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October 14, 2011 / Simon Thorne

The True Cost of Free

What is this mystical thing, Free? Why does it have such an impact on us, and why are we being irrational by succumbing to it? You may ask yourself, how can you be losing out if it’s free?

Do we really need 3 shampoos right now just to get 1 of them free? Although we may think were getting a good deal here, what we have just done is pay more than we intended. Also by now having 3 shampoos’ ready and waiting for us, why not use a little more than if you just had the one? Besides the BOGOF (Buy one get one free) offers we see regularly, there is something much more going on here.

Some of you will of heard of the Consumer Decision Making Process in some form or another below is a vague outline.

Basic consumer decision making process, somewhat oddly "consumption" is not included.

Shampanier, Mazar & Ariely conducted a fascinating study (also prompting a whole chapter in Ariely’s Predictably Irrational) in which they tested the effect free has upon cost-benefit decisions. They set up a stand, in a busy university building, selling chocolate. Two chocolates were on offer, the first a Hershey’s Kiss and the second a Lindt Truffle. If you have not tried these before, Lindt Truffles would be considered superior to a Hershey’s Kiss, and it wouldn’t be close. Though Hershey’s make around 80million kisses a day and are obviously liked by millions of people, the simple fact is that its just “ordinary” compared to Lindt, which would be considered something of a treat.

With the table in place, and a banner above saying one chocolate per customer they were ready. The Lindt truffle was prices at 15-cents and the Hershey’s kiss at just 1-cent. 73% of the people chose the Truffle. This is all very rational, to get a truffle for just 15-cents, a superior chocolate, that will be enjoyed more 15-cents is a bargain! So rationally speaking, when the price of the truffle is reduced by 1-cent, its sales should be even more. Not necessarily, when 1-cent is also taken of the Kiss, its now FREE! Now the Kiss was favored by 69% of people (up from 27%). Logically, why should Free of reversed peoples preference?  They are still the same chocolates, and still have 14-cents separating their price. People had given up the better option in exchange for something FREE.

Free therefore clouds our judgment when evaluating alternatives. If FREE is the only option it makes sense to go nuts and stock up, but when we are forced to chose between Free and what may be a better choice. We become irrational. According to cost-benefit analysis the reduction in price should not have influenced peoples choices. To further support their finding, another experiment was conducted in 3 stages. At first the truffle was priced at 27-cents, the kiss at 2-cents, people preferred the truffle. With a 1-cent reduction to both, now 26 & 1 cent respectively, people still preferred the truffle. Yet a further 1-cent reduction swayed people’s preference to the kiss again. What is so magic about that word FREE? Incase the study was tainted by people not wanting to search for small change it was recreated with the chocolates added to the cafeteria line at MIT with the same result incurring.

So why do we have this attraction towards free? As a species we are prone to weigh more on loss than we do for gain (I will discuss this further in future blogs). Therefore when something is free we have nothing to lose, we don’t consider loss. When we add in either-or decisions however, we are prone to losing out on the better choice. This type of experiment has been recreated in many formats to show people will choose free over a much more rewarding option. A FREE sign is almost like a hot button, there to turn of our rational decision making and get something that may not be in our best interest.

"FREE STUFF! - when you buy other stuff"

The impact of free doesn’t end there though. Free can lead us into poor decisions in general. New electronic equipment such as DVD players often offer free DVD’s to entice the customer into buying, although in a month or so the price will have dropped severely anyway. Amazon offer free shipping on orders over a certain amount, prompting us to buy additional things we may not need or even want. Phone companies use free excellently, a free Blackberry Curve with certain contracts, we are enticed by these offers as the excitement of free overrules are rational side which tells us we will be paying just more over the course of our contract. Loans, credit cards, bank accounts all offer free balance transfers; free from interest and other offers to capture us unsuspectingly.

At the end of the day Free is a powerful tool used by marketers. We very rarely get something for nothing, so next time your about to splurge your hard earned money on something supposedly free, stop, and ask yourself, what am I really paying for this?

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7 Comments

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  1. Lynn / Oct 14 2011 8:16 pm

    Much better written than the first [ although the message in the first was stronger!
    Have you now got a proof reader?

