Freebie Lunch Trap
The demand to regulate freebie offering digital business is a work in progress and there should be a demand to regulate freebie offering politicians by the election commission of India. There was no free lunch ever and there is no freebie ever. — Alok Singh
The training from home to school for young kids is that greed is always harmful. But as the population grows it forgets many moral science lessons and so the population lands in the freebie trap. The implications of the freebie culture have been warned again to the public by various sources, whether it be home, school, thinkers, philosophers, and different schools of economists as well as policymakers. The extreme case of financial support is freebies. The service support, product support, warranty support, and no question asked return policy are a few of the practices being engaged by the companies to gain the trust of the customers, retain customers, and make new products acceptable to the customers. In all the above cases the ultimate objective of the company is to survive in the turbulent waters of the business in the short term and be profitable in the long term. Every company has a restricted capability to practice such offers and beyond a point, they can’t support such variants of freebies and ultimately either they are out of business or are successful in the business, whether it be manufacturing or services business.
The freebie is a tool in the hand of manufacturers and producers to enter the market of consumers. Consumers do not believe in any new product in the market, so a time-bound or quantity-bound freebie is an established tool. When automobile companies come up with a new car they offer an introductory price offer which is limited in terms of time or in terms of volume. For example, the home-owned automobile manufacturer Mahindra launched a vehicle named Thar SUV, it offered an introductory price offer to buyers who booked the vehicle within two months of its launch date. The same Mahindra Company, when launched another vehicle about 20 months later named Scorpio N the introductory price offer was offered only to the first twenty-five thousand customers, and this booking, happened within a minute of the opening. From its Thar experience, it changed the introductory price offer in terms of volume rather than in terms of deadline.
When a new service provider offers service to the existing customers i.e. wish to extract the existing customers by offering them a freebie to switch the service provider is an inconvenience fee beard by the company to make a foothold, and such freebies are lucrative enough but time-bound or target bound. Once the deadline or the target is achieved the freebies are discontinued. The entry of Reliance Jio into telecommunication service is an illustration of such a time-bound as well as a target-bound freebie.
In the aviation sector, the freebie is offered around the year and is limited in terms of volume rather than a deadline. The airline company makes sure that first of all, they need to sell the tickets to cover the operating costs, and once the target is achieved they start increasing the price of the ticket. The revenue and pricing model of the aviation sector is such that they overbook the tickets and also bump the customers. Such practices have been accepted worldwide as the sector can’t survive without this policy. The bookings in hotel and railways follow different policy as the railway can get customers at the next station and the hotel can get new customer any time but the flight once in the air can’t get new customers, so they overbook, bumps customers, and offers freebies.
The above examples demonstrate that the freebie is a tool in the hands of the owners to promote their products and is strongly linked with the characteristics of the business. It is justified, as such offers have a limit. The companies do a lot of research and survey to define the limit in terms of deadline and volume before offering such freebies. Such freebies in the manufacturing and services sector are part of the overall business strategy and the company at the end of the day has to make a profit by offering freebies to its customers to let the customers have enough motivation to provide an opportunity to serve once or use their product once. It’s like an extended testing phase of the product and companies make sure that the customers who are participating in such freebies are satisfied, as later these customers who enjoyed freebies will be those who will spread the word of mouth appreciation of the product. The self-promotion objective of the companies is fulfilled. The companies usually divert little or higher finances from the advertisement and marketing budget to offer freebies. But companies also realize that freebies can’t be forever and what matters most is the quality of the service or the quality of the product. The budget from one department of the company is diverted to a freebie scheme so that in the long run the company is accepted by the consumers and can be sustainable to all the stakeholders as well as profitable to all the concerned investors. So, for companies freebie is a game of trade-off among various budget heads. Offering a such freebie is a strategic decision for a company and such decisions are taken by the top-level decision-makers of the company. The companies take a huge risk in offering such freebies and the consumers punish them if they divert from their assured advantages.
The average or bottom-level politicians in our country has forced top-level policymakers to talk about freebie and create awareness about political freebie i.e. freebie offered by a politician.
The problem with freebie starts when it tries to fool the consumers by letting them believe that freebie is limitless. The freebies promised by the politicians and implemented by the governments are aimed to serve the individual aspirations of a politician at the cost of the fund diverted from other welfare schemes. Freebies at the cost of medical, and education and by rounding the budget from one head to the freebie head is a crime. The consumption-based freebie is organized bribing and awareness needs to be created among the citizens to debate where they want their tax-paid revenue to be spent by the government. These freebies are creating unsustainable government debt and to serve such debt the government is encouraging the public to consume demerit goods like alcoholic beverages to make up the revenue gap to support freebies. It is a costly freebie if free water is committed but t the cost of cheap alcohol, it’s like a trade-off of immediate free water with an of costly health bill later. Such freebies are more dangerous and more speedy in terms of implications to the public than the freebie trap being run by the digital world like free social media accounts, free home delivery services, and free credit cards, to name a few.
The social media company which offers free service to users had simply banned the account of the sitting president of the USA. There are many digital businesses that are running a variant of freebies and are able to increase their turnover year after year despite being at loss and don’t pay taxes. Later on, it was figured out that something fishy accounting is done by the owners of digital platforms because of a lack of regulations. These newcomer politicians who are in hurry to capture the top post of the country by fooling the citizens be regulated strictly for their every promise of freebie and the accounts be scrutinized rigorously for the rotation of money from one head to the freebie head.
The top-level decision-makers of the country including the prime minister, finance minister, and the Supreme Court have accepted the dangers of freebie culture being accelerated by a few politicians at the cost of state exchequer and public debt is a sign of creating awareness among the public to decide where they want their money to be spent. The days of such freebie-offering companies as well as freebie-offering politicians are limited. The demand to regulate freebie offering digital business is a work in progress and there should be a demand to regulate freebie offering politicians by the election commission of India. There was no free lunch ever and there is no freebie ever.
(Alok Singh is a Fellow of the Indian Institute of Management Indore, a freelancer academician, and associated with AGET Business School, Jhajjar.)
Share This
