#40: Is Free Money Good Marketing?

Venmo shocked the world with a free money giveaway, with many praising its marketing. But can free money be a full proof marketing incentive?

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#40: Is Free Money Good Marketing?

There are definitely days as I’m sifting through strategy decks, creative briefs, email copy options, and half drank La Croix cans that my brain suddenly wonders if I’m overcomplicating marketing.

I thought about it a bit more a couple weeks back, when Venmo essentially launched a marketing campaign to give out free money.

It immediately went viral, one of their most effective social engagement campaigns to date. All you had to do is give Venmo a RT for basically a full two weeks of groceries. But it made me think: Could marketing be that simple?

Was there even a downside for Venmo?

If every marketing team could just put $100,000 in a pot and send it out into the world when they wanted impressions or engagement, life would be an absolute party. Cashing checks without making another quarterly roadmap. A dream.

Of course, if you’ve read this newsletter enough, you know it’s more complicated than that.

Like everything else, incentives come with their own set of consequences.

As I read and mulled over the Venmo campaign more, I realized it would be a perfect area to unpack: the art of incentives.

Why do free things work as an incentive in marketing? What is the psychology behind free stuff? Is Venmo’s initiative a good example of this in action?

Lots of people believe that giving away free stuff will make your business grow. Lots of psychology supports this. You’d be hard pressed to find any team unwilling to consider incentives as part of the strategy.

But with the good.. also comes the bad.

Let’s dive in!


Why Does Free Stuff Work?

While we’re all thinking about Venmo and their monetary giveaway, free giveaways are hardly a novel or innovative concept.

If you walk down an aisle at Trader Joe’s or Costco, you’ll find no shortage of free samples. Same with the food court at the mall or a new cosmetics front with their perfume slips.

Some of the rationale behind this is simple:

  • Product Awareness. If you’re unknown, it’s sometimes a necessary cost for product awareness. When you have a commodity as popular or sensually-impactful as food, tasting will largely heighten commitment. Rather than spend that same money on paid advertisement however, you basically give them an experiential understanding of your product.

  • Habitual Targeting. When a freebie is tied to a habit related to the product, it may make the product stickier in your eyes. You’ll continue to use it more. Take an example from dentists who give you free toothbrushes or dental floss. Of course, it benefits them. But it also gives you keeping back to the same dentist.

  • Brand Recall. Even though some brands may not have directly usable products, brand recall - or the extent to which a brand name can be recalled as a member of a product class, can be built from simple giveaways. I’m a big sticker junkie, with many stickers on my water bottle of brands that I don’t actively court or shop with. But I do remember all their names and what they do, which has its own ripple effect.

On top of this though, there is some deeper science behind why free stuff works.

One explanation comes from game theory - that free stuff is actually a lever for repeating interactions. It’s a prospect of repetition known as ‘continuation probability’. I wrote about this briefly when I covered Rory Sutherland’s book Alchemy in a piece about bees, pollination, and branding.

It rests on a single question: What is the most unique signal you can send for the highest prospect of repetition?

If you get some free fries at Five Guys or free alcohol at a house party, there is a relationship involved that you can nurture over time. Perhaps it’s the friend you’ll now associate with generosity or the fast food restaurant you’ll now be keen to revisit for a second chance of that crispy reward. Either way, they’ve reeled you in.

Another explanation comes from the principle of reciprocity, popularized by Robert Cialdini’s book Influence. Reciprocity suggests there is an ingrained instinct in humans to give back when they receive something new or surprising - If you took a friend’s shift or gave them a ride home, they would be inclined and almost obligated to pay you back. A general case of quid pro quo. A principle of indebtedness.

Cialdini includes an interesting case study in his book about a waiter who increase tips after giving diners a free mint: One free mint led to a 3% increase, two mints led to a 14% increase and one mint quickly followed by another led to a 23% increase.

Dan Ariely doubles down on Ciladini’s take in his book about the True Value of Free Products takes it one step further: When people have no monetary amounts to exchange, they enter instead into a social contract. People are more likely to exert effort under a social contract, since there is no market value on the relationship.

Ariely also suggests the idea of “Affect” being a factor in people appreciating free things - the idea that options with no downside (i.e. no cost) evoke a more positive affective response than options that involve both benefits and costs. This extends not only to just money but even to regular exchanges - exchanging a Hersheys bar for Snickers, for example.

A large part of this involves removing the burden of calculation - it’s hard to have cognitive dissonance when there is nothing really to give up.

Overall, we can see a strong reason why freebies are good for marketing. Even the mere presence of something free can increase emotional favorability

So is there really a downside?

Outside of the obvious downside of financial cost to implement freebies, there is an interesting use case to consider for the efficacy of monetary incentives.

Let’s say you get offered a monetary incentive by a company to join a referral program. In most cases, it’s in your best interest to refer a friend or acquaintance, someone likely to trust your opinion. (Btw, a phenomenal read on an incentive-based referral program that works by Morning Brew.)

In turn, if the referral is fake or for a scam company, you might lose that friend or worse - get roasted in the group chat. It’s in your best interest to refer them to things they might like.

Let’s say on the other hand that the company offers you an incentive to write a review. While the principle of reciprocity might suggest that you would give them a glowing review, is there really an obligation to give a stranger reading it the best information?

You don’t really know the reader of the review. The social costs are completely irrelevant. There’s two things at play here - an action and the cost of completely screwing up that action. One is high, the other is very, very low.

