Financial Daily from THE HINDU group of publications
Thursday, Aug 14, 2003
Promotions & Offers
What's in a freebie?
WELCOME to the wonderful world of freebies. Cups and containers, microwaveable for good measure, digital watches with beverages, lunch boxes and mugs with energy drinks, lamps with tinned curries, a wallet for 10 pegs of whisky, a branded shirt for 20 more, buckets with oil cans, suitcases and larger buckets for big purchases, coffee with suit lengths or saris, nail polish with a film glossy, soap with rice, price-offs, 25 per cent washing powder free, 1 for1 free, 2 for1 free, cola with chicken, gold pendants in soap, toys with toothpaste, bags with water heaters ... it's a virtual cornucopia. With every permutation and combination, it would seem. How do marketers pair their products with such strange partners? And how do consumers take to them?
Standard is boring?
According to Balram Singh Yadav, Head, Poultry Business, Godrej Agrovet, "It works positively to be unconventional." The company, which earlier offered `traditional' accompaniments such as rice, eggs and masala gratis, recently offered Coca-Cola in the Western part of India and Pepsi in the South free with every pack of Real Good chicken. This led to 100 per cent growth in volume, he says. "Consumer offers in the soap category have become generic. Non-matching offers would be a big differentiating factor in over-saturated categories," is his explanation.
But there have been combinations that have flummoxed marketing experts themselves. Says Harish Bijoor, brand-domain specialist and CEO, Harish Bijoor Consults Inc, "The most ridiculous of these promotions I have seen in recent times (in Guntur and Ongole in Andhra Pradesh) is a one kilo packet of locally branded coffee costing Rs 130 being sold with a safari suit length free. A saree on some packs as well! I can't imagine the value proposition or the cost proposition of these brands ... if they are brands at all."
At cross purposes?
Jagdeep Kapoor, Managing Director, Samsika Marketing Consultancy, can hardly contain his mirth, and chagrin, at this Rs 18,000-crore phenomenon (that's how big the freebie and promo market is, according to Samsika). "What should be sold is the brand and its benefits, but marketers are trying to sell the deal. It's like consumers looking for the best bucket and then buying the brand; the freebie being bought is erroneously commoditising the brand," he says.
Companies are agreed with gurus in principle: that a freebie or a promotion is a temporary incentive to induce purchase, and something done over and above the normal marketing activities. And that a permanent promo hurts brand equity. However, only a minority seems to adhere to this in spirit.
Says Mala Morris, Head (Marketing, Customer Insight & Private Label) of the Chennai-based Foodworld Supermarkets Ltd, which runs the retail chain FoodWorld, "Continuous offers help to keep up the excitement. But having said that, let me tell you that no offer, no advertisement, can sell a bad product."
As for the freebie-product fit, it depends on the purpose of the exercise. A company could give away a new product with an established and successful brand when it wants the `newbie' to be sampled by customers. Here, the match need not be obvious. It also has the happy effect of spurring sales of the second product. Also, according to Agrovet's Yadav, "In non-matching offers there is always a positive rub-off on both the brands as both target different target consumers."
In a sluggish market, where consumers are either not buying or downgrading, brands have to shout to be heard so to boost sagging sales or generate excitement for the brand, freebies become indispensable, in a marketer's book.
Says H. K. Press, Executive Director and President, Godrej Consumer Pvt Ltd, "Extra volume can be given to discourage trial of a competitive launch or convince users of the effectiveness of your product. It's usually cheaper as you can save on excise duty!"
Sometimes, products of different companies are given out together. For instance, at the time of going to press, an offer is on whereby the purchase of a 500 gm pack of Britannia Milkman cheese will earn the buyer a 5-Star chocolate. Arrangements in such situations are worked out on a case-by-case basis depending on the objectives of each brand and how effective the initiative is for each. It also depends on how the ad spends are to be shared.
"Most of the time, freebies come at a cost-advantage to the buyer. At times, they could come pretty close to free. A partner could negotiate advertising of the promo as a point in the pricing deal. High-decibel advertising of the promo item with the main brand is always to the advantage of the brand being used as promo," says Bijoor, who has marketed several brands including Tata Coffee.
Yadav says most of the promos at Godrej Agrovet are joint efforts where the cost is shared equally unless the offer product is internal to the company.
Good freebie, bad freebie
Says Ramanujam Sridhar, CEO, brand-comm, "From the purists who say that the brand's values are being diluted to the makers of Akai who demonstrated that a well-planned, aggressive sales promotion could actually be part of a long-term strategy." Sometimes, he says, companies have `lazy promotional strategies'. "Like giving another product from the same company, never mind the fact that the freebie being offered is a dud that no one wants."
