Does giving product away for free or selling at a loss make a good business plan?
It may not sound like a smart way to do business but if you stop and think about it you’ll realize that many companies do it. Companies will pay a lot of money, in lost revenue, to get your business. Think of Google. Free Gmail, free google Voice (a voicemail service where they give you a phone number and will forward your calls to any number you want or not at all if that’s what you want), and Goggle Drive ( a cloud based storage service where they will give you 15Gb of free storage). All are Free. You would think that a company that gives away it’s products like that wouldn’t be making any money but Google amazingly isn’t filing for bankruptcy yet and won’t anytime soon. Goggle does this to get you using their products. You use their products for a while and then they sell you other products or more of what you are already using. For example Gmail and Google Drive. These two products are linked to the 15Gb of storage. You use Gmail and get to enjoy things like the great search feature, the fact that you can get your e-mail from an computer, and other great features. Google Drive let you save files in a folder on your computer and they automatically get synced to the cloud. This allows you to access them form any computer and another great feature is that your files are backed up. You loose your hard drive your files are still on the Google Drive on the cloud. If you want more than 15Gb of storage you will have to pay Google. With Google voice the service is free and all calls in the U.S. are free but international calls will cost you.
Now that’s an example of a company giving away stuff for free to get your business now Harry’s Razors is an example of taking a loss to get your business. I first heard about Harry’s on Dan Millers 48Days Podcast. They produce and sell Razors and Shaving Cream. Dan Miller spoke so highly of them on his podcast, and i wasn’t happy with the razors I’ve been using so i decided to look them up. They sell a pack with handle, 3 blades, and shaving cream for $15. I figured it’s only $15 so I ordered a set. When it arrived i was amazed. I figured I’d get a box with the razor and cream just thrown in it like most companies do but his packaging was amazing. Here is some pictures of the packaging and the products.
Now this packaging is all well and good but “How is the product?” you might say. Well it looks very will made. The handle isn’t plastic as you might expect. It’s metal, zinc alloy to be exact. Very sturdy and easy to hold. Sure doesn’t feel like it will break any time soon. The Saving Cream is an actual cream, not this foam stuff you buy in the stores. When I tried the razor and the cream I was really amazed. I don’t think i’ve ever had a better shave. Now I’m hooked. I will be ordering more blades and shaving cream from them as soon as i need it. Now I don’t know how much it cost’s Harry’s to produce this set but with the quality of the product and the packaging, oh yes, and the Free shipping for any orders over $10, I’m pretty sure they spent more than $15 on all this. Again they get you hooked on their great product and then you keep coming back for more blades and cream. They even have a service where every 2, 4, or 6 months they will automatically send you a Refill pack. A refill pack consists of 8 blades and 2 tubes of shaving cream for $31. My bet is that is where they make their money. What a great business model. And if you don’t think they are making money well, they recently bought the German factory that was making the blades for them. So yes they must be making money.
Also, take Dan Miller for instance. I mentioned him earlier. Take a look at his websites, 48days.com. He gives away a lot of free information there. Yes he has an online store where you can buy his products but throughout the site you can find free information. Free resources page, podcasts, newsletter, blogs, etc… He even has a free member community website at 48days.net where He and other member give out free advice to other members. And despite giving away all this free information I’m pretty sure Dan is doing pretty well financially.
So what has value to the customer that you can give away for free?