The Psychology of FREE

6 February 2009

There is a price that is always hot. A price that we often will buy with little thinking.

That price is... FREE.

And who doesn't like free stuff?   That's like asking who doesn't like to feel good. Free stuff not only switches on a positive emotional response, but it also makes us feel like we've discovered some hidden secret that entitled us to our exclusive prize.

The Psychology of Free In The Modern Day

Think free gift voucher websites, and look at the 3.8 BILLION search results for the word 'free' on Google.  Even savvy consumer sites like HUKD and MSE have dedicated sections for free stuff.  And look at how 'free stuff' makes people go nuts, courtesy of The Consumerist.  Nuff said.

But is 'free stuff' usually worth it?  That's the question.

Not according to studies by Shampan'er et. al (How Small is Zero Price? The True Value of Free Products), conducted at the Research Center for Behavioral Economics and Decision-Making.  They believe that the word 'free' often tricks consumers into poor decisions.

Case Study 1

Here's an experiment worth trying now.  Do this quickly and instinctively:

You're browsing HUKD, and a one time treasure hunt offer pops up.  Pick either:

  • (a) A £10 gift certificate for FREE!
  • (b) A £20 gift certificate costing £7!

What would you choose?

According to results from Shampan'er and Ariely, you are more than likely to take the first (free) option.

This obviously doesn't make much sense economically, as the £20 certificate is actually better value, because assuming terms and conditions are same for both, you are likely to save £13 instead of £10.

Case Study 2

Now what about the following choices?  What would you pick now?

A £10 gift certificate costing £1.
A £20 gift certificate costing £8.

Based on Shampan'er and Ariely's study results, the majority (64%) of participants now went for the £20 certificate.

But notice that we merely increased the price of each certificate by £1.   The £10 certificate goes from free to £1, and the £20 certificate goes from £7 to £8.

It's as if by simply removing the trigger word 'free', most people now come to sudden realisation that the £20 deal is better value.

Why is FREE so Powerful?

Shampan'er and Ariely (2006) argue that the two major reasons are: (1) it makes us feel good (2) it has no downside. And because we think we pay nothing should our decision be wrong, we can't feel bad.

The experiment also goes on to test people making decisions over a Hershey bar or Lindt chocolate. It also delved into understanding how advertisers and marketers have utilized the word in their sales copy to generate an increase in sales conversions. Worth reading the original source, if you are into that kind of thing.

And the next time you get a 'BOGOF' offer, just beware you may not be in for as good a deal as you thought you were.

[How Small is Zero Price?] The Original Paper (PDF)