This dud could be a gleaming metal spoon that loses its lustre once it enters your house, or a plastic thingummy which falls to pieces if you use it more than once, or to quote the articulate Bijoor, the shampoo sachets that come with a film magazine and "lie around in the bathrooms of our country, largely unutilised".
"The best of these is the one that offers more product. It signifies an added volume of consumption and it does not denigrate the product. Remember, a consumer buys a packet of tea for the tea. Not for the spoon or tumbler," he says.
Here's an anecdote shared with Catalyst by the late Shunu Sen, a marketing great who spent most of his career in HLL: The company was giving away a rice server free with a detergent brand. Though a success initially, consumers then began telling shops to reduce the price of the detergent instead and refused the rice servers. "There were so many rice servers around that the price crashed in the market," chortled Shunu.
The company was stuck with huge stocks of rice servers and the top brass were beginning to ask questions. At this point, Shunu approached Aditya Birla, who was heading Hindalco, from where he had procured the servers. The latter was astute enough to realise the problem that an excess supply of rice servers in the market was causing, and agreed to buy back the whole lot from HLL.
In other ways a freebie could backfire, consumers could end up buying the product solely for the gift, or be put off by its poor quality. "The only one who's benefiting in this situation is the guy who is selling the spoons to the company," jokes Samsika's Kapoor.
Bijoor says there is just no guard against a bad freebie, and that the company should stay with consumer market research before "unleashing" promos. What's worse, consumers could wonder if the money they are paying is subsidising the freebie or suspect the company is palming off old stock on to them.
The real story?
But why do companies go on and on with freebies? Quick results apart, Kapoor has another theory: The problem, he says, arose with the stipulation that publicly-held companies now have to issue quarterly results. And in their haste to please investors, they resort to this tactic to pump up sales and present pleasing figures.
"The brand managers want to grow the brand in the pockets of investors, and not among consumers, as should be the case. They are living quarter by quarter, not leading a full life," he quips, adding that companies which take an annual view will do well.
Many brand managers do not admit to the fear that consumers will cease to buy if the rain of freebies stops, preferring to say that the brand's fortunes lie in its inherent strengths. But "cherry pickers" as FoodWorld's Morris calls them, do exist. And that cannot be helped. However, from a retail perspective, it's not a bad thing, because "the category sells and the store is getting its share of consumer spending."
R. Subramaniam, Director of the Chennai-based Subhiksha, a chain of discount stores, says consumers understand most brands are similar, and therefore the inclination to buy one that comes with a gift is higher. What then, happens to brand loyalty? "If the consumer is new to the product category, he may stick with that brand. If not, he will switch brands a few times, buying whichever offers a freebie more often. And then gradually get used to that brand," he explains.
"You wouldn't admit your child to a school which offers to waive fees for every one class after three classes, if you had a better but more expensive choice, would you? Consumers will buy brands which promote sensibly. There might be flirtations now and then but the marriage to the brand usually stays intact," says Kapoor.
Morris believes consumers don't have very high expectations from what they get free. They are also weary of the same gifts that pile up with the frequent purchase of some brands.
Says Ravirekha, who buys energy drinks regularly for her children, "What will I do with five badminton rackets or six watches? Such freebies are a bore." Subramaniam puts this down to the retailer getting stuck with stocks, or sometimes, the company continuing the offer because it's proved popular. Generally, most offers are not supposed to last beyond 25-30 days.
Worse, what can happen at the retailer's end is that a competing company's product can be proffered as a freebie, in the absence of the `original'. Says Subramaniam with a sigh, "One mistake leads to another. Consumers are happy with freebies, the retailers are terrified! We need as much storage space for gifts as we need for products. Keeping track of which freebie goes with which product gives us sleepless nights. It's like trying to hang on to a child's hand at a crowded fair and making sure she doesn't get lost."
"Sales promotion is necessary today. It will succeed if it is relevant, exciting and beats the clutter," says brand-comm's Sridhar, while Bijoor believes the future is about focus on below-the-line promotions. Advertising, he says, is losing its sting and appeal. He mentions how, in Tucson, Arizona, a pest control firm ran a `find-the-cockroach' contest a few years ago. Incredible as it sounds, a number of roaches were barcoded and let loose, and consumers who turned in one of these would win a grand prize of $50,000! The contest also had the salutary effect of decimating the roach population in the neighbourhood.
Godrej Agrovet says it has managed to retain 80 per cent of its consumers after any consumer offer. "This is good enough validation," says Yadav. Freebies that are value for money work, says Press of GCPL.
The consensus is that the deluge of freebies is conditioning the consumer on a different front, and diverting the attention from the brand being promoted. "Freebies and promos should be like a drip," says Kapoor. "You can use one for a shot in the arm, but if you go around with one permanently, it just means you're sick," he says.
Be this as it may, will companies ever do it? And will consumers accept that? Maybe, maybe not. It's a free(bie) world, after all!
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