Giving away freebies: An “irrational” business strategy

Business 101: When a customer asks you to do some service or provide some good, find a way to charge them. Right? Wrong. Well, not entirely wrong, but let me tell you about an important set of situations in which giving away freebies can actually make selling more negotiable.

First, a series of stories:

I seem to have a lot of problems with my tires. A front tire was recently deflating constantly, causing me to spend more time at the air pump than the dinner table. I took the car to the local Goodyear, who informed me that the valve wasn’t positioned correctly, causing air to escape. They fixed it, they said, and even replaced the valve just in case. “How much do I owe you?” I said, reaching for my wallet. “Nothing,” they said. “It was quick, and valves don’t cost much.”

Then, about a month later, my hubcap randomly fell off. I went to the same local Goodyear, asking for assistance in installing a new one, as the process seemed about as simple as a differential equation. “Sure,” they said, “We’ll take care of it.” And they did, in about a minute. Then they again insisted on charging me nothing.

Perhaps these stories seem the epitome of stupidity. Goodyear offered their valuable time twice to assist me with some silly tire problems. And each time, they insisted on charging me nada. How could that possibly represent sound strategy?

Because they knew well enough that I was a new customer who would eventually need a very expensive full tire replacement. And they knew that when I did, I’d think of the local Goodyear instead of the slimy local dealer who is more than happy to charge a hundred dollars for a wingnut. And, of course, that’s exactly what happened. I needed a full tire replacement on another car very soon after, and my appreciation for the freebies turned into nearly $600 in revenue.

So what’s the negotiation principle? That people choose to engage with counterparts they trust—and avoid those they don’t. And that people especially choose to engage with those they not only trust but feel beholden to, as I did to the generous Goodyear. So part of any negotiation is eking out the biggest possible profit right now. But another and potentially more important part is generating enough goodwill to keep the counterparts coming in the future.

In sum, to all the rational thinkers who advise us to monetize as much and as often as possible, I’d say this: That may be a smart strategy in the short-term—the very, very short-term. But research on trust and reciprocity would suggest that it’s likely to shoot you in the foot in the medium term, by which I mean anything longer than the very, very short term. The pursuit of self-interest, it seems, may involve at least a short stop at the way-station of generosity.

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