Yesterday Denny’s had a huge special where they gave everyone in America a free Grand Slam breakfast. I thought I might stop in and have one. The offer began at 6am.  I arrived about 6:40. I expected a line, especially considering how hard it was to find a parking spot. It was a tow truck driver’s dream come true! What I found was a line of people that at times during the day was a 3 hour wait.

Yesterday evening I took my girlfriend out to IHOP. As I chatted with the staff I found that IHOP had been incredibly busy until the afternoon. It seems that a lot of people weren’t willing to wait hours for their free food at Denny’s but came and paid for food at IHOP instead. They were waiting in line at IHOP for almost an hour according to the staff.

How is this a failure? Denny’s traded millions of dollars for short term buzz. Next month will Denny’s be any more on your mind than Waffle House or IHOP? Doubtful. Most people already have exposure to Denny’s because they are a fairly well known national chain. Who benefited from their ad? IHOP certainly experienced a boost in business and they weren’t giving anything away for free and perhaps other businesses profited as well. Denny’s will return to their previous status as just another unremarkable chain restuarant before long minus a few million dollars.

According to Denny’s they wanted to help those feeling the pinch of the harsh economy. Most of the folks who were in line weren’t spending $6 on breakfast any day of the week because they were jobless or didn’t have the income to spend on it. The free promotion drew the people who could afford the time to invest waiting on a free breakfast, but not the people who could convert into long term paying customers.

If Denny’s sells 12 million Grand Slam breakfasts a year and they gave out, as planned, 2 million yesterday why not just discount those 12 million meals with the $12 million from the 2 million free meals instead? Denny’s could have spent less money and created better connections with their customers by giving coupons for the free breakfasts out in stages. Then people would be more likely to connect a positive experience with Denny’s in their minds. Releasing the coupons in stages would maintain the buzz and result in the same level of exposure if not more. People would have been exposed to a better experience with the service at Denny’s since they would probably not have to wait in line so long, and they may have brought more friends or family who wanted something besides a Grand Slam and would be more likely to spend money. Personally, I think that Denny’s could have saved money and offered a promotion lasting a whole year with a promotion such as:  buy any one meal and get a Grand Slam free.

Tons of free press coverage that only lasts a couple of days at the cost of an over $3 million  Super Bowl ad and $12 million in free breakfasts. Was the short-term buzz worth it?

Picture via @pwbeninate.

Update: @thinkhammer is taking me out for a free Grand Slam Breakfast to applaud my blogging. Also Geoff Waserman has a great post echoing some of the things I’ve said and adding the idea of using a charity to boost the companies image.

This is a post from the Nullvariable Web Consulting Blog.

The Denny’s Debacle

Way back in the old west, there was a saying. No, not “the good, the bad, and the ugly” or “a fistfull of dollars” or  “for a few dollars more.” Those were from Italy in the late ’60s with fairly  decent voice overs. But the saying was “there’s no such thing as a free lunch.” Until recently that maxim had been quite true. If you got something for free, somehow you just ended up paying for it later.

For instance, last night I went to Soby’s in Greenville, SC because I had a $25 coupon. They were giving me $25 of free food without any minimum purchase or anything other than two people at the table. Of course, I had to pay gratuity. I expected that. However, what I didn’t expect was that while their food was awesome, the portions were a bit smaller than I had figured. So in the end, I wound up buying $65 in food, and after the coupon and gratuity, I spent $50 even.

Now don’t get me wrong. I loved the food, and the service was great. But the fact is that the company sent out these coupons knowing that people would really have to order more than one thing. The company being slippery marketing fiend like myself was not planning on giving me a free dinner, just a discounted dinner.

But I just said at the beginning of this blog post that “until recently that maxim had been quite true.” While there certainly are no free lunches, there are some free internet services. The evolution for these services has been very interesting. Over the past few years, ecommerce companies have been using a  business model called freemium in order to pay for their business. Essentially, about 1% of your users pay for the other 99%. Sounds like a socialist system. But it works.

Here’s how it works. A company gives away a very good service for free. Along side the free service, however, it offer bells and whistles for a premium. This business model would be like Ford giving away Tauruses that have the basic features, but if you want GPS, anti-lock breaks, etc., you have to pay for it. Obviously, this business model doesn’t work for physical goods. (At least not yet.) But it works marvelously for online products and services because many of them have little to no cost associated with duplicating themselves. Seriously, in order for you to open an account on Facebook, Facebook doesn’t have to shell out anything more than the cost of the electricity. Thus, the economies of scale are gigantic.

In fact, the low cost associated with creating a new account is one of the reason why freemium is becoming a model. How does a company justifying charging a user a $10 setup fee when the cost associated with adding just one more account is along the lines of $0.00004? Some companies don’t try to justify it any more. They don’t try to explain how much work they put into these products in services. Instead, they say implicitly, “yeah, we realize that we duplicating this service for you didn’t cost us much.”  But these companies still need to make money, so they sell you up from the free package now.

So the goal for companies like LinkedIn is to attract a huge users base in order for them to attract a few paying customers right along with the free users. In essence, the free user is putting peer pressure on the paying user by getting them to join the system for which the paying user knows he’ll need the bells and whistles.

However, this system isn’t perfect. One problem is that the initial free users need to see some value in joining your system. This problem couples with the second problem which is a catch-22: people won’t join your system unless people are joining your system. So some means of jump starting the freemium system is necessary. Usually the best means is having a killer app at its core. However, that’s easier said than done because if you offer too much for free, not enough users will go for your premium service. But if you don’t offer enough, you won’t get enough users altogether, and then you still won’t have enough premium users.

The last thing I want to mention about the freemium system is how to communicate it. In short, if you want to adopt this system of giving something away for free, don’t brag about it. If your product is really all that great, let other people brag for you about the free aspect. So adapt Google’s approach with Gmail. Google gives you ten reasons why you should use Gmail. The last one is about the price:

10. All this is free?

Yep.

Nuff said.

This is a post from the Nullvariable Web Consulting Blog.

Freemium: Dude, where’s my free lunch?

Just finished reading an article @guykawasaki linked to on Twitter about a great new idea. The idea is that there are a lot of great blogs out there that have great content but that are overlooked. Sadly this leads to good writers having a hard time being motivated and often what could have been great blogs die out because of it. So the idea is that this group will take a new blog with great content under their wing for a couple of weeks and everyone in the group will read and comment on that blog during that time.

I think its a great idea but its needs some polish. At this point there are 581 comments to that blog post. That is a lot of people! I really think that there are a lot of deserving blogs out there that could benefit from this impact but I think sending 400-500 people to a single blog is crazy! If the people commenting on this post are really excited about being active and contributing like this then awesome. They should be broken down into smaller groups. If you figure a 50% rate of people actually being active every day/week then smaller groups of about 40-50 would be much more optimum. This size will keep the blogger from being bogged down with too many comments and allow the wealth of these visitors to be spread around much more effectively. If we just send 500 people to a new blog every week it will take some time to get around.

Even better if these groups are randomly generated so that no one could complain that someone got a celebrity blogger visiting their site and they didn’t since the groups are randomized. Also would be good if the groups were based on activity some how. Perhaps we could build a script that crawls the blogs in question and checks for comments from the groups members. It would be a great way to ensure fairness in assigning people that want their blog to be given a chance at this attention too. If you’re not participating then you don’t get to show up in the queue.

Just a few of my thoughts on this lazy, sleepy afternoon in Iowa. Getting ready to pack up and head back to South Carolina in the morning.

This is a post from the Nullvariable Web Consulting Blog.

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