Many business owners are tempted to offer complimentary services to their patrons. These services are usually perceived as beneficial to maintaining a loyal customer base. However, the threats of these complimentary services may outweigh any possible complement to productive business practices. Entrepreneurs must be willing to invest in their free giveaways in order to escape the threat of promoting a product that is low-quality and is associated with the primary product.
The first threat would be cross-contamination of sub-standard promotional products conflated with the actual product, thus creating an incorrect perception of the primary product. A second threat is the fact that the promotional complimentary services must be unique, however, many businesses imitate other business’ promotions thus rendering the promotion useless. This second threat is known as the copy-cat syndrome. A third threat to business practice when instigating customer interaction through complimentary services is the threat of loss without establishing any customer loyalty. Promotions do not have a direct correlation with customer loyalty. A fourth threat comes in the form of simple miscalculations about the actual benefit of the complimentary promotional service.
A promotion should buttress the original product that it promotes. These free giveaways must be relevant to the original product, and they must be of high quality. Free promotions might meet more people than does the actual product, therefore, costs should not be cut when creating these promotions: “The entrepreneurs and executives that fall into the “wrong” camp, are so focused on trying to extract the maximum dollar out of every customer, that they fail to realize that this only leads to very slow (and usually expensive) customer acquisition…” (Skok, 2016). Although the product must be high-quality, the budget must remain intact. A sub-threat of the promotion is depletion of budget by not being able to calculate the cost to benefit analysis.
It does no good to offer a service that other businesses could potentially copy, and do so for less money that the initial provider does. The danger of copy-cat models include that the initial business sank revenue into creating the promotional model, while other businesses reap the rewards, (Meczska, 2010). Therefore, a complimentary service must avoid this threat by: “…creat[ing] value in two ways, by either offering “more” for the same price, or reducing the price without changing the product.” [italics](Meczska, 2010). The product is the ultimate target for benefit, so it is key to not change the product in any promotional offer.
It seems that the interactions that create customer loyalty are much more complex than being able to bait permanent customers with promotional giveaways, (Meczska, 2010). Customer loyalty may not be established by offering promotions, and many customers will simply take advantage of the promotion without the intention of becoming a paying customer. This threat is compounded by the second threat; other businesses may be able to compete with the model in order to steal away prospective loyal customers.
One of the most common threats to a business when offering free services is: “…expending more money on incentives than the profits expected in return.” (Meczska, 2010). It is difficult for some analysts to perform a comprehensive analysis of cost-to-benefit because often many departments are involved, (Meczska, 2010). The cross-analysis is often overlooked, and is often the costliest mistake for business owners, (Skok, 2016).
In order for complimentary services to be complementary to productive business practices, the four threats discussed above must be negotiated. These threats make complimentary services a questionable business model; mitigating the losses might outweigh the possible benefits.