Charge a competitive but fair price for your main product or service, charge prices that are noticeably less than your competitors on most items that are necessary to maintain your original sale, and give the rest of your products and services away for free.
Where in the world does someone employ this type of philosophy?
How can such a model work to create sustainable enduring success?
First of all, Holiday World understands the difference between optimizing the lifetime value of a customer vs. maximizing an individual customer transaction.
Secondly, they understand the marketing buzz that is generated by the power of free.
I just got back from taking my family on our annual trip to Holiday World. During this much needed day of rest, I was reminded of a great story form Randy Pausch's Last Lecture book.
It was a story of how Disney created a magic trick when he was a child and turned $10 into over $100,000. He and his sister had purchased a $10 gift for their parents at one of the souvenir shops in the
As they walked from the shop back to meet his parents, the gift slipped out of the package, hit the ground and broke. Randy's sister convinced him to return to the shop and at least ask for an exchange. Reluctantly he agreed to try even though he was pessimistic with their chance of success since the breakage was clearly his fault.
When they arrived back at the shop and explained what happened, the clerk accepted full responsibility for improper packaging, gave them a replacement free and was much more careful about how she wrapped and packed the gift the second time around.
When Randy and his sister relayed the story to their parents, the Pausch family was so impressed that during the rest of Randy's life, he estimated that he and his extended family spent in excess of $100,000 at Disney World.
As Randy retold the story in the book he knew he was relaying a lesson about great customer service. As a computer scientist as opposed to a business consultant, he might not have known that he was telling a classic story illustrating the power of focusing on optimizing the lifetime value of a customer vs. maximizing an individual profit per customer transaction.
Randy shared this story with a group of modern day Disney executives as an adult and asked them if their current business practices would allow a store clerk to make that type of decision today. Their silence told them everything he needed to know. Disney has become a corporate machine obsessed with maximizing profit per visit.
Disney makes sure you leave their compound without a penny in your pocket to spare. You have a great time, but you feel a little cheap and used as you return home.
A visit to Holiday World (HW) takes you back in time when Walt Disney's original legacy and magic was still alive at Disney World. HW charges a fair and competitive price for their tickets.
Where you really start to feel the difference is once you get inside the gates. For most theme parks, the ticket price is just the start. The real expense begins once you start buying food.
At HW, you would have to work really hard to spend very much money once you get in. The food prices are fair and the food quality if good.
This is where the remainder the formula for sustainable success kicks in.
Step 1; charge a fair price for your main product, tickets in the case of HW.
Step 2; charge a noticeable lower price than your competitors for subsequent purchases that are necessary to maintain your original purchase, food in the case of HW.
Step 3; give the rest away for free.
This step 3 is the one that will drive your competitors completely crazy. HW provides free drinks and sunscreen all day, every day.
This amounts to a substantial savings and increased enjoyment for their customers over any of their competitors. It is also very unlikely that your competition will every try to match a move this bold.
Most businesses are obsessed with maximizing the profit per customer transaction. Only truly great and enduring successful companies are obsessed with optimizing the lifetime value of a customer; the magic trick of turning $10 in to over $100,000.
The second dimension of free is that it is the highest ROI marketing expenditure you could ever make. You can actually justify a price of free in terns of marketing ROI alone without even considering its effect on lifetime customer value.
If you take the cost of the free sodas and sunscreen that HW incurs every year and divide by the word of mouth marketing that comes from people like me telling every one they meet about their experience, you would find that it is the most effective and cost justified part of their extensive overall marketing campaign.
Please tell us your stories of organizations that understand lifetime customer value and the marketing power of free.
We would love to hear from you!
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