If I Owned Gap Clothing, I’d Give Away Socks For Free

May 29, 2009 on 12:40 pm | In Uncategorized | No Comments

OK, admittedly I’m a ‘freemium’ nut. This is the concept of giving away base services for free and charging for premium upgrades, possibly originally coined as a phrase in comment no 5 to this blog post by NYC VC Fred Wilson and covered in this Techcrunch post by MG Siegler.

Freemium works really well for online companies because an application’s cost of delivery from web servers is often very low, and premium services can be fully automated and therefore subscriptions are virtually all gross profit.

We’re still nutting out the details of our premium products for MyDragNDrop, but I tell you what – the good thing about offering base products for free is that it makes you FEEL great! I know that doesn’t put food on the table, but if you combine a valid and useful free service with great customer service (and a fair usage policy of course) you are likely to get:

- word of mouth marketing
- increased customer loyalty
- better chance of premium revenues

I was thinking that if I’d just jumped off the Tube after work, popped into GAP Clothing, grabbed a couple of pair of socks, maybe bought a shirt while I was there, and then went to the pub to catch up with a couple of mates before going home – it’s highly likely I’d tell them about my free socks, and in doing so validate the shop and my purchase with whoever was listening.

Now I can hear the accountants groaning already and talking about leaving money on the table while they run their hands through their hair, but if I owned a company the size of GAP, the first thing I’d do is get a study done and find out the following:

- what is the increase in liklihood of my customers recommending me to a friend
- how many pairs of socks per year would a fair-minded customer think is appropriate usage
- if I had a small range of all purpose socks, what could I get my landed cost down to
- what is the liklihood of a customer buying something extra when they come into the store for their socks
- can I adjust the pricing up a little of the most likely extra items bought, and cover costs of the free socks
- can I properly write off a portion of the cost of free socks as marketing
- can I make it a condition that free socks only apply to GAP members, and therefore I can quite rightly capture their email address

Now I’m only writing a blog post here and not a business plan, but my instincts tell me that my turnover and profitability would increase without a matching rise in costs.

If this is true, then can the model not apply to many bricks and mortar rather than online businesses? Maybe free fries at McDonalds for members? Anyway, just a little Friday food for thought.

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