by Dan Maccarone and Bob Sullivan

The stolen glance at a watch or phone. The fiddling with the coat on the back of a chair. The lingering over a one-third full drink. The “one last look around.”

A well-trained bartender spots the signs right away. The “Should I Stay or Should I Go” look. This crucial moment plays out dozens, maybe hundreds of times each night at every bar in every city in the world. What happens next might be the difference between a great night for the till and a bar that closes early. Or closes, forever.

And right at this very moment, a well-trained bartender saves the day — or in this case, the night — with a well-timed free gift.

When done correctly, with class and elegance, no one even notices. In fact, the subtlety of the gesture is critical. Because it’s not for everyone. It’s just for someone who is special.

As if delivered from the sky, a fresh bottle, glass, or mug appears — often swapped out for the near-empty drink with sleight of hand befitting a street shell game hustler. And maybe a knuckle rap on the bar, with a whisper:

“That’s on me, mate.”

When treated to a free drink….The patron, now staring at a full glass, smiles wryly. Maybe she offers mild protest. But in a moment, his shoulders relax, the coat stay put on the chair, and he’s in for another drink. And almost certainly, another two — because almost no one leaves after getting a free drink.

Witness the wisdom of the buyback. The power of the well-timed free gift.

It’s not just booze, of course. Free anything works. When Dan used to bartend “Sunday Fundays” at Destination, his bar in New York City’s East Village, the crowd would inevitably transform from individuals to a group because we, as bartenders, would incentivize them to stay and enjoy. Every weekend would include some experimentation from the kitchen — like bacon and cheese stuffed into our homemade pretzel nuggets. They’d give them away, giving every customer a say in how they evolved the recipe throughout the day.

And people would stay. All day. Those little spontaneous gifts to them sparked what transformed into a long-term commitment. A great Sunday for them, and for Destination.

The single hardest thing for any business to do is get someone to walk in the door — literally, or virtually. But the second hardest thing is to get that someone to stay there.

This is the second in our series, Barstool M.B.A., where we take the lessons learned from bar ownership and playing music in bars, and help you apply it to your business. You can read part 1, The Experience is Your Brand, here.

Every business has this “stay a while” problem, but bars solved it long ago with the “buyback.” The term suggests that the institution of the bar somehow extends some kind of formal credit to the drinker for buying X amount of drinks. And, in fact, some bars do operate on a strict three-to-one formula, with free drinks entered into the point of sale systems and inventory carefully tracked.

But that’s not a well-timed gift. That’s just a confusing “buy three get one free” price tag. It’s also an expectation that will eventually cause hard feelings (“Hey, where’s my buyback!?”). And it probably hurts as much as it helps. What if that drinker demanding a buyback has already had too much? You’d rather he left anyway. What if the bar is already overcrowded? You don’t want to waste that stool on a non-revenue generating customer. What if the bar is nearly empty, with buzz (craic!) threatening to vanish, and you desperately want that one good-spiriting couple to stay? It might be worth giving them a free drink after they’ve only paid for two, or even one.

The principle of the well-timed free gift is far more subtle, and far more effective, than a formulaic buyback. But it requires bravery by ownership. And trust. It takes guts to allow a bartender to make on-the-spot, snap judgments about doling out free stuff.

The potential for corruption (Free drinks for all my friends!) and even outright theft is high (We’ll deal with that in a future chapter, called Everyone Will Steal From You). If you are granting this subtle power to workers, they won’t be able to stop what they are doing and enter things into a spreadsheet. They have to have a feel for keeping the right people in the place and the right time, and you’ll have to just trust them.

Everybody likes free stuff. Everybody likes rewarding loyal customers. But giving away free stuff is not good business. What is? Turning a customer you are about to lose into a customer who is about to spend more money. That’s business magic. Sometimes, all it takes is a gift. Not just any gift, of course, but the right gift at the right time.

A gift doesn’t always have to be a tangible thing. Sometimes it’s just something that adds a benefit to the user/consumer that has no obvious value to the business — doing a “solid” — but in the end actually reinforces the brand.

Here’s a digital world example: when Dan worked on Hulu, the question came up of what happens when a user searches for a show that Hulu didn’t have. Normal business logic would suggest you just tell people you don’t have that show and suggest “similar” shows that the user clearly isn’t looking for. Think — “You searched for Lost. We don’t have that, but here are some other Sci-Fi shows you might enjoy: Star Trek, Buck Rogers, Lost in Space.” Nothing about the message is helpful or delightful to the user.

Instead, Hulu bucked the trend of keeping people on its site no matter what and told users, “Sorry, we don’t have Lost, but you can go watch it at ABC.com.” The goal was to inspire loyalty, and make sure Hulu was top of mind whenever consumers thought of watching any show online. It worked.

Similarly, when working out the original strategy for Rent the Runway, the team added incentives for customers who may have been unsure about the idea of renting a dress. One of those was adding a free “backup dress,” which allowed customers to get a second version of the same dress in a size up or down in case that designer trended larger or smaller. And when it launched, the cost to add a backup style from the company’s dress inventory only added another $25 to your bill.

