What are you waiting for? Stop reading this blog and go run to Ben & Jerry’s to get your FREE cone. Today is Free Cone Day, an occasion that has tens of thousands of people head to their local Ben and Jerry’s for a free scoop of their favorite flavor. You might stand in line for an hour, but what’s that compared to savoring your favorite Cherry Garcia or oh-so-delicious Chunky Monkey? For free!!
In fact, this sounds so good that I think I should stop writing now and go get my free cone. Talk to ya later…
Oh wait. Let’s slow down and think for a second about what is going on here. What does a scoop of Ben and Jerry’s ice cream normally cost? A few dollars? Since when does it make sense to wait an hour in order to save a few dollars? In other words – if saving a few dollars is so important, wouldn’t we always take the opportunity to do so?
Let’s say you’re buying a new suit. There’s one you really like that costs $1,500. It’s beautifully tailored and makes you feel like a million bucks when you put it on. You’re about to buy it when you find out that another store nearby is selling the same one for $1,495. It’ll take you 30 minutes to get there and back. Will you go? If you’re like most people, you won’t.
So in summary: A FREE scoop of Ben and Jerry’s (worth about $4 let’s say) for an hour of time: worth it. A $5 savings for half an hour of time: not worth it.
That is by definition economically irrational. The reason behind this behavior lies in the psychological power of something being FREE. (It’s also about the relative discount percentage, but let’s focus on FREE). Any interaction holds a potential downside and a potential upside, and when something is free we (erroneously) see it as having no downside. We think to ourselves that there is nothing to lose, so we might as well go for it. In this case there’s the opportunity cost of our time, and in others it may cause us to choose an inferior product.
Still not convinced? Here’s a famous example from behavioral economics, involving Hershey Kisses and Lindt Truffles. Dan Ariely, Nina Mazar, and Kristina Shampanier set up a table selling each of these chocolates, and “customers” were told they could buy only one or the other. When the Hershey’s Kisses were priced at 1 cent and Lindt Truffles at 15 cents, most people made the rational choice of buying the Lind Truffles (73%/27%). That was most people’s preference based on the relative value between the two chocolates.
BUT when the Hershey’s Kisses were free and Lind Truffles priced at 14 cents (note: the relative difference between the two is the same), what do you think happened? Somehow those Hershey’s Kisses magically got a lot tastier, because the preference reversed itself (69% Hershey’s, 31% Lindt).
So, what does this mean for you?
If you’re a product person, business owner, or marketer, think of ways to incorporate FREE options into your offers. For example let’s say that based on the costs of these products, the cost of these packages are the same to you:
Package 1: Product A 30% off and Service B 50% off
Package 2: Product A 5% off and Service B FREE
They are definitely NOT the same in the view of the consumer. The FREE element makes package 2 much more appealing. Also, if you have things that are already included in your offering, make sure you specifically call out that they are FREE.
If you’re not a product person, then beware of all the ways in which you can fall for FREE offers. Watch out for that mortgage that has no closing costs but a higher rate and fees. Next time you’re at an event and they’re handing out free swag, think about whether you’re actually ever going to wear that ugly t-shirt. And the next time you start adding more items into your Amazon cart just so you can get free shipping, pause for a second. Do you really need that $7 squeegee so you can save $5 on shipping? In the meantime…enjoy your Ben and Jerry’s.