Who doesn’t love receiving free gifts? Businesses know that they can entice customers with free items, and we’ve seen this in action as more and more brands are using gift-with-purchase strategies. Cosmetic brands are well known for this, with leading brands such as Clinique, Estée Lauder and Lancôme all taking advantage of gift with purchase promotions for decades. Surely, it’s a tried and tested strategy, right?

For customers, a gift with purchase is a nice treat, especially when you already plan on buying the item. For brands, it incentivizes their customers to make a purchase. However, how do you know if a gift with purchases is worth it? It may feel like you’re essentially giving away items for free, so when will you start to see the return on your investment?

These are all very valid questions businesses should consider when planning their gift with purchase promotion. When run successfully, gift with purchase promotions can drive more sales and add value to your brand.

What is a Gift with Purchase (GWP)?

A gift with purchase promotion is a popular sales tactic used to incentivize buyers by offering them a gift when they make a purchase with your brand. The gifts are often of equal or higher value to the product to increase the brand’s value.

Benefits of a GWP Promotion

1. Adds brand value

When brands offer a gift with a purchase that is of higher value to the individual product itself, they enhance the perceived worth of the brand. If you contrast this with discount promotions, GWPs are a more effective means of adding brand value. Discounts may impede the perceived worth of your product as you offer it at a discounted price, and they can also be more costly than GWP promotions.

For example:

Anna owns a stationery store where she sells pens, notebooks and a range of office equipment. The cost of a notebook is $5. The revenue that she generates from the retailed price of each notebook is $25.

Scenario A: Anna offers a storewide promotion of 30% off notebooks and stationery.

In this scenario, the 30% discount off a $25 notebook means that Anna generates $17.50 from each notebook sale. This promotion caused Anna to lose $7.50 compared to selling it at retail price. So including the cost of the notebook, Anna is now at a loss of $12.50.

Scenario B: Anna offers a Gift With Purchase promotion - free pen with every notebook purchased.

In this scenario, Anna generates $25 from each notebook sold. The cost to produce each pen that comes with the Gift with Purchase offer is $1.50. In the end, Anna’s total incurred cost is $6.50, and she can generate the full revenue from each notebook purchase.

2. Increase conversion rates

Offering a gift with a purchase allows customers to feel like they are getting more value out of their purchase. This in turn increases their likelihood of converting. GWP’s are generally exclusive and limited, which also helps conversion rates as it adds urgency to customer’s purchasing decisions. When something is in limited supply or offered for a limited time, customers are more inclined to purchase out of fear of missing out on the offer.

3. Encourage repeat purchases

When you provide a gift with a purchase, you allow your customers to try out a product from your brand that they may not usually purchase. You expose your customers to more products within your brand, and once they like a particular product, they are more inclined to come back for more.

Using a GWP promotion for new product launches is a great way to expose your new product to your customers and gather valuable feedback and data about the product.

4. Upsell

A GWP promotion is a great way to upsell your product offerings. This strategy works when you offer the gift only when the customer has spent over a certain amount. For example, you provide a GWP promotion for purchases over $50. If a customer has already spent $40, they are more likely to make another purchase to meet the threshold and receive a free product.

5. Build customer loyalty

Providing customers with a gift with their purchases adds value to their purchase and creates a positive association with your brand. Survey findings from Harris Interactive indicated that nearly 90% of customers that receive a gift were “somewhat likely” to buy more frequently from an online retailer after receiving a gift. Customers are more loyal to brands that make a genuine effort to connect with them through a value-add.

When would you use a Gift With Purchase Promotion?

Gifts with purchases have been widely studied in psychology literature which has shown that the way that you frame your promotion can affect customers’ perceptions and behavior. However, there are certainly times where GWP promotions are more effective than others, and that is highly dependent on your business goals.

Increase repeat purchase of a specific product

“Gift” promotions have been studied against “bundle” promotions, whereby consumers can purchase multiple products at a fixed discounted price. A study conducted by Hsinhsien Liu and Hsuan-Yi Chou demonstrated that framing your promotion as a GWP can increase repeat purchases. When you offer a gift with purchase, customers perceive the focal product to be worth more and the supplementary product worth less. Once the promotion is over, customers are more likely to purchase the focal product again but less likely to purchase the supplementary product.

On the other hand, the reverse effect is seen for “bundle” promotions. The study found that customers perceive the focal product to be worth less in the bundle promotion, and therefore reported less likely to purchase the product again. However, participants reported that they are more willing to repurchase the supplementary product once the promotion is over.

Key takeaway: If you want to sell more of a specific product outside of a promotional period, a GWP promotion would be an effective way to do so. Consider the main product where you would like to increase purchases and strategically select a supplementary product to aid in its sale.

Reduce product return rate

Shinhyoung Lee and Youjae Yi conducted a study to observe how “free gift” promotions affect customers’ rate of making returns on their purchases. The cost of returning a product can have detrimental effects on a business, so it is vital to reduce the rate at which customers make product returns. The study found that customers were less likely to return a product that was promoted as a GWP compared to products purchased as a bundle. The reason behind this is that free gifts increase a customer’s sense of perceived loss. When customers return an extra item that was “free” when they purchased it, they experience a greater feeling of loss compared to when the item was offered in a bundle.

