Why are we so irrational when it comes to our love of Free?
I'm currently reading Predictably Irrational by Dan Ariely the behavioural economist. It's very good by the way. It's basically a summary of lots of social experiments that he and some of his colleagues have undertaken to demonstrate how expectations, emotions, social norms and other invisible, seemingly illogical forces skew our reasoning abilities and show how irrational rather than rational consumer behaviour can be. One chapter focuses on our love of Free. His view is that "free us gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is". Here are two examples he gives.
The first was an experiment that was conducted in a large public building offering Lindt chocolate truffles for sale at 15 cents or Hershey's Kisses for sale at 1 cent (both being at a much lower price than their normal retail price, the Lindt truffle being a better quality than the more everyday Hersey's Kiss) - with a limit of one chocolate per person. The result: 73% chose the Lindt truffle and 27% chose the Kiss. Next they moved the experiment on by dropping the price of each by 1 cent, the Lindt becoming 14 cents and the Hershey's Kiss became free. What happened? 69% of customers chose the free Kiss, opting to pass on buying a Lindt truffle at a very good price. Basically when Free was on the agenda the customers behaved in a much more irrational way. To ensure that the results weren't influenced by not having to get out your wallet, the experiment was repeated next to a till where people were buying something in any case producing similar results.
The second example was analysing Amazon's free postage offer. Now I'm hooked on this to the extent that I nearly always buy extra books to make sure I qualify for their free postage and it seems like I'm far from the only one. It turns out that Amazon were running this offer in every country they operate in with the exception of France where they were running a similar incentive scheme but in this instance the shipping cost was the equivalent of about 10p rather than Free. Now 10p is a pretty good offer, but one that was virtually ignored by the French. However this all changed when the offer was aligned with the rest of the world and turned to Free - a drop in 10pence, but a significant uptake in the offer.
What does this mean for brands? Well the model works for mobile phone operators and retailers and appears to still work with laptops for The Carphone Warehouse. Some people may also have heard about this free gun offer when you buy a car which has gone down a storm for one car dealership in the US. More on it in the video below:
It looks like brands should at least consider reframing their retail offers to incorporate Free, could start to incorporate more imaginative Free incentives or at least could test where free fits in in their market. The alternative might be to be drawn into discounting mainly on price which of course could create an ugly race to the bottom which no one is likely to win in the long-term.
Stephen
PS: To get a feel for the rest of the book you can that this How irrational or rational are you? test.
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