    • Simon Thorne / Oct 17 2011 10:59 am

      Nope! I just wasn’t doing this one in between pints 😛

  2. pspeb6 / Oct 17 2011 7:36 am

    I agree that “free” is trump card that usually vetoes all other considerations in consumer situations. Indeed, the motto on my family crest is “nunquam narro haud eximo victus” (never say no to free food). And yet, as you point out, there is always the suspicion that you will be paying for it in other ways (there is after all “no free lunch”).

    In addition there is also the belief that if it is free then it is probably of low quality. I have certainly turned down free DVDs in the past – “you have spent over £50 at HMV so you can have hilarious Cannonball-esque romp ‘Rat Race’ for free…” – “no thank you, I’d rather die”. So, for me, for some things, I won’t let “free” trump taste.

    Free sample services also put me on edge, as I can discern the hard-sell on the post-sample horizon. I once had a token for a 15 minute free massage which was followed by a gang of salespeople bullying me into paying for a further hour of pummelling. It almost broke my nose and I’m sure I was penetrated at one point.

    So I wonder if there is a taxonomy of ‘free-value’ where different types of free are differently valued.

  3. anuconsumermindreader / Oct 19 2011 2:57 pm

    hmmm……..yup….its a consumer decision making process which shows this effect ,…..when we see the word Free we just bang to it without seeing its quality and we think we are having the cheapest thing and saving money but its not true even we are more spending……which shows the capturing of consumer mind by puting psychology…………

  4. danfbg / Oct 21 2011 1:46 pm

    Something that should also be FREE!! are the bags in the supermarkets, I feel really fooled when I have to buy a plastic bag in a supermarket because I don’t have any other thing apart from my hands to carry the groceries. But the problem is not just buying the bag, is the way I’m being used having to buy merchandising stuff.

    In some events and night clubs they give hats or beech balls with the logo of a brand stamped all around, if I go to subway they will give me a bag with the brand name to bring my sandwich. At least all this things are free but not in some supermarkets. Merchandising is a basic promoting activity and it is effective, although it could seem not very impressive sometimes it still affects consumer behaviour and we are constantly used by companies to make this possible, we just have to know that it’s free, we like to fill our houses and cars with rubbish because they are free!!!

    My grandfather has a liquor store, and all his suppliers always have presents for him, shirts, caps, umbrellas, jumpers, bags and so on. He really loves to get and use this things, looking like a walking billboard on the street and specially in the his shop, where customers are exposed to the logos of the brands that cover him, every time they go to the till to pay.

    Well my grandma is tired of having all this rubbish at home, so sometimes in christmas she decides to give us all this products that sometimes don’t look so bad. In this way, just by giving stuff for free to a person, ten brands are spreading over, becoming a common element in the life of my relatives specially the ones that like to imitate my grandpa and become brand promoters.

  5. charlopedia / Oct 21 2011 3:24 pm

    I love free stuff. I completely agree that if something is free it becomes more attractive. I have worked for a liquor company in the past, and the free swag is definitely a way to market their product. I heard coworkers say to consumers please wear the t-shirt and hat and then post the picture of you wearing it on Facebook.

    When advertisers use ‘buy one get one free’ to describe their products they are finding new ways to communicate with their customers. The goal is to capitalise on and leverage the relationship between the advertiser and consumer.This article called 50% off or Buy One Get One Free? Frame Preference as a Function of Consumable Nature in Dairy Products discusses how framing alters consumer perceptions of value.

    http://web1.psych.ac.cn/CN/doc/lishu/Off%20or%20Buy.pdf

    I am a huge believer in the effect of the word free.

  6. mindlessconsumption / Dec 14 2011 11:33 pm

    What is so much more annoying is when they are still making a load of money of you because the RRP is 5 quid but the actual price is like 20p. I always end up in Fat Cats for some reason because of the two for one offers, their cocktails are just that good, how do i stop this detrimental behavior? Clearly i have succumbed to what Ariely (2008) has discussed as the overreaction when choosing between products when one is free. Instead of paying £7 for two cocktails at FAT CATS i could have paid £5 for a pitcher at Yates. I was obviously influenced by the buy one get one free offer. I was probably influenced by the time limit on the offer, i believe two for one cocktails only occurs between five and eight.

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