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Eight ways to succeed by giving away your product or service.

Although the end of the recession may be in sight, the recovery is projected to be slow and jobless. Employment may not rebound until 2011, and the average paycheck shrunk 0.5% from February through June. Customers are so reluctant to buy that some brands are giving away their products and services. Amazingly, they're making a respectable profit by doing that.

Just how depressed is consumer spending?

Gallup data show the 14-day rolling average of consumer spending on July 15, 2009 was 31.1% lower than it was on July 15, 2008. (The 15th was a Wednesday in 2009 and a Tuesday in 2008, so data are roughly comparable.)

Investment News projects a $700 billion drop in consumer spending in 2009.

December, 2007, (the official beginning of this recession) was the last time ChangeWave's consumer spending survey found more consumers who were planning to increase spending than those who were planning to cut back. By November, 2008, the numbers had gone to 59% planning to spend less and just 10% planning to spend more.

But some companies are still moving merch. Sometimes by cutting the price to free. Marketers have used "free" as an effective selling tool for a long, long time. And they're still devising new ways to make money by giving their product or service away. Here are eight effective ways to do it:

1. Give a free sample to encourage future purchases. When a Paleolithic merchant gave a homo habilis hunter a sample spearhead that proved effective at dispatching aurochs and mastodons, the hunter came back for more. When he did, the spearheads cost a beaver pelt or a haunch of bison.

Netflix is running the same type of offer today. Try a month free. If you like it, pay $8.99 a month to keep the service.

Props to the Paleolithic peddler who came up with a promotion that's still effective after two and a half million years.

2. Give a free sample to encourage immediate purchase of the sampled product. The principle is simple: take a taste or a sniff. Like it? Buy some.

The legions of ladies who used to spray perfume on passers-by in department stores were engaging in this kind of sampling.

There's a sample tray of some featured bakery item just inside the front door of most Paneras. In fact, the samples are usually strategically placed about halfway to the bakery counter. Hard to resist a cinnamon roll when you can still taste the sample.

Most supermarkets have someone somewhere in the store sampling something. Usually a sweet young girl or a lovable little old lady so shoppers feel mean not taking a bite of whatever they're sampling and picking up a jar or box of whatever it is.

A recent study by Knowledge Networks showed that in-store sampling increased sales 475% on the day a product was sampled. Interestingly, people who were sampled were found to be 11% more likely to buy the product during the following 20 weeks as well.

3. Give a free sample to encourage immediate purchase of a related product. Give part of a set and the folks who like it will but the whole set.

McAlister's Deli just ran Free Tea Thursday to sample their iced tea. No purchase required, just come in and have an iced tea on the house. The data aren't available yet, but we suspect very few people made the trip just to get a free tea. Every extra lunch McAlister's sold was additional revenue.

Theater chain AMC recently offered a free large popcorn to moviegoers. Naturally they had to buy a ticket to get to the concession stand.

4. Give a gift with purchase. Don't reduce the price of your product or service, but give a gift to enhance the value of the purchase.

Apple recently offered a free i-Pod with a back-to-school purchase of a Mac notebook.

Gift with purchase can also be a great mechanism to stimulate trial. Hardee's is doing that very nicely with an offer of free beer-battered onion rings with the purchase of an orange cream shake. Clever, because neither is a first-frequency item. (Those would be burgers, fries and Cokes, naturally.). So they're using the gift with purchase to sample two items the customer might not ordinarily try. That doubles their chances of a repeat purchase of one of them.

5. Give a gift to stimulate purchase. Back when workers stampeded across the street from factories to knock back a few cold ones at lunch time, bars offered free lunches. Very salty lunches, which added to the patrons' thirst. Those lunches were, of course, paid for by the profit on the beer. (Hence the expression, "There's no such thing as a free lunch.") Smart marketers know not to mess with something that works, which is why there are still free salty snacks – especially peanuts – on a lot of bars today.

Gillette is offering a free Venus Embrace razor online. Of course the razor is useless without the blades Gillette sells.

And the U.S. Army is giving away a video game, "America's Army," to attract new recruits.

6. Use a "buy-one-get-one" offer. As we all learned in marketing 101, a BOGO offer is a lot more beneficial than a 50% off appeal. The sale generates full revenue, and only the cost of goods changes. Marketing and overhead costs stay the same. So profit is higher.

Hardee's is running an excellent BOGO right now. They're offering a free Six Dollar Thickburger with the purchase of one. Since the burger is enormous, it's unlikely that one person could eat both. So the offer brings two customers into the store, and they each probably buy a Coke and fries. With luck, one is a new customer who will decide to return.

A side benefit of BOGO offers on frequent-purchase consumer packaged goods items is that customers have a lot of the product on hand. The more often people use a product or service the more habituated to it they become and the more likely they are to continue using it.

7. Get a third party to pay. This is the original broadcast radio and television business model. The consumers – the audience – get the programming for free. All the broadcasters' revenues come from advertising.

Now the model has migrated online. 63.7% of people who search the web do it for free on Google. Display ads and paid search pay for the service.

Electronics stores recently benefited from a federal government program which paid for converter boxes as on-the-air TV signals switched to digital.

8. Try the "Freemium" strategy. Free not-fully-featured versions of products and services can be an effective way to sell the full-featured versions.

Adobe gives away the Adobe Photoshop Album Starter Edition in hopes of selling Photoshop CS4.

The Wall Street Journal puts a small sample of each edition's content online for free and charges for access to the complete digital equivalent of the daily publication. More than a million subscribers pay $103 per year for online subscriptions. (The online Wall Street Journal is not a pure-play freemium strategy. Their premium subscription income is supplemented by advertising revenue.)

Last year Skype had $551 million in revenues from their freemium telecommunications service.

Chris Anderson, author of Free: The Future of a Radical Price, says an optimum paid percentage in a freemium strategy is between 10% and 25%. According to Anderson, that relatively low paid percentage is possible for online vendors because the incremental cost of production and distribution is zero.

1,832 free offers were posted on Freebiewatch.com the day this was written. You might find it worth a look to see what marketers are giving away, and how. There are a fair number of offers designed to get names for permission-based e-mail lists, a lot for "surveys" that gather data for targeting pay-per-click campaigns and a few obvious scams. But there are a substantial number of offers from legitimate businesses which have found a way to profit by giving away their product or service.

Got some other thoughts on free as a marketing strategy? Please share them in the comments section.

To find out more about good marketing for the worst times – and for the better times to come – call BrainPosse at 865-330-0055 or click here.

Next week:
Eight companies using job-loss insurance as a sales tool.