What is the secret of business success? You may think it is to sell your product at the highest price to the most people. Think again – you can actually make more money by giving your product away!
The Secret of Successful Business
This is a technique which reveals the secret of practically every successful business. It relies on repeat sales, built up from the initial purchase of the product. The problem of generating the initial purchase is overcome if the product is free, so eventually you should be left with legions of loyal customers and you can hardly fail to make a fortune.
The Benefits of Repeat Sales
Before we explain this in more detail, take the example of Coca Cola – a company whose business has been based on the success of basically one drink. How far would the company have grown if they had sold a can to everyone in the world, but nobody bought another one?
The success of the company is, of course, built on repeat sales. Coca Cola drinkers don’t just buy one can, they buy lots of them, over years and years. The success of the business depends on gaining a customer, providing them with a product they are satisfied with, and then reaping the benefits of repeat sales.
Brand and Company Loyalty
This doesn’t just apply to consumable, low cost items. A motorcar is a very expensive purchase, and an infrequent one. Yet the fortunes of motor manufacturers are dependent on selling not just one car to a customer, but several over their lifetime.
Why does the Ford company continue to prosper, and why is the Ford Escort still a number one seller? Those with rose tinted spectacles would like to think it is because Ford produce the best, most reliable car with the greatest range of features and benefits, at the best price. Most independent observers would differ from this view, pointing to the cars coming from Japan and Europe.
At one time, however, Ford did produce this type of car, and this is the point. Once customers start to buy from a supplier they are notoriously hard to move. Put simply, if they bought Ford last time they are likely to buy it again, irrespective of any arguments to the contrary.
The Initial Sale
The phenomenon of brand and company loyalty is very important and explains why companies spend such huge sums of money in order to persuade someone to try out their product. The initial sale forms only part of the benefit of advertising, and is often little more than incidental. If McDonalds only encouraged people to enter their restaurants once, never to return, their advertising expenditure would be wasted and they would quickly go out of business.
So what does this mean to you? Whatever business you are in, it is likely that it actually costs you money to gain a customer. There may well be no profit in the initial sale, which will be swallowed up in marketing costs, whether advertising, direct mail, telesales, personal representation, or whatever.
The fact is that this initial sale is crucial, in order to make subsequent sales which make a profit. Or is it?
Giving your product away, in the context of the above, seems to make sense.
Here is an example. Assume that you produce and market a food supplement which sells by mail for £5. Your product cost is 75 pence, and postage and packing another 50p. The gross profit margin is quite high, although this will be eroded by advertising costs when trying to attract new customers. It could cost between £5 and £10 to attract the new customer, which you would hope to make back when people re-order the product.
Here’s an alternative – offer the product free of charge. The cost to you including postage and packing is £1.25 – much less than it would cost to make a ‘sale’. Also, the take up rate will be far higher. You will have a massive database of people who have now sampled your product, and hopefully benefited from it.
Advertise For Free
You may have spotted a flaw in this argument. What about advertising costs? You still have to inform potential customers that they can have a sample for free. Well, yes you do, but you don’t necessarily have to pay for it. Get others to do it for free.
Here is just one way of doing it. Here’s a story about a young man who had built his video tape business to a turnover in excess of £2 million using this method. One of the main methods he had used to achieve this was giving away his product free.
For example, a series of his products was aimed at anglers. He contacted one of the major angling magazines and told them that he had several thousand videos to give away to its readers. They were naturally delighted, because being able to make such an offer helps to sell magazines. The magazine featured the offer heavily and it was a tremendous success.
Although the initial result was a cost incurred, the entrepreneur was able to enclose literature promoting associated videos with the free one. This resulted in many thousands of pounds worth of sales.
Potential Uses and Spin-offs
You will probably be able to think of many potential uses and spin-offs from this technique. It can be adapted to many different products and markets. Perhaps you have something to sell which could benefit from this approach.
Don’t forget the next time you are pondering over how to sell more of your product, consider giving it away instead. It’s a lot easier and it could definitely be more profitable in the long run.