Enormous power of free


Plenty of things are cheap and we can deal with it. Any price, no matter how low, creates a barrier and makes us think hard and long before purchasing it.

But something extraordinary happens when things go from being cheap to being entirely free. 

Zero Ringgit is not just another price in a price range, it has a distinct, separate position, and unleashes very powerful emotions. 

The word ‘free’ impacts our brain and makes us behave very differently. 

On a moment’s reflection, you will probably admit that you have a bunch of random stuff in your house that you picked up only because it was free, but which you will never use and is basically worthless.

I know, I have collected my fair share of pens, keychains, bottle openers, notepads, t-shirts, magazines, calendars, and snacks I don’t even like from visiting streets, stores, malls, supermarkets and trade shows. 

I also sometimes spend a ridiculous amount of time waiting in a line or filling in forms or travelling to some place, just to get something for free. As if my time was free! And who hasn’t bought something extra online, just to be eligible for free shipping?

A chocolate experiment

When I reflect, I realise why I accepted all that junk: getting something for free – no matter how useless - just feels great! 

And marketers know it too! Consider this example from Dan Ariely’s book ‘Predictably Irrational’. 

Dan set up a table in a university and allowed each visitor to purchase one chocolate only. 

He had two types of chocolates: Swiss Lindt truffles, which are very expensive and taste great and Hershey’s Kisses, which are much cheaper and taste not too bad. 

When they charged 15 cents for a Lindt truffle and 1 cent for a Hershey’s Kiss; 73% of the visitors still chose the expensive Lindt truffle. 

That was a rational choice, because they recognised that the quality of the Lindt truffle was so much better that that of the Hershey’s Kiss.

Buying the Lindt truffle was a good deal!

But then Dan lowered the price of both chocolates with 1 cent, making the Lindt Truffle 14 cent and the Hershey’s Truffle free. 

Hence, the difference between both chocolates remained 14 cents. 

But suddenly, 69% of the visitors chose the free Hershey’s Kiss, instead of the Lindt truffle! 

The difference between 2 cents and 1 cent is small, but the difference between 1 cent and 0 cent is huge!

When free becomes a problem

This example illustrates when free becomes a problem. 

Free is not a problem when there is only an upside and no downside, except for carrying excessive amounts of trash with you. 

However, once we are comparing a product that is free with something that has a price, we overreact and sometimes make the wrong decision. 

We give too much preference for the free product and don’t buy the product we really want, simply because it isn’t free.

Some free products are worse than paid products or not really free at all. 

When a product is really free, You are the product. 

For example, your free use of Google allows Google to earn money from ads that are shown on the results page. 

Google basically sells you! 

Or take a credit card without annual fees as another example of something that might look free, but might be more expensive down the line because of higher fees and interest rates and lower cashback and rewards. 

Hence, always ask yourself when something is offered for free, whether you really want it and if there are no hidden costs involved.


Mark Reijman is co-founder and managing director of http://www.comparehero.my/, dedicated to increasing financial literacy and helping you save time and money by comparing all credit cards, loans and broadband plans in Malaysia.


Business News , Investing

   

Across The Star Online