Think about how many t-shirts, mugs, USB drives, tote bags, or stickers you have gotten for free from random organizations. Understanding the power of the zero price effect, companies, universities, and institutions spend a large budget in getting custom-made products to give away as “swag” at open houses, orientations, conferences, speeches, career fairs, and other such events. It’s hard to resist grabbing a free t-shirt, or the latest trendy item (hello, fidget spinners), regardless of how many you have lying at home. The promotional products industry has therefore grown massively, totaling $24 billion in the United States alone.6 By choosing the right product and design, companies can succeed in creating sentimental value. Presenting a swag bag to an intern will help to create a feeling of belonging in the company while giving away a nice notepad at a conference will make sure the name sticks in everyone’s minds whenever they jot something down. Besides, every person carrying your organization’s tote bag and sticking a cute sticker on their laptop is like having a walking billboard.
Providing materials, resources, and products for free is also a means of building trust with potential patrons. For instance, tiny bottles of skincare products allow people to test them before committing to the full product. One might choose to follow a free newsletter over a more reputable, paid one, and then decide that it is worth paying for the upgrade. At the same time, it is also a means of rewarding current customers. For example, Microsoft Teams is essentially a combination of Slack and Zoom. By releasing Teams to current Microsoft Office subscribers for free, they were able to outcompete similar products. Even though it is widely argued that Slack and Zoom are better software, the freeness of Teams gives it an edge.7
Shampanier et. al. also estimates that the effect can apply to realms other than price. For instance, they suggest that drinks that are zero-calorie rather than low-calorie will be more demanded amongst a calorie-conscious population.3
All being said, it is important to remember that some products are less susceptible to the zero price effect. A 2019 study searched for the zero price effect in the prescription drugs market in Sweden but did not find evidence that it existed. This could potentially be because pharmaceuticals are a