Key takeaway: Use a GWP promotion if your business goals include reducing a product return rate.

How to run a successful Gift With Purchase promotion

As with any promotion, you want to make sure that you consider all factors to maximize your GWP promotion. If done correctly, GWP promotions can be very effective.

1. Consider your business objectives

As mentioned, GWP promotions are most effective when you want to increase repeat purchases of a particular product or if you are looking to reduce your product return rate. As there is a cost associated with GWP promotions (i.e. you are offering products for free), it is vital that you consider your objectives while taking into consideration the associated cost of doing such a promotion.

2. Consider the type of gift offered

When you decide on the gift that will be offered in the promotion, remember to pick something that is appealing to customers and will complement the focal product. The purpose of a GWP is to add value to your product and drive the purchasing incentive. A gift that does not add value to the customer can discourage them from making the purchase - even though they are receiving a product free of charge. So it is important to choose a gift that customers perceive as valuable. Offer your customers something they actually want.

3. Consider how you will promote your GWP

Promotion details

One of the most important factors of your GWP promotion is ensuring that you are marketing it accurately. The instructions must be clearly and concisely written so that customers understand how they can receive the gift. Here are some key details to consider including in your GWP promotion:

How long is the offer valid for?
What do customers need to do to receive the gift?
Adding “while stocks last” helps with inventory management
Does the offer apply only to customers living in a certain region?
Is the offer only available through specific retailers?

Awareness

You could run the most amazing promotion, but it will not be effective if no one knows about it. So it is crucial to consider how you will broadcast your GWP promotion to the public. The internet has made it increasingly easier to spread information to a large audience, so here are some online ideas to leverage in your promotional strategy:

Email campaign. Take advantage of your existing customer database and send them an email to inform them about your promotion.
Social media campaign. Many people use social media daily, so posting on Facebook, Twitter or Instagram is an effective way to reach a larger audience - especially those that are not on your email mailing list. In addition, when the promotion is enticing, customers are more inclined to repost and share it with their friends and community.
Ads. You can advertise your promotion through paid ads such as Google or Facebook ads. These platforms allow you to strategically target your audience based on various criteria, including demographics, location and specific interest categories.
In-store. Putting up signage around your store or retailer will help increase your reach and awareness of your promotion. Advising sales staff in-stores to communicate it to customers would also be beneficial.

4. Consider your inventory

Making sure that you have enough inventory is vital in all GWP promotions. If you are promising customers a gift with their purchase and don’t have enough stock to give away, it will have a detrimental impact on your brand.

Examples of GWP Promotions

Glad: Win a Virtual Visa Card

Glad ran a GWP promotion to drive purchase frequency and encourage their existing consumers to make additional purchases. Under this promotion, consumers that purchase two qualifying Glad Waste products in one transaction are eligible for a $5 Virtual Visa Card.

Glad understands that their consumers will need to purchase their products frequently, so this GWP promotion was a great way to encourage their consumers to purchase more of the products they are already consuming. One of the key factors driving the effectiveness of GWP promotions is the guarantee of a reward - consumers can expect that they will be rewarded once they complete the purchase. The $5 Virtual Visa Prepaid card is an effective reward to provide consumers as it is perceived as valuable, relative to the products that they are purchasing.

Kelloggs: Gas for Cash

Kellogg’s Gas for Cash promotion is a GWP promotion where consumers who purchase two packs of specially marked Kellogg’s cereal in one transaction are eligible for a $5 gas prepaid card. This promotion allowed Kellogg’s to increase repeat purchase frequency and ultimately drive sales of their cereal products.

Like Glad, Kellogg’s has a comprehensive understanding of their consumers’ purchasing habits. Cereal is consumed every day by many individuals, so this GWP promotion incentivizes consumers to buy more as they are rewarded with a $5 gas prepaid card.

Lancome: Free Gift With $45+ Lancome Purchase

Gift with purchase promotions are very popular amongst cosmetic brands. Lancome is no stranger to GWP promotions and has been doing them for decades. Their promotions always entail a similar concept whereby consumers who spend over a certain amount are eligible to receive a gift worth more than double the amount that consumers need to spend to receive the reward. In this case, when consumers spend over $45, they are eligible for a free 7-piece gift worth up to $168.

The gift that Lancome provides includes trial versions of their products and a branded cosmetic bag. This allows Lancome to expose their consumers to a wider range of their product line and increases brand awareness with their branded cosmetic bag. When consumers use this bag, they act as brand advocates for Lancome, which allows the brand to gain some free advertising!

Putting it all together

There are numerous benefits of implementing a GWP promotion. However, it is most effective when you consider your business goals. Research has shown that GWP promotions significantly help increase repeat purchases of a specific product and reduce the rate of product returns. While the concept of running a GWP promotion may seem straightforward, many factors should be considered as the type of gift and how you will advertise the GWP promotion.

Working with 3 tier logic, we can help you manage and implement your Gift With Purchase promotion. Through our next-generation shopper marketing platform, PLATFORM³, you can also leverage various features in your promotion, ranging from Purchase Validation, which helps track and validate customer purchases to our Advanced Data Analytics, which you can use to measure the progress of your promotion from start to finish. To learn more, book a demo with our team today.

Should You Run A Gift With Purchase Promotion?