“Free” has a magic effect on people’s minds, according to research by Dan Ariely (whose new book, Predictably Irrational could become the Freakonomics of 2008). He did an experiment giving people a choice between a “high-value” and a “low-value” product, a Lindt’s chocolate and a Hershey’s, respectively, and nothing. When the price was set at 1 cent for the Hershey’s and 15 cents for the Lindts, 14% chose the Hershey’s and 36% chose the Lindt’s. What do you think happened when the price was reduced by one cent for both items?
Human beings are rational creatures who subtract costs from benefits to make decisions, traditional behavioral economics tells us, and you would think that the demand for both items would increase by the same factor. After all, the cost for each was reduced by the same amount. But Ariley found something quite different. When the Hershey’s were FREE and the Lindts were 14 cents, 42% chose Hersheys and 19% chose Lindts. Airley explains, saying, “when people are faced with a choice between two products, one of which is free, they overreact to the free product as if zero price meant not only a low cost of buying the product, but also its increased valuation.”
Something to think about the next time you’re deciding between getting the car with three years of free oil changes and the one with $1,000 cashback.
Kristina Shampanier, Nina Mazar and Dan Ariely (2007) “Zero as a Special Price: The True Value of Free Products“. Marketing Science. Vol. 26, No. 6, 742 – 757. (PDF)
(Photo: Maulleigh)
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Great interview with the author today on the Leonard Lopate Show on WNYC / NPR. Listen Here: [www.wnyc.org]
Under the link to listen to the entire show there is a link to listen to just this segment.
One of the many things I don’t miss about white-collar office life was the way in which people making damn good livings would get so excited about (and wait in long lines during work hours for) any sort of free food. “Hey, the owner of our office building is giving away free ice cream bars down in the lobby — let’s go!”
I just came back from an event where they gave out goodie bags. They gave out one per invite and gave out the spares at then end. And people went crazy trying to get the extras. You’d think that one cow shaped stress ball and cheese slicer, per couple, would be enough.
@starrion: Congealed floor wax? I’m sure that they are currently lobbying to include that under the legal definition of chocolate, just like cocoa butter.
So this is news? Of course people will go crazy for free stuff. I live in a small New England town, and you wouldn’t believe all the people who show up at the town dump to paw through the “treasure house” in search of free stuff! There are just as many people shoving second-hand dishes into shiny Volvo wagons as there are into rusty pickup trucks, so the attraction is obviously not based on economic need.
And then there are the yard sales…
I wonder if stores make out better with “buy one get one free” sales than they do with “50% off” sales?
As far as chocolate goes, I’ll eat either Hershey or Lindt, but I’ll only eat Palmer if it’s free
(Palmer chocolate really does remind me of vaguely-chocolate-flavored wax)
I would choose Hershey.
I found worms once in Lindt chocolates with nuts
@chouchou: After eating 2 already….
Isn’t The Consumerist blog free as well? Hmm….
Oil changes (for THREE YEARS) vs. $1,000 is a bad example, unless you can assume that the oil changes are cheaper than $27.77 and will remain the same price for three years (a $1,000 value). Otherwise, the oil changes are a better deal.
@Grrrrrrrrr:
YES! People WILL respond better to the phrase “Buy one, get one free” than they will to “50% Off” (many can not do the math and realize they are the same). I work at a major retailer and find this to be the case.
@surferboi: I agree that the fact that they were asking people to pay with pennies skewed the results.
Yeah, because if there’s anybody that’s got an extra penny or four in their pocket it’s college students.
…and yet people still pick Windows over Linux.
@BFIrrera: The problem I have with “Buy one, get one free” vs “50% Off” is that they don’t necessarily mean the same thing. I make sure I read the sales tags because sometimes “Buy one, get one free” or “Get X number for Y dollars” only works when buying 2 or Y. If you just get one it’s still the regular price.
I’d rather be told it’s half off if that’s the case so I don’t have to ask somebody if the ad doesn’t make it clear.
My favorite “freebies” are the ones on the tv commercials where they tell you that if you buy their product you can recieve free lifetime replacements and all you have to pay is “shipping & handling”!
I would like to see this on a grander scale. What if you could get a free Hyundai or 25k off a Mercedes? How would people react?
@kc2idf: It’s more to do with knowing how it works
I’m not sure, I will be able to run all my application smoothly on Linux. Just not enough technical knowledge.
@bonzombiekitty: Who the hell wants to walk a computer home?
Reading the design of the study, the problem was that to pay 14 cents, participants had to fish change by themselves. However, anyone who wanted a Hershey’s could just take one. Not only that, nothing prevented them from coming back later and taking another one.