Another warning comes from a Alfie Kohn article in Harvard Business Review quite aptly titled Why Incentives Plans Cannot Work. In it, he confidently states:

Do rewards work? The answer depends on what we mean by “work.” Research suggests that, by and large, rewards succeed at securing one thing only: temporary compliance. When it comes to producing lasting change in attitudes and behavior, however, rewards, like punishment, are strikingly ineffective.

There are a lot of studies he cites to suggest why rewards suck, but it essentially relies on the fact that extrinsic motivators can do little to dramatically change behaviors compared to intrinsic motivators - things like training, social support, room for self-determination. Essentially areas that are habitual in nature.

This gives up a better glimpse of incentives - if accepting a single incentive comes at no cost, it will likely be effective to put in a marketing campaign. If a single incentive comes at a very high social cost or requires a dramatic change of habit, it will likely cease to be very valuable at all.

But, that’s not to say incentives can’t correspond to the action needed. They will naturally just cost a lot more. To the point where simple giveaways likely can’t justify anything that requires a large social and habitual trade-off.

From a marketing standpoint, this is where the funnel comes into play for incentives. If we agree with Kohn’s thesis that incentives are only good for temporary compliance, we basically have to choose a singular objective in the funnel.

Do we want brand recall? Conversion? Re-engagement? All of those important behaviors. But incentivizing all of them is basically putting a band-aid on the problem. It will achieve the objective without doing much else if the person isn’t inherently motivated by the product.

When I tweeted about writing this piece, I got general confirmation around the inflated engagement portion - that it didn’t yield too much long-term ROI. See a tweet from my friend Greg Rokisky below.

All this brings us to Venmo.

We know why incentives are good. We know why they’re bad.

What’s the game Venmo is playing?


Is Venmo a Good Example of Incentives?

When I initially saw the Venmo giveaway, I rolled my eyes a bit. Like yes, they were going to get an insane amount of engagement. Who doesn’t want free money?

As their retweets exploded, I thought of their poor social media management and CX team, sitting around and crying into a pint of Brave Robot Ice Cream™️ while they frantically tried to sift through the exciting audience members and the spam.

But as the day moved on, I tried to think through why Venmo thought this was quite possibly the best marketing campaign they could do.

First, some assumptions that I’m making because I have literally no fucking idea what their strategy brief looked like. The goal of this was likely three-fold:

  • Get new users to sign up

  • Get inactive users to re-engage

  • Get active users to heighten activity

Secondary to this was social media awareness with the long-term goal of this awareness leading to a core change in their user concentration or activity. (In their giveaway, they also mentioned you had to have a Venmo account in good standing. So maybe not new users, but let’s say atleast all three are true.)

The social media virality was certainly there, albeit to the chagrin of many. Mashable called the experience “downright hellish” in a piece that linked it to scammy chain mail.

The project is still perplexing though. If you think about the standard reason brands use incentives, Venmo doesn’t really need any of them. They’re not necessarily losing in the game of brand recall or product awareness. Everyone knows who they are. Even the case of habitual targeting, does free money really ensure you’ll use Venmo regularly?

Sure, even if Venmo injected the money into its own ecosystem and paid all the people in the giveaway through their Venmo accounts, how many of them are going to be spending $500 a month? or even using Venmo regularly after this first batch is out? Heck, if I won the giveaway, I’d probably just transfer it to my bank.

They gained almost 1.5 million new followers, which is definitely fun for a bit and will probably make the Paypal executives do pirouettes in their All Birds.

But what was all of this really for? How many people will stay connected to Venmo once the illusion promised by the giveaway leaves? Will people keep following? Respond to their other marketing?

It’s the world of “temporary compliance” that was promised, a singular objective to get people excited about Venmo and increase their brand visibility with lots of questions on whether any of it will be durable.

In the end, their goal is to turn you back into a Venmo user. An active Venmo user who continues to use it regularly and perhaps even entertains use of the Venmo wallet.

Unfortunately, as we learned, the higher the cost, the lower the likely effect of a single incentive.


Final Thoughts

If we look at the three goals above, there’s no telling how Venmo achieved any of them. They likely won’t reveal either.

In my opinion, they should’ve limited it to people who were not yet on Venmo. Imagine social followers from all those accounts, net new Venmo accounts and all for the cost of $100,000. If a few thousand accounts come out of it, their CAC could slowly approach $1 and that’s almost nothing for the breadth of potentially new users that come out of it.

Another approach: a campaign that would actually convince people to use Venmo on a monthly basis. Send your rent through Venmo today. Buy something at Trader Joe’s. Anything that you could do once, that you could do over and over again using Venmo. A sticky retention initiative.

Instead, they likely just left a few thousand disappointed users in their midst.

More than understanding incentive strategy, this entire experience with Venmo paints an interesting picture of what good marketing is.

Most people who saw Venmo grow with 5x more followers on social would certainly call it good marketing. People who say the trending hashtag and the incessant clamoring of people for Venmo’s approval would call it good marketing. People who suddenly saw Venmo rebrand itself as some sort of a patron saint of a brand would call it good marketing.

I always assume that these campaigns are done by people who have a lot more relevant information than I do - and I tip my cap to any marketers who are able to pull it off. Even after I wrote a few hundred words about how I wasn’t convinced it was great marketing, I still don’t know for sure.

Is it the hard that makes marketing great?

Or is it us being fooled by what hard is?


P.s. I wrote on my blog last week a reflection on the last two years at my gig and what I’ve learned about growth. It also got a fun face lift. Would love to hear any thoughts!

Until next time,

Kushaan

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