observations and my chit-chat with my local Caffe Nero baristas. Some honest comments shared with me — “Oh it is Tuesday today….I hate Tuesdays”, “Avoid coming in the afternoon today…I will hate to keep you waiting” and “Come in and wave to me and don’t stand in the queue…you are a paying customer and I will prioritise you over the free wheelers”.
With Black Friday upon us, the retail high streets in the country will see massive discounting and promotional offers. To feed our insatiable appetite for consumption, brands will destroy their equity in a day, which they would have built up over years. In the UK, a challenger movement is taking shape — small and medium retailers who pride themselves for their originality and what they have built are refusing to participate in Black Friday and are offering to donate to charities (as an alternative). There is a rising consciousness about the impact of discounting on brand perceptions, profitability and short and long term business growth. Black Friday still requires you to pay, but the real problem starts with when you give your brand away for free.
Does a consumer who goes to a Caffe Nero store to avail the Tuesday Treat ever go in-between and pays to buy a coffee? Probably not because if it was the other way round the queues would have started shortening over subsequent Tuesdays. Human psychology is complex and fascinating — we start with free, end up paying and then look back at our ‘free’ days with a sense of guilt. Most of us will avoid this guilt. If we always tried a brand because it was free on each occasion, it was not worthy enough to make me take out my wallet when it was not free. There goes Caffe Nero’s attempts at brand building out of the window.
Brands rejoice on the accomplishment of a major marketing objective — recruited a consumer into the portfolio by ensnaring him or her with free stuff. This sense of accomplishment is the biggest fallacy in marketing. The previous debates on the impact of “free stuff” were centred around brand image (and ultimately equity). With branding and marketing increasingly focusing on creating experiences at every stage of the consumer funnel, the negative impact of “free” is even more widespread.
Let’s consider the case of the thought leadership industry as a case. We cringe to attend conferences / meetups / seminars that are free because we think it will be gatecrashed and no form of productive networking can happen in a hall full of 1000 people. We also cringe at highly priced conferences but admire the speaker line-up and try to avail of the cheapest option (pay to get access to the presentations etc.). Question to ponder — How many of us will watch a free livestream of a conference with expensive tickets vs. one that is actually free to attend in person? The conference’s theme and speaker line-up will influence the decision but the free vs. ticket option will have a higher influence. That is an example of a pure form of experience branding and the impact of free.
Our relationship with “free vs. paywalls” is somewhat similar when it comes to quality writing (op-ed, investigative journalism, opinions, columns etc.). Before news became an online phenomenon, we used to buy newspapers to read them (we did it for hundreds of years). Suddenly the internet made news free. Then we adopted the belief that we should never pay for news. The print industry entered choppy waters and shifted its focus to digital and gradually paywalls came up. The Guardian doesn’t have a paywall, but The Times, The New York Times, The Washington Post, The Financial Times and The Wall Street Journal all have. The fact that we still believe in paying for quality and things that have a deep value is reflected in the success of paid online subscriptions for some of these publications. We have moved from ‘paid’ to ‘free’ and again to ‘paid (with some initial free)’. Quality writing is not coffee and coffee is not quality writing. But we express similar reactions to free vs. paid (albeit in a different manner) when it comes to both products.
The “free” phenomenon is a major annoyance in a knowledge-sharing ecosystem. Ever gone through an experience wherein you have registered to attend a free talk and the organiser contacts for confirmations because there are more confirmed attendees than place to stand in the room? That is another example of a cost to pay for going free. Who would you think has more credibility — An executive coach who coaches for free or someone who has a one year wait list and charges upwards of 50k for 2 days? This is not a debate around fair pricing but the perception of something that has a price attached to it vs. one that does not have a price tag. One of the most common piece of advice that is given out is “if you are very good at doing something, never do it for free”.
A strong brand is very good at something — it could be a specific functionality, a unique way of satisfying a need, a combination of features that drives efficiency, a strong and attractive identity, an excellent pre and post-purchase customer experience or even a strong legacy. If you have invested to create something special, there should be no hesitancy in asking the right value for that specialty. Were the opinions of the Caffe Nero baristas sought before the deal was signed with O2? Absolutely not. Today a brand is not built by a marketer only. It is equally built by those serving or selling it or anyone who has any form of consumer interaction (an in-store demonstrator, a founder giving a pitch in an investor meeting, senior management talking about a corporate social responsibility initiative etc.). Next time you decide to give away your brand for free, don’t think about the customer (will be disloyal and frivolous), but the whole branding and marketing ecosystem supporting and sustaining your brand. In all likelihood, you will probably change your decision.