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November 26, 2007

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(This is part 2 of a 2-part series on giveaways, looking at when it makes sense for a small business to offer free products as a marketing strategy. Read part 1 here.)

WHEN DANTE PAUWELS, the founder of Dante Beatrix Inc., a designer bag maker in New York, spotted "Desperate Housewives" star Marcia Cross carrying one of her Peace Stroller Totes in a tabloid magazine recently, she was elated, though a little bit confused.

Just days before, Pauwels and her business partner, Claire Theobald, had sent Cross a different bag as part of the company's effort to take advantage of the baby boom in Hollywood. With hopes of garnering attention for the Dante Beatrix brand, which sells assorted baby-tote bags and dog carriers, the business partners sent out 15 Baby Beatrix bags to oft-photographed celebrity mommies.

"We've seen pictures of [Cross] carrying this bag in numerous tabloids, and it's been helpful to our business," says Pauwels. But the actress's bag choice appears to be a coincidence, unrelated to Dante Beatrix's giveaway strategy. That makes Pauwels wonder: What happened to the other bags that were sent?

Since each free bag could have sold for $100 to $220, in addition to packaging and shipping costs, Pauwels's marketing efforts were neither cheap nor easy. For one thing, finding the contact information for all these celebrities was a pain, she says. Plus, packing up the boxes so the bags looked good and writing notes was time-consuming. And so far, she says: "We have yet to see any of those bags in use by a celebrity."

For start-up business owners, giving away products can raise awareness of your brand as well as spark future sales. But there's a fine line between giving away just enough to tantalize would-be customers and giving the store away. Here are a few common giveaway pitfalls and ways to combat them:

Pitfall #1: Paying any price for celebrity clients.

Marketing consultants agree that lassoing a celebrity client or two can do wonders for a small business in terms of exposure. But reeling in these would-be customers with freebies can also be risky, says Robert D. Hisrich, director of the Entrepreneurship Center at the Thunderbird School of Global Management in Glendale, Ariz. "If [celebrities] don't like [your product] and they talk about it negatively, that's a high-risk proposition."

In September, for example, Washington Wizards guard Gilbert Arenas criticized the design of his second signature shoe created by Adidas AG before its release on his blog on the National Basketball Association's web site. Since then, Adidas has redesigned the shoe.

Targeting celebrities can be tricky, expensive and ultimately fruitless. Even business owners who succeed at getting a product into a star's hands need to parlay that brief moment into a lasting way to generate sales. For more tips, read our story.

Pitfall #2: Thinking more is better.

Tim Berry, the founder of Palo Alto Software Inc. and a business-planning consultant in Eugene, Ore., learned the hard way that business owners can give away too much to too many people. At a trade show a few years ago, Berry offered a chance to win free business-planning software to attendees who submitted their business cards. After three days, he collected six fishbowls full of business cards. However, during the follow-up, Berry learned that "most people dropped their card in just to get something free," he says. The next year, after offering more information about the software rather than giving it away, he estimates that his effort returned one-third of a fishbowl full of business cards. Even though there were fewer submissions, Berry says, "these people were seriously interested in business planning." Be sure to give freebies only to your target customers, "otherwise you'll waste time and money," he says.

Pitfall #3: Giving away products that don't make sense.

For entrepreneurs who sell big-ticket items, it's not economical to give away those products for free. Instead, it's best to hand out less-expensive promotional products. But make sure those freebies have a tie-in with your product or brand, marketing consultants say. If your company sells tires, for example, don't give away balloons or lollipops. Instead, suggests Berry, give away a free tire-pressure gauge.

And make sure giveaways encourage future business. For example, a bank that wants to attract customers to its full line of financial services shouldn't just give away free checking. Instead, a better strategy is to offer free or discounted financial services for those who sign up for an account.

Pitfall #4: Diluting your products' value.

If you're too quick to give stuff away, people might begin to question why. Instead of triggering future purchases, consumers may decide that your product isn't worth as much. That's because "what you give away for free is generally not respected as much as something you pay for," says Nicholas E. Bade, author of "Marketing Without Money for Small and Midsize Businesses." The solution is to attach some strings to your giveaways, he says.

For example, offer customers a free product when they buy one. Or, instead of totally free, provide a discount, Bade suggests. For ongoing product offerings such as a magazine subscription or a service, provide an introductory discount rate. That way, he says, "you induce sampling, but also create customers."

Another good idea is "giving away something different than what you offer in the marketplace," says Thunderbird's Hisrich. For instance, a sample size of a product rather than a full-size version can pique a customer's interest and spur future sales.

Pitfall #5: Failing to follow up.

The most important aspect of giveaways is the follow-up, says Jay Conrad Levinson, author of the "Guerilla Marketing" series of books in DeBary, Fla. "You're not supposed to make money on the first sale. It's the follow-up or the repeat business where your profits come from," he says.

To ease your efforts, be sure to get your customers' email information. If they purchased a product, follow up with a thank-you and possibly a complimentary product suggestion. To get addresses, be sure to offer value such as discounts, coupons or even a newsletter in exchange. You can also use email to introduce your web site for further product information.

 

("Starting Up," a weekly column written by Diana Ransom for smSmallBiz.com, follows entrepreneurs through the early stages of launching a business. Write to her at dransom@smartmoney.com.)