TOPICS:   Freebies

21 comments

  • Chris H.
    Interesting read, I'd guess the psychology behind the word 'SALE' is similar, who cares if its not quite up to your usual standards, doesn't fit quite right and has no practical purpose... its 50% off!
  • Faysh
    Don't you mean "up to" in the smallest font possible 50% OFF!!
  • Callum
    Surely the people choosing the £10 option in case study 1 are doing so because its free, and the ones getting the £20 are choosing it because they want to spend £20 so its better value for them.
  • Willz
    I agree if you are only going to spend £12 then the FREE £10 off voucher makes perfect sense. If you are buying an item worth £50 then obviosuly the £20 will be worth your while. I had to laugh at a shop i walked past the other day which had massive signs in the windows saying in HUGH FONT , Hugh Sale 50% Off Everything. Then in a smaller font at the bottom 'Excludes certain items'. :)
  • Carlos J.
    I'd take 2 of the £1 - £10 vouchers instead :)
  • Big B.
    "It’s as if by simply removing the trigger word ‘free’, most people now come to sudden realisation that the £20 deal is better value." surely buying 8 x £10 vouchers at £1 equates to £80 worth of vouchers for £8, so how does the £20 deal make you realise that it is better?
  • Alex
    If you're interested in this (and the effect of SALE too), Ariely covers it in a chapter in his book "Predictably Irrational", which is a very good read and covers a lot of consumer behaviour. I'd also recommend The Undercover Economist for a discussion of the economics rather than the psychology.
  • Steve C.
    Where can I buy Hugh from?
  • Matt B.
    I put my washing machine up for sale on Gumtree, when we got a Washer-Dryer as a wedding present. It was an old washer - quite old - in reasonable but not exceptional nick. I had it up at 30 quid.... then 20 quid... then a tenner... for three weeks it sat there. Then I got sick of it lying around, so I said, screw it, and put it up as 'Free to good home'. I got four calls within an hour - some people were even angry when I said I wouldn't hold it for them! The bloke who did collect it demanded help getting it downstairs and into his car!
  • tisk
    The gift certificate example is bull shit as pointed out by others
  • Todd
    No tisk, use your brain. Those saying otherwise presumed that you can get more than 1 certificate, and already have a purchase in mind. That's not usually the case with 'freebies'. It's not about debating intellectually what you would go for. The OP did not mention that a similar experment was conducted in the research paper. They used amazon certificates, and the demand of the higher priced ones actually went close to zero when the lower price was free. The 'zero price effect' is real and documented. It's about what we would instinctively go for and fall for the 'freebie' trap.
  • Liddle m.
    Interesting article Vince, thanks. And thanks for the reference too Alex.
  • johnny
    The way most are pointing out the gift certificate is 'rubbish' is by saying 'I TAKE 10 FREE VOUCHA!' ... but that wasn't an option. Agree that the lower one makes sense to those only wanting a 10 quid item though. Doesn't man the absolute return is higher with the 20 quid whether or not is being fully used.
  • Vince V.
    Thanks guys (and Alex, for that very useful reference to Ariely's chapter!). Remember that the 2 case studies are meant to be looked at as a whole, not separately. The point was in comparing the 2 scenarios with a £1 price point difference. Most in study 2 went for the £20 voucher when the £10 voucher's price went from FREE to £1 showed absolute return. If I had a £20 amazon voucher, I'm pretty sure I can find a way to spend it! :) The case is not a perfect example, but just one of many studies the authors used illustrate the zero price effect on consumers.
  • anon
    There seems to be a flaw in the test, in the demographic. The act of making people pay for the voucher causes the demographic of the people to change. For instance in the first scenario. People will come across the vouchers and choose the free £10 one over the £20 at a cost, why? Becuase the majority of the people who will be takinig it, are not sure whether they will use the voucher, or had no intention of shopping at that shop. So given a choice, they will take the free one, as that is at no cost, adn if they change their minds later they are still better off. So your main demographic becomes full of hopeful leechers, who MIGHT use the vouchers. in the second scenario, the act of paying for the voucher deters all of these MAYBE buyers, who might not or might have used it. they are detered and decide not to take any of the 2 vouchers. The people who remain, will be the majority of people who intend to use the voucher. Now if they intend to use the voucher, for those people they majority will be better off with the £20 one. What the study has shown is that given a freebie, anyone will take it. Given a cost, even a small cost, only those people who intend to use it are left. The rest just say no. So i am guessing if my theory is correct. The number of people who toof up the first scenario, should number considerably higher than the number of people who took up the vouchers from the second scenario. Also the percentage of people who used the voucher from the second scenario should also be considerably higher, than those from the first. Because the majority of the people who took up the voucher offer from the second scenario, had a clear intention of buying from that voucher company.
  • Matt B.
    In the scenario with the washing machine, that I presented above, I think that this is an unreasonable treatment of free. Washing machines are not small things, few people would buy one, 'just in case'. Either you need a washing machine or you don't. In which case, the difference between ten pounds and no pounds is pretty slim. In the same way, if you were actively looking for, say, a debenhams voucher, then it would be reasonable to take the one that offers the most value for money - up to the point at which you can buy the item(s) you wanted to buy. The difference between free and 8 quid is very small, and the 8 quid item has more value. However if you didn't want a debenhams voucher, any kind of outlay could lead to a loss. If an 8 pound voucher yields 20 pounds of spending power at debenhams, this absolutely needs to be weighed against the loss of 8 pounds, and a guess as to how likely/unlikely you are ever to shop in debenhams again. If there's only a 30% chance that you'll buy something you want in debenhams, then on the face of it the 20 quid voucher will lose you money. If you buy something at debenhams which you don't want, I would personally consider that to be an 8 pound loss! :) Oh sure, some people will say 'but you could sell it on ebay'... but in practice you could get maybe 10 quid for a 20 quid item on ebay, less fees, and you're back around 8 quid. But let's say you do make a fiver. For all that hassle? Say it took an hour? Is an hour of your time worth five pounds? Say it took two hours? And one last point - many people will not outlay money for something of supposedly greater value because we are always on scam alert. Wait... so this... will save me money, but first I have to give you eight pounds? Pull the other one, charlie.....
  • Liddle m.
    "What the study has shown is that given a freebie, anyone will take it. Given a cost, even a small cost, only those people who intend to use it are left. The rest just say no." ( anon ) This makes sense anon, but as Vince has said, it is one of several examples. So yes, it would be good to get a better example, especially since my intuition from watching consumers 'fooled' by BOGOF offers and the like, is that there is such as a thing as this ZPE. I don't want to confirm a prejudice though, so I really should follow up that reference above and others...
  • jobibear
    For those interested there is an excellent book in this field called 'Influence: Science and Practice' by a Las Vegas psychologist called Caildini. One can borrow it free from the library!
  • Harry
    @ alex I second the book recommendation, I'm halfway through Predictably Irrational as well and it's fantastic. The author teaches at MIT and does loads of experiments to do with money like this on on students and the results can be pretty astounding. If you see it in the shops I'd definitely recommend picking it up (don't think the paperback is out yet though sadly).
  • jobibear
    I've had in paperback for years! But true it is fantastic. I still use examples from it to try and sound clever.
  • Some C.
    [...] dollars”. Everybody wants to win free stuff. When we get free stuff, we feel satisfied, as if we won an exclusive prize . However, it seems that there is always some limitation attached to the free stuff. So, is there [...]

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