Altruism… Isn’t all true

There’s almost a science to giving away free stuff. And I’m sure McDonald’s probably already got it figured out.

Multiple times a year they have these free coffee giveaways; some require coupons, some limit the drink size, and some are completely free like the ongoing one. So what are they doing, dumping what must amount to millions of dollars on high frequency television, radio, and internet ads (just to name a few) solely devoted to spreading the word about free coffee? Let’s break it down:

Exhibit A: Behavioural conditioning. Put simply, it brings in new customers. Customers who may never have tried a McDonald’s coffee think, “Hey, why not.” And I mean really, why not? There’s minimal costs involved, and the risks are absurdly low. Quite honestly, not long ago I seriously doubted that McDonald’s, a fast-food chain, could make any decent coffee… And look where I am now, up to my eyes in caffeine (Hey, it was free alright?).

So people walk in, try one and decide they like it, so they come back. The beauty of it is coffee is one of those those things that are almost daily necessities. Every day, almost without fail, people will get their daily fix; perhaps even two or three times a day. To them it’s almost like a cheap, risk-free addiction. Anyway, you multiply that by 365 days, and well… that’s a lot of revenue coming from a single person. Don’t forget, a McDonald’s coffee is also slightly cheaper than big coffee dominators like Starbucks and Tim Horton’s, and economical customers like that. While we’re on the topic, what do you think the cost is on a cup of coffee? I would guess no more than 50 cents a cup – including cream, sugar, etc etc… And that’s already a 100% mark-up at least!

Exhibit B: Bundling. Recently I had the luck to experience this technique first hand – or more like fall prey to it. Basically, the strategy works because people who come in for a free coffee oftentimes grab stuff to go with it; a breakfast muffin, a quick snack, perhaps a fry… Indeed, the last time I visited I just got food and almost forgot the whole point of going was to get free coffee! On the cost side of the equation, all they need to cover the cost of that free coffee is for any one of the other food items to have a margin of more than the cost of the coffee, which we estimated to be around $0.50; easy (Ok, ok, yes there are DL, MOH, yada yada. Let’s leave that discussion for the accountants).

So there you have it. Free coffee? Eh… Not really. But for the consumer, at the end of the day, it is exactly what it is: a free coffee.