Free coffee is a cheaper way to promote your coffee?

by chee Leng (on coffee makers)
(Singapore)

How can free coffee be cheaper? To start with, the "free" would cost someone something right?

True, the cost of the free coffee has to be absorbed by the coffee company, but if you compared the adoption rate, the hit rate versus the good ol' sales model, the cost incurred is so much lower!

Recently, a coffee company is installing free coffee machine with a month of free coffee supply to selected organizations.

The cost of the coffee works out to be $200 per month. The technicians needed to delivery and supply the machine man hour cost is approximately $50.

The effort used to promote this promotion is about $100. Hit rate is 10%.

Excluding the depreciation cost of the machine, the acquisition cost per customer for the campaign is $350.00. Based on the current hit rate.

This is the cost of giving away free coffee.

And usually, when people installed the machines in their office, it is very likely that they would continue using it, so one can take this as the cost of acquisition of a customer.

Then, what about the usual sales route?

You need to have:

1. 1 X salesman that cost $3000 per month, that does 8 sales per day, 160 sales call per month. It cost $18.75 per sales call. And usually the hit rate is about 5%, so for every 20 call, one would buy.

The cost of acquisition the sales is $375.00

2. In addition, you also need technicians to do the installation at $50 and some promotion cost, which is about $100.

So,the total cost of acquisition for one customer is $375 + $50 + $100 = $525.00

This is of course, a very simple illustration between the two models, but after looking at both models, I believe giving is the new sales model.

First, it builds trust. You are telling the customers, take and use my product, if you find it is good, then buy from me.

Secondly, it better the adoption rate. It is unlikely that people would reject a free product trial.

Thirdly, it opens channel of communication. Once your product is there, it is easier to talk about it, do presentation with it, and convince the customers.

MY $0.02.

Many customers fear about obligation and schemes on free coffee promotion. But, seriously, the trust that coffee companies want build is so much more valuable so I doubt they would misuse it.

Thus, the next time you see a free coffee promotion, go for it, it should be okay...