Interesting bit in Advertising Age this week on the age-old marketing question of discounting. If you give stuff away, do you erode your brand?
Both McDonald’s and Dunkin’ Donuts are betting no. Today, May 15, both food chains are giving away millions of free chicken biscuits and ice coffees, respectively. Former McD’s CMO Larry Light tells Ad Age that the strategy of sampling is different than discounting; meaning a small freebie entices repeat consumption, while simple price cutting can erode the brand. Light’s current consulting firm Arcature has a study showing that 80% of consumers prefer a free sample to a coupon, and one-third said they would come back to buy again.
However, this data is misleading, because not all business models have the built-in repeat purchase patterns as popular national food chains. A typical consumer might visit McDonald’s or Dunkin’ Donuts scores of times each year, so there is a high likelihood that a small freebie today will entice the consumer to buy again in his or her next visit to the retail location. For other businesses where the innate consumer repeat purchase is very low, discounting against perceived reference prices might encourage more sales than freebies while protecting margins (after all, the margin on “free” is zero).
Marketers should monitor giveaways carefully for the overall impact on total consumer consumption, cost per sale, and lifetime value. But if you do have free food, please give us a call. PS: McDonald’s, your chicken for breakfast idea is a brilliant way to repackage your existing products. We smell a hit.