Price, product, promotion and place (4Ps): free gifts

The idea

A free gift is a promotional technique in which a customer receives an extra item at no additional charge when they buy a product, so the gift raises the perceived value of the purchase without reducing the headline price. It sits within the promotion element of the marketing mix and is often used to encourage trial, reward loyalty or shift stock. For example, a cosmetics retailer might give a travel-sized product free when a customer spends £30, or a cereal brand might include a free toy. The business must weigh the cost of the gift against the extra sales generated, and the gift should appeal to the target market. Unlike a price cut, a free gift keeps the listed price intact, which can protect brand image, but it still carries a unit cost that reduces the contribution from each sale.

What earns the marks

• Defines a free gift as an additional item supplied at no extra charge when a customer makes a purchase.
• Places free gifts within the promotion element of the marketing mix rather than price, product or place.
• Explains that the gift is intended to increase sales, encourage trial or build loyalty by adding perceived value.
• Analyses the cost of the gift against the additional revenue it may generate, noting the effect on contribution per unit.
• Applies the technique to a named business or product context and links it to the target market.
• Evaluates when a free gift is preferable to a price reduction, for example protecting brand image or avoiding a price war.

Common mistakes and how to put them right

• Treating a free gift as a price reduction.

  Put it right by explaining that the listed price stays the same and the customer simply receives an extra item.

• Assuming every free gift increases profit.

  Put it right by weighing the unit cost of the gift against the extra sales it generates.

• Confusing a free gift with a sample.

  Put it right by noting that a sample is a small amount given to encourage trial, whereas a free gift is an extra item given with a purchase.

Exam tips

• Name the business or product in the question and state exactly what the free gift is before explaining its effect.
• Use the phrase perceived value to show why a gift can raise demand without changing the price.
• When evaluating, compare the free gift with one alternative promotion and reach a justified judgement.