Dunkin’ Donuts is giving away a free 16 oz. cup of iced coffee today (March 15, 2008). Anyone who walks into a DD store is entitled to one with any preferred fixins or flavors.

Pair that with the free chicken sandwich you can get at McDonald’s today, and you’ve got yourself a meal right there. But wait, one more to add to the list of freebies on this otherwise completely arbitrary day – Redbox is giving away a free DVD rental if you sign up on their website.

But how can these businesses do this?

McDonald’s plans to give away 2 million of its Southern Style chicken biscuits this morning and another 6 chicken sandwiches during the lunch and dinner hours today. Dunkin’ Donuts also estimates that it will give away 4 million cups of iced coffee during the hours of the free promotion from 10 am to 10pm.

In addition to the expense of giving away these items with no immediate profit, both companies have launched expensive ad campaigns in print, on the radio, and through new TV commercials to get the word out about this giveaway day bonanza.

A Wired cover story from March explains the origins of the ‘free giveaway’ business model, using the 1895 story of the founder of the Gillette razor blade company:

By giving away the razors, which were useless by themselves, he was creating demand for disposable blades. A few billion blades later, this business model is now the foundation of entire industries: Give away the cell phone, sell the monthly plan; make the videogame console cheap and sell expensive games; install fancy coffeemakers in offices at no charge so you can sell managers expensive coffee sachets.

The same model carries over to these Dunkin’ and McDonald’s giveaways. Statistics and research have proven that enticing a buyer into a store with freebies highly increases the likelihood that individual will return to make a purchase at a later date.

In one simple way, it may motivate a thrifty consumer to locate their closest Dunkin’ Donuts store. Starbucks also started a similar campaign last month while unveiling their new ‘Pike Roast’ coffee flavor.

It was a ‘back-to-basics’ approach for Starbucks. The coffee brand had been suffering major losses from consumers who could no longer justify expensive morning lattes during these hard-fought days of the recession. So the ‘bucks implemented a ‘free cup day’ coupled with a card that would allow participants free cups each week for the rest of that month.

I just wish more companies I use would follow this business model. Who could say no to the prospect of getting a free introductory lap dance or better yet, a free bottle of Jack Daniels with the purchase of a new handgun?

Wired: Free! Why $0.00 Is the Future of Business, March, 2008

Baltimore Sun: Free Stuff, May 15, 2008