Monday, January 24, 2011

H&R's Free Tax Prep A Bad Idea

This tax season, H&R Block has a bold new marketing strategy to reverse the downward trend in store traffic. Its strategy is to give its tax preparation services away for free. For 30 days ending on February 15, all the early-bird filers will get their taxes done for free.

Well, not exactly "all." The free tax preparation is only for customers filing the 1040EZ federal form, which only covers approximately 16 percent of H&R Block's customers. The basic tax form is not an option for customers with slightly more complicated finances, such as customers who claim dependents, who make over $100,000 per year, are 65 or older, have income adjustments from things like alimony or tuition, or customers who itemize their deductions. Also excluded from the promotion are state income tax filings, which are required in 43 of the 50 states.

The flaw in this strategy is obvious: they're making big promises to prospects in advertising that they know they won't keep. As H&R Block Retail Tax President Phil Mazzini said to analysts recently, "our ability to monetize this program means a minimal impact on our net average charge." The problem is that their customers will get to the store and feel they've been lied to. Yet, unlike the sneaky fees the company has made its living on in the past, such as the sky-high annualized interest rates that were paid on instant cash refund anticipation loans, this lie will be much more obvious. Amy McAnarney, H&R Block's senior vice-president for tax operations, is correct when she says that "'free' can be a very powerful word."

Every marketer knows that it certainly can be. "Free" jumps off the page and people remember it. Unfortunately, they will also remember when something was supposed to be free and wasn't. According to McAnarney, this promotion "was received very well" last year when it was tested in the Miami, New Orleans, and Atlanta markets.

Truly knowing that would require a second year of testing. However, I think the shoddy tactic of dangling the word "free" to get people in the door and then pulling a fast one on them has actually been tested enough. A marketing failure in the making, H&R Block is about to learn just how powerful "free" can be.

This post also appeared on Talent Zoo's Beneath the Brand blog.

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