Future of Commerce Blog

Free Gift Promos: How to Overcome Forecasting Challenges

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Free gift with purchase promotions: a typical case of an excellent marketing tactic but a nightmare operationally. They drive sales and awareness, but they also make it difficult to forecast demand.

Consider the factors at play: Marketing budgets behind the promotion, ad spend, forecasted demand for both the free gift and the qualifying purchase, to name a few.

But that doesn’t mean you should push freebies to the wayside. In fact, there are a key few ways you can use free gift promos strategically to not only mitigate operational challenges but, in some cases, solve them.

Why You Should Do Freebie Promos

From two key perspectives, freebies are great:

  1. The customer gets added value in the form of a free product
  2. The retailer drives sales and product awareness

Let’s dive in a bit further:

The customer

  • Maximum added value: One study found that consumers tend to value free over discounted: Rather than choosing a 33% discount off the regular price of coffee, more participants opted for 33% free. Not to mention, the discount was the actual better option.
  • Improved brand experience: The success of freebies lies largely in a principle known as reciprocity. From a consumer’s point-of-view, they’ve invested in your brand by choosing to purchase from you. The freebie is your way of reciprocating that choice, validating the shopper’s decision and improving their experience.
  • More happiness: This may seem like a stretch, but in 2012, Coupons.com commissioned a study that found that a $10 coupon increased participants’ oxytocin levels (the stuff that makes you happy) 38%, decreased stress and increased overall happiness 11%.

 

The retailer

  • Increased sales: Remember that note about reciprocity? It works in favor for both the customer and the retailer. As customers receive free gifts, they feel more obligated to make a purchase. This has been validated by an older study that rings true today, and in this example from 7-Eleven — free slurpees increased sales 38% — plus this one that found that two free mints led 21% higher tips for restaurant servers.
  • More buzz and brand awareness: Next to sales, one key goal for retailers is always to drive excitement and awareness around their product and/or brand. With freebies, you can accelerate the rate at which word-of-mouth marketing is spreading the word. One study found that freebies led to 20% more likelihood that those customers will talk about your brand.
  • Introduce new products: Launching a new product line or partnership? Use a free gift promo to introduce that new product to your customers. If you’re engaged in a collaboration with another brand, it’s a great way to get your products in the hands of a new customer base.

 

How to Overcome Forecasting Challenges for Freebies

Keep the free gift a secret

If you keep the free gift a secret, you give yourself the flexibility to change it up. This way, if you run out of the originally intended freebie, customers won’t know when you’ve swapped it out for another item in your warehouse.

“You can also toss in whatever dead stock items you have laying around as a free gift,” says Krista Fabregas, owner of Simply Smart Living and ecommerce writer at Fit Small Business. “Works like a charm to make customers happy and clear your shelves.”

If going completely under the radar isn’t your style, give away an assortment of select products. Maybe you have three particular items, and customers will receive one of the three at random. This way, you can be transparent but also mitigate any logistical challenges.

Don’t sell the freebie separately

You can turn your free gift promotions into exclusive products. This is beneficial for a couple of reasons:

  1. You drive more interest in the promotion, as consumers love exclusivity and limited supply.
  2. Logistically, you won’t have to forecast for future demand. Once you’re out-of-stock, that’s it.

 

While out-of-stocks aren’t necessarily a good thing, when it comes to freebies, consumers are more likely to have that expectation that it may not become available again in the future. Or maybe the free gift is a sample size that you don’t sell to consumers.

Cosmetics brand Clinique, a brand that regularly uses the free-gift-with-purchase approach, gave away free totes with qualifying purchases. Clinique sells makeup and skincare, not totes. Because of that, shoppers know that they won’t be able to purchase the free gift outside of the promotion. Once the totes run out, the promotion is over.

Limit how long the promo runs

Clinique also limits how long each of its free gift promos last. Giving away free products can make it nearly impossible to forecast demand. If you limit the timeframe, then you can look more closely at your forecasting to anticipate demand and how much product you’ll need.

Fabregas plans limited-time free gift promotions for her online store. “So if you order in one gross of the free gift product, you know you have enough for 144 orders,” she says. “Depending on your order velocity, this may last you a day, a week, a month, or longer.” You can then compare that to the length of your promo to forecast more accurately.

Use freebies to address stock challenges

In terms of operational challenges, rather than making freebies work against you, smart brands use freebies to work for them. Fabregas uses freebies to clear dead stock. “As a small ecommerce company selling between $1 million and $2 million annually, we use these promotions as a way to get rid of excess stock that isn’t selling,” says Fabregas. “We don’t worry about reorder forecasting on those products.”

Colorado Crafted also uses this approach to avoid forecasting for freebies altogether. “We have done giveaways based on inventory that we have in excess, that we anticipate expiring but has not yet expired,” says Sarah Welle.

“For example, we partnered with a local brick-and-mortar shop a few years ago and gave away a package of caramels and a promotional postcard and coupon to her first 50 customers of the day,” she says. “We always work within the inventory we have, we have never forecasted inventory for freebies.”

Use tech and data to forecast

Not looking to do a one-off campaign? Then you’ll need to forecast to make sure you can fulfill every free gift order, without sacrificing on customer service and shipping times and standards. Use the data you have available to inform purchasing and promotional strategies — and to make sure you don’t run out of freebies.

“If you want to offer the promotion on an ongoing basis, take your average sales volume and forecast your free gift stock orders based on that,” she says. “Or, if your promotion is a free gift for sales over a certain purchase value, check your average order velocity for orders of that amount, and use that number for your free gift stock forecasting.”

Uwe Weinkauf, CEO of MW2 Consulting reminds retailers to consider the data when it comes to marketing your freebie as well. “Have a promotional planning solution to aid in forecasting and determining which marketing tactics will give you the maximum ROI by simulating different scenarios and analyzing your past sales history with a data mining technology,” he says. “This can allow you to devise the best promotional tactics and understand other components surrounding promotions including stockpiling and cannibalization.”

Forecast for Your Freebies

All in all, running free-gift-with-purchase promotions is a great way for retailers to build buzz, add value and expose shoppers to new products. Remember to set expectations and address forecasting and logistical challenges head-on to ensure your promo is enhancing the experience rather than damaging it.

Up next: Data-driven retail: 5 inventory management KPIs to watch for scalable growth >

Ellie Kulick

Ellie is an experienced Marketing Communications and Content Specialist based out of San Francisco, CA. Passionate about technology and health, she is constantly looking for new challenges in effective communication and creative content development to help businesses grow and engage with current and prospective customers.

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