Give Away The Product Before You Sell It
In the first year of Coca-Cola's existence, Frank Robinson and John Pemberton had no advertising budget to speak of. Rather than wait, they mailed free drink tickets to every address in the Atlanta city directory and handed the same tickets to traveling door-to-door salesmen covering unrelated routes. The coupon was redeemable at local soda fountains for a free glass of Coke. This is widely recognized as the first manufacturer's coupon redeemable at a retailer in American history. A copy of the 1888 ticket still exists and is the oldest known coupon used in the United States. The mechanics worked because the gross margin on syrup was so high that Coca-Cola could afford to give away enormous volume. A gallon of syrup cost the soda fountain $1.30 and produced 128 drinks at 5 cents each, generating $6.40 in revenue. The economics of a free sample were trivial relative to the lifetime value of a converted customer. The more durable insight is how it aligned every party in the distribution chain simultaneously. Consumers got a free drink of something good. Soda fountain operators got more foot traffic and a product with 80% retail margins. Traveling salesmen got a new benefit to offer their existing customers, at no cost to themselves. Nobody had to be convinced to participate. The incentive structure did the convincing.