There is an ad running these days for an identity protection service with a promotion offer of the first month free plus a free crappy shredder. I’ll bet most people interested in identity protection already have a decent shredder either at home or at the office. Taking it a step further, a free physical item that the buyer actively doesn’t want can be a turn-off for the underlying product.  These prospective customers are going to be a bit older/mature, have steady incomes from solid middle class jobs, and learned that “free” often means “crap”.

So what to do? Offer a choice of free items, like PBS does in their pledge drive? No, that takes focus away from your core product, and any comparison of value shines a light on how crappy your give-away is. These buyers aren’t looking for a physical item, but they still like the thrill of getting something for free.

How to manipulate these prospective buyers: Give them choice of the crappy shredder or “get the 12th month free”. In other words, they have to stick with the product for 11 months to get their “free gift”.

Those who want the shredder are unaffected. Those who don’t want the shredder will either see the “12th month free” as an overall discount, or as a throw-away (like many people see rebates after a few experiences) . So you’ve just added your chances for a sale with those who factor in the discount, and are not harming the chances of a sale with those who don’t see it as a plus.

Once they’ve bought the service the monthly bills start rolling in. After several months they might start to think about canceling the service, but they know they’ll get something free fairly soon, so why not hold out? Some who considered the 12th month a “throw away” will slowly move over to the other camp, starting to see it has having real value. You’ve just increased your initial purchase 1-year retention rate.

When the 12th month rolls around, send them a bill that says they owe nothing. Make it clear that this month is free, but be careful not to overplay it. This will make them feel good having gotten something for free, but the down side is you may now see a wave of cancellations. Some were forestalled and are now inevitable, but some can still be avoided.

In this 12th month bill include a pitch for upsells. Offer a new “12th month free” if they sign up for any new feature, enticing them to stick around for another year. Since they’ve seen this “12th month free” gimic is real and not like a rebate check more customers may be more inclined to see it as a real benifit.

Upsell gifts are dangerous game when existing clients feel they are getting a raw deal having been loyal. The solution here is to include some small feature that costs nothing or a pittance, say 10 cents per month. Those customers who are always looking to get the best deal and switch vendors easily can get something cheap. These people will feel good about “having gotten one over on the man”. On the other hand, those who glance at the $0 bill will throw it away and pay full price for the next 12 months. More profit!

I’ve not seen this idea employed anywhere. Its like an ETF pushed down to $0 so there is no consumer anger, or you can think of it as a reverse balloon payment. I think the psychology is sound, and if I owned a market research firm this would be worth exploring.

Are business processes like this patentable? Or is that getting too evil?