Opening my email today, I saw that Register.com wants to give me a free domain name  Awfully nice of them, isn’t it?  Here’s the email image (scaled down 50%) below:

So, why does Register.com want to give away domain names?  Surely in the week that they present this special deal, a lot of people will take them up on the offer - they’re going to lose a ton of money, right?

Wrong.  They’re going to make a lot of money by giving away domains.  In fact, the practice is nearly an industry standard for hosting companies.  The domain is a loss leader.  Register.com stands to lose about $7 for every domain they give away.  Fortunately for them, a domain by itself has very minimal value to the customer who receives it.  To realize the value of the give-away, the user needs to acquire hosting for that domain… and at Register.com’s rates, that’s a pretty profitable venture.

The keys to an effective loss leader are:

• The initial product given away has minimal cost to the individual making the offer.
• The gift product necessitates the need of another service, which is substantially more valuable to the offering individual.
• The gift product is a one-time cost.  Additional purchased services are recurring in nature.
• The offer is presented in a unique manner with a time condition.

This last point is key to consider - Register.com is presenting the free domain in a drastically different way than competing domain registrars and hosting companies.  Many companies say: “Purchase hosting from us (roughly $100 per year cost) and receive a domain ($7 value) free of charge.”  The consumer sees: spend $100 to get $7.  Not such a great deal.

As a consumer, seeing: “Here, this is free.  No strings attached,” is much more enticing.  Only after taking advantage of the offer will most people realize that it’s a “batteries not included” approach… and most won’t even care.  They’ll be so thrilled to have received something for free that they’ll be more willing to spend the money on hosting without giving it much thought (or comparing costs).  The psychology of the offer is important.

Loss leaders are a powerful way to pull in potential future customers.  Consider that the approach employed by Register.com could easily extend to everyday bloggers (and is successfully utilized by some).  Create a useful product (ebook, software plugin, novelty item) that can be developed and replicated at a low cost and GIVE IT AWAY… but make sure you can tie it to something that will generate profit for you.

Maybe you give away an ebook that shares significant business advice, and use that as a leader for consulting services.  Designers can give away custom designed themes for Wordpress, as a way to promote their unique template creation service, or they can promote theme installation and modification support for a fee - the possibilities are limitless.