The Impact Of FREE On Consumer Decision-Making
The Power of FREE
Imagine yourself walking into the bakery section of a supermarket. It is 4 pm and you are looking for an afternoon snack. You smell freshly baked cookies. You approach to the cookie stand and see the delicious double-chocolate chip cookies. Now consider three scenarios. Scenario #1, you see the tag that reads $2 per cookie. How many cookies would you get? Now, for scenario #2, instead imagine you are in the same situation but the tag now reads 1 cent per cookie. How many cookies would you get now? Finally, imagine that in scenario #3, that the tag now reads free. How many cookies would you get in this case?
Economic theory predicts you will get more and more cookies as the price of cookies decreases. But, is there something special about the price of zero? This is the question that Dan Ariely and coauthors explore with a simple experiment. They set up a candy stand at the MIT student center. Some afternoons, they offer candies for 1 cent each. Other afternoons, they offer the candies for free. Then, they measure how many students stopped by the candy stand and how many candies each student took.
When candies are offered for 1 cent, 58 students stopped by. When candies are free, 207 students stopped by. As expected, offering candies for free increased the number of students dropping by. But here comes the trick. When candies are offered for 1 cent, students, on average, took 3.5 candies. When candies are free, they took 1.1 candies. Increasing the price from zero to 1 cent triples the number of candies students ended up getting. Weird, huh?
References
*Ariely, D. (2010). Predictably irrational: The hidden forces that shape our decisions. New York: Harper Perennial.
*Shampanier, Mazar, and Ariely: Zero as a Special Price: The True Value of Free Products Marketing Science 26(6), pp. 742–757,
About the Author
Fulya Ersoy
Dr. Ersoy is an assistant professor in the Economics Department of Loyola Marymount University. She utilizes experimental and behavioral economics to better understand how students make decisions in educational settings.
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