The Hindu Business Line : `There's nothing called a free lunch!'

The human psyche is fascinated by anything available for free or priced lower than the actual price tag. How do companies fight this? Cognizant shares its insight.

Lakshmi Narayanan

No matter how distinctive the value proposition of products and services is, it's impossible to compete against anything that's free!

THE other day, I chanced upon a classified advertisement about a car on sale. What caught my attention wasn't the brand or its related details as much as a bold mention that the car was available with "new tyres free"! That set me thinking about the growing trend of freebies and its irresistible lure! For that matter, it could be a simple toothbrush-free-with-the-toothpaste offer, or a free holiday carrot that lifestyle malls routinely dangle for shoppers spending in excess of a certain amount.

How many of us wouldn't succumb to the temptation of buying the toothpaste or splurging at the mall, driven not so much by a genuine need for the products purchased, as by the thought of getting something for free?

The human psyche is fascinated by anything that's available for free or priced lower than the actual price tag. And this even manages to create its own market, driven by an illusory need. Free gifts, free trials, free subscriptions, free coupons — there can never be any dearth of takers.

But what unnerves me is that the freebie ploy has quietly sneaked into the IT world as well. Fully aware that the IT world is filled with intelligent people who are focused on client benefits and are constantly building a "better mouse-trap", we have been building newer solutions and business frameworks, and creating value propositions and differentiations that are compelling enough for the customers to try. Taking into account the market conditions, the time and effort spent, and other global benchmarks, we have been pricing them competitively.

Much to my dismay, I discovered in the past year that our customers had the opportunity or at least the promise of getting something of value for free. At first blush, like all things free, those products and services appealed — or seemed to appeal — to the customers. To me, this was unexpected. But the customers' obvious rationale was that why should they even look for anything else when they are getting something nearly the same for free. Understandably, they would check the vendor offering it for free and only if that didn't work out would they try out another with value differentiation.

It dawned on me that, in any business, it's impossible to compete with anyone who's offering anything for free. Yet, that set me thinking about what one could do in such situations.

The first learning: Never walk away from such situations and lose sight of the value proposition and differentiation.

And the second learning: Never offer anything for free. Offering anything for free in a desperate bid to win markets can never be good for the long-term interests of a company and that industry.

It is for us to take up a responsible leadership position in the industry and champion the idea with the customers and the players in the industry that nothing comes for free. And anything that does is completely stripped of value. As a corporate, even if it means losing out on an opportunity, we must desist from extending anything for free, as that invariably translates to no value.

At the same time, one cannot walk away from the customers. By keeping the communication channels open, we must impress upon them the need to espouse products and services that have been built carefully, harnessing years of experience and a deep understanding of customer requirements. We must continue to follow up with the customers and apprise them of all relevant product upgrades and news.

In fact, in one particular instance, I got an opportunity to go back to the customer a few months later, and learnt that the customer wanted us to help him.

Evidently, the freebies hadn't worked in his case. I was lucky in that instance, but something like this cannot happen all the time. One may not even be called again. But that shouldn't hold us back from trying.

In the short term, it may seem as though we have lost the game, but our quality and value differentiation would eventually stand us in good stead. As I understood, value is destined to prevail in the long term. This also reinforced my faith in not taking the route of gifting freebies. But, more importantly, it made me understand that for one to outshine the freebie regime, one's products and services must be far superior to those being offered by others. They have to be different, compelling and efficacious, and be all these many times more than the freebies are.

Yet another key learning was to build a culture that encourages customers to identify value while buying products, rather than fall prey to anything that comes free. The only way to do this is to patent our ideas, products and services. Unless patented, even the most superior of the products and services can be taken away by another vendor and offered for free or for lower value. Therefore, nurturing and guarding intellectual property is the only way we can turn unfair situations to our advantage by effectively competing with players resorting to freebies. At a broader level, companies should drive home the point that before falling for freebies, one should rather understand what one is paying for at every stage of the game, than not know where it is being made up for.

There may not be any apparent financial risks attached with freebies, but that is no excuse to discount quality risks. In the context of the services industry, the biggest risk is that of the time lost. Customers must understand that by the time they realise that free services don't work, a lot of water may already have flowed under the bridge. In today's competitive scenario, this could mean the difference between being in business or out of it.

Customers have to evaluate vendors and partners more critically and understand that freebies are nothing more than transient instruments on the part of the vendor to gain access to the customer. Either the costs get recovered at a later stage — even setting the customer back by more than what he initially saved, or the products and services come a cropper.

And clearly my learning was that in the final reckoning, it's only the value differentiation that triumphs! Do we not know that there's nothing called a free lunch?

The author is President and CEO, Cognizant.

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