Sunday, July 22, 2007

The RIAA and the Sam's Club Weenie

When the RIAA trots out figures showing how much money they've lost to illegal downloads, there's an unspoken assumption folded into those figures that make them far bigger than they should be.

It's the driving force behind the RIAA's war on consumers that's hauling computer-ignorant grandmas and even dead people into court as vicious intellectual pirates. It's behind Universal's one dollar tariff on every Zune player Microsoft sells, and the current efforts of the SoundExchange to hobble webcasters. It's the reason why record companies continue to force copy protection on consumers that do little more than punish legitimate customers.

And it's an assumption Sam's Club never makes.

The assumption: Every free sample represents another lost sale.

Go to the food section of any Sam's Club and you're likely to find one or two employees offering free samples. Usually, the freebies are some kind of impulse item, such as cocktail weenies.

Sam's Club, and its parent company WalMart, are famous for being ruthless about the bottom line. They operate on very thin margins, so if something's not working -- and working well -- then out it goes.

Free food samples at Sam's Club have been a fixture for years, so obviously they work well. And why not? Take one bag of 100 cocktail weenies out of stock (wholesale price, $4.50) and cook 'em up. One hundred shoppers receive one sample each. If just one in five people picked up a bag, that's $179.80 in sales (at $8.99 a bag).

And those 100 weenies generate other sales as well. The smell of cooking weenies will make some shoppers hungry, and cause them to purchase some food items when they were just planning on picking up some toilet paper in bulk. Further, of those who sampled a weenie but didn't purchase at that time, some will go back to Sam's Club at a later time for a bag or two when they're hosting a party (I have).

From Sam's Club viewpoint, giving out 100 cocktail weenies generates more than enough revenue to justify the loss. After all, giving up $4.50 to net 40 times that amount is a good deal just about anywhere.

But that's not how the RIAA would see it. If 100 people each ate a free weenie and only 20 bags were sold, then 80 people didn't purchase bags and therefore the RIAA suffered $719.20 in lost revenue.
As Sam's Club knows, not everyone who accepts a free weenie will purchase. If they charged a nickel a weenie, there would be fewer takers. If it's something that's not important to you, you might be willing to try it no risk (that is, for free) but certainly not if there's any money or effort involved.

If the RIAA would recognize that free samples are an important part of their business, we'd all be a lot better off. A good portion of the stuff being downloaded for free is only of interest because it is free. I'm willing to bet a lot of Top 40 MP3's wind up deleted once the novelty wears off.

Sam's Club uses free samples effectively to generate sales. The RIAA's maniac drive to lock down every possible usage of its material only hurts itself. Free weenies are good for business.

The RIAA should realize that -- and quit being such a weenie.

- Ralph

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