The idea that you can take the wise sensitivities of a bartender and apply them in your company doesn’t only apply to the digital world. Imagine if a cable TV company used solid research to learn when customers were about to cut the cord or bolt for a competitor and granted them a free month, or even a service upgrade — again, *before* that consumer has already put on their virtual coat and has set out to leave the “bar.” Today, customer retention departments cut deals to stop subscribers right as they are about to cancel.

This painful, game-like process often creates hard feelings, however. And, it encourages consumers to flirt with competitors. Imagine if it were proactive, rather than reactive? Why let them flirt in the first place?

Or here’s a brick-and-mortar example. Imagine if department stores had well-trained employees stationed near checkout counters. When they saw a soul looking a bit lost, and hesitatingly wheeling a cart towards a register, an employee could intercede with a question, like “Have you seen the deals in our jewelry department?” Or even, “You look like a loyal shopper: Here’s a free pair of earrings. And you know, I can show you the perfect necklace to go with them.”

Notice, this only works if employees have wide discretion and good judgment. They can’t bother busy moms racing towards the 12-items-or-less checkout lines. Rather, they would need to sense customers who aren’t quite satisfied that they’ve found what they were looking for before heading home and offer that satisfaction.

These interactions could be much easier on websites with treasure troves of data on purchasing patterns. One music store Bob shops at actually throws candy into the box with every order. It’s amazing how much that little gesture means. What if the store stepped up its game just a bit and threw in a pair of drumsticks once in a while? Or what if the music seller called Bob when he hadn’t ordered anything in a few months and offered to mail a free pair of sticks? (Yes, that’s the way to Bob’s heart) Again, critically, this isn’t a random free gift. It’s a well-informed buyback. The store knows drummers need sticks at regular intervals. The sticks are cheap, but appreciated. Perhaps it could even send a brand that many drummers haven’t yet tried yet — a brand with higher margins, and make it easy to order more.

Of course, free gifts can be used in the wrong way as well. Thinking back to cable companies. A common tactic for them is to call customers seemingly offering a benefit by asking cord cutters to add a land line to their package, claiming that by adding this service the customer can reduce their bill significantly. The problem is that a) most people don’t want this “gift” and b) it actually ends up costing the customer more in the long-run as that special is only good for a short amount of time before converting to the true full price. That’s not a free gift; it’s a Trojan horse.

Here’s the point. Plenty of drumsticks come in packs of 10, including an extra pair for free. What we’re suggesting is giving away two for free *first* — before the purchasing decision has been made.

It might be a better hook to encourage loyalty, and more purchases, than the extra pair of sticks that seem ancillary at the time of purchase.

Yes, yes, you’ve heard that companies don’t make money by giving things away for free. But that sounds like the logic coming from the bar owner who’s so obsessed with draft beer inventory he wants to count every ounce of spillage. Nobody is suggesting giving away top shelf liquor here. Part of the calculus of the well-timed free gift is cost.

But make sure you consider the true cost of the gift we are suggesting.

The critical question to ask: are these kinds of free gifts really that much more expensive than random, ineffective advertising campaigns designed to get other people to walk into your store to replace the ones who left?

This works just as well in the services industry. It can be frustrating at an agency when clients ask for features or deliverables that are out of scope (but, of course, they will want them within budget). It’s definitely dangerous to set a tone by just acquiescing immediately to these requests, but there are other moments when you can deliver things that aren’t terribly difficult and make a big impact. For anything made in the browser, throw in a 404 page. Your team will have fun designing this, the client will appreciate it and you’ll be in great company.

Whatever the gift cost, you know what’s almost impossible to measure? The cost of customers walking out the door less happy than they could be.

This weekend — tonight — we’ll see this scene play out again and again. A group, at the bar, shuffling uncomfortably. They are little tired, a little ready to go home, but still malleable. When they look around for a “should I stay or should I go?” sign, they are met with blank stares. A moment later, they vanish, like ghosts — and their money vanishes, too. Later, there will be a different moment, at a different bar: A similar group in a similar state will get “intercepted” by the bartender, at the right moment, bearing the right gift — $11 worth of free drinks. Three hours and $200 later, they will text all their friends about all the fun they had that night, and make plans to return soon.

Which bar do you want to be?

NEXT WEEK (June 20, 2016): Everyone Will Steal From You

MORE BARSTOOL MBA:
The Brand as Experience >
Everyone Will Steal From You >
The Loneliness Business >

ABOUT THE AUTHORS

Dan Maccarone is the co-founder of Charming Robot, a digital product design agency in NYC. He also hosts the podcast Story in a Bottle, chronicling the stories of tech and media professionals. Follow him on Twitter @danmaccarone.

Bob Sullivan is a New York Times bestselling author and a Peabody award winning journalist. His work can be found at BobSullivan.net and you can follow him on Twitter @RedTapeChron.

Original Article