Providing free product samples is a common marketing technique used to drive demand. Free samples allow Customers to get better acquainted with a Product – reducing their risk and increasing their Willingness To Pay (WTP).
This Market Simulation workflow shows how a free or discounted Product trial can increase trust in the Brand. When the Product again returns to full Price the sale of the Product will increase.
This simple Market Simulation models the impact of a free trial on Customer Demand for Spacely Sprockets. Each time a Customer buys Spacely Sprockets they increase their appreciation of the value (their WTP) by 20%.
The simulation takes place over 3 steps:
- Spacely charges full Price for his Sprockets. This sets the benchmark for the original demand.
- Spacely gives away his Sprockets for free hoping to induce Customer trial.
- Spacely again charges full Price. Customers who tried his Sprockets during the Free Trial are now more likely to buy.
While Spacely Sprockets enjoys a monopoly in this Market, his Product is not of high quality and not popular. Customers originally place a Willingness To Pay (WTP) average value of only $10 on the Product (albeit with a wide Standard Deviation of $50). Only about 21% of Customers of the 10,000 in the Total Available Market (TAM) purchase at the Price of $50.
Cosmo Spacely decides against making any improvements to his low-value Product. Instead, Spacely decides that Customers will better appreciate the value of his Sprockets if they are given a free trial. He hopes that once Customers try the Product their WTP will increase permanently and that they will be more willing to buy the Product at full Price next time.
Return to Full Price
When the Free Trial is over Cosmo Spacely again returns Product Price to $50. Many of Spacely’s Customers who enjoyed the Free Trial still place a low-value on the Sprockets and again do not want to buy the Product at Full Price. But the Free Trial has changed the minds of other Customers.
The sales of Spacely Sprockets before, during, and after the Free Trial were as follow:
Step 1 (before): 2,146 (21%) of Customers originally purchased the Product
Step 2 (during): 5,898 (59%) of Customers tried the Product
Step 3 (after): 2,658 (27%) of Customers now purchase the Product (an increase of 24%).