People love a freebie, right? Sort of. A recent study released by the National Academy of Sciences found that most people reject the offer of free money if they think the arrangement is unfair.
This theory was tested by making participants play ‘The Ultimatum Game.’ The game involved two participants. Participant A was given money and told to divide it between him/her and Participant B. The catch is, Participant B gets to decide whether to accept or reject the offer. If the offer was rejected, neither participant would receive the money.
According to rational theory, participant B would always accept free money – no matter how it’s split. After all, it’s free money.
But what the researchers found was quite the opposite. If the split was fifty-fifty, Participant B almost always accepts the offer. However, when Participant A started offering Participant B less than half, rejections occurred.
Cornell academic John Timmer points out that this behaviour was initially seen as rational because it’s a form of ‘punishment’ for unfairness. Saying ‘no’ to offers of free cash in the interest of fairness makes sense when the ‘unfair’ party is present and aware that their tactics are disapproved of. But what if the person making the cash offer isn’t present when the accepting party considers the proposition?
Well, as it turns out, the cash was still rejected if the ratio was considered unfair. It seems that the snap judgment of unfairness overrides the attraction of free cash, even if no-one else other than themselves are aware of the reason.
Give It Away
All businesses exist to sell a product. To sell that product, business owners work hard to produce awesome products or services – and that may mean hundreds of thousands of dollars in investment and countless sleepless nights.
So it’s natural we want to protect that product or service. In fact, most business owners hate the idea that someone would get their products without paying what it’s worth.
It’s just fair, right?
But here’s the problem: almost all businesses out there offer a “fair” deal.
So savvy marketers go a few steps further: What if you let go of you need for “justice”? What would happen if you give your customers 80% and keep just 20% to yourself? What if you know your services can make the client $1000 but charges only $300 for it? Would you not have delivered unbelievable value? Would you make more money, at the end of the day?
Now, some of you are going to protest about discounting. But that’s not what I’m talking about. There are cleverer ways of delivering value that doesn’t involve lowering your revenue or increasing your cost.
For example, after you make the sale, follow up with your customers and give them a surprise gift. You’ve delivered your fair share of service in the original sale so anything you give after that will turn a “satisfied customer” into an ecstatic one. In fact, I still remember receiving this gorgeous handwritten thank you note from a design provider. I don’t remember the work he did (it was 5 years ago) but everytime I need a designer, he’s still the one I call.
Another clever way to deliver more value without spending any more cash is to educate. I have a plumber who came in the other day and taught me how to quickly fix leaking and clogging. It would be fair for him to charge me for it, considering the advice he gave me saved me hundreds of dollars. Yet he didn’t.
Now, theoretically, his advice could cost him a future business (I won’t need his service if I can fix the leak myself) but he knows that I will have no time to do it anyway! The same is true with design, marketing or any other services, for that matter. So if you think educating your customers about your best tips will hurt your business… think again. Educating will only raise your authority.
Give First, Ask Later
And last, always deliver value before you ask for anything back. The majority of freelancers I dealt with for example, demand to be paid first before they commence any work. But one day, this young, up and coming guy came in for an interview with a stack of reports and analysis. He went to our website, scrutinized it, analyzed it, even recruited test subjects to use it, created a premiliminary report and specific recommendations.
The work he did would have cost us at least $5000. It’s certainly not fair for him to do all that before I paid a cent for it. But guess who landed the gig in the end? Since then, the company must have paid this provider at least six figures.
Before I end, let me just point this out: if you’re concerned about the cost of that surprise gift, or giving out your best tips for free, or the preliminary report, try comparing that number to your advertising spend. You’ll realize just how small it really is.