Here’s why offering free stuff to existing customers is a good idea

There are very few blanket statements out there that can be applied to all people, but “everyone loves free stuff” is one of them. People just can’t say no to a free t-shirt, hat, or pen, which is why such items have been included in promotional and marketing campaigns for decades if not centuries. 

Beyond just free clothes or office items, many modern businesses have started offering prospective new customers free trials for their services. Whether it be streaming platforms, food stores, or fitness centers, more and more companies are enticing people to try out their services with a free giveaway or trial period. The idea is that people will check out what the company has to offer, and then pay for the goods or services once the free trial expires.

This approach has been proven effective time and time again with new customers, but what about offering existing customers free trials or items? At first, it may sound like a silly proposition; why would a company waste money on people who are already invested in their services? 

Well, according to a new study just released by The University of Technology, Sydney, offering free services and trials to existing customers is indeed a smart choice that can increase sales and revenues. This is especially true if said customers can share the promotion with their friends and families.

To come to their conclusions, researchers observed what happened when a telephone company offered existing customers free mobile phone data.

“It might seem like a waste of resources to provide a free trial to existing customers, but that is not what we found, and surprisingly, higher data usage customers were more likely to redeem the offer than lower usage customers,” says marketing researcher Dr. Hillbun Ho in a university release. “We expected low usage customers would be more likely to take up the offer and increase their usage. However, low usage customers were largely unresponsive to the free trial.”

Many of the already high paying customers who opted for the free data decided to start paying for the extra coverage once their free period had expired. Moreover, if customers were given the option to share the free data promotion with their friends who were also existing customers, both the sharer and their friend were more likely to try the free data and end up purchasing it afterward across the board.

The study’s authors believe their work has big implications for companies offering online “experiences” like content and music streaming services, gaming, and collaboration tools. It’s hard for consumers to appreciate what these companies can provide without trying out their services firsthand.

“When software companies promote their products, they frequently use a “freemium” model, where the basic version is free but customers have to pay to get access to more advanced functions or features. These companies often face challenges in migrating customers from the free version to the paid version, because the free version customers have no experience in using the advanced functions that are only accessible to paid users,” Dr. Ho explains. 

“Our research suggests that providing free or lower cost trials to the paid version for a short promotion period is likely to increase the trial users’ appreciation of the product, inducing take-up of the paid version,” he concludes.

Human nature is puzzling sometimes. Scholars and scientists have spent centuries trying to grasp the complexities of what drives people to make certain decisions or act in specific ways. Yet, there’s still so much we do not understand about ourselves. 

For the marketers and revenue generators of the world, these findings represent a figurative oasis in the desert that is human nature. People can’t resist free stuff, so why not use that to your company’s advantage?

The full study can be found here, published in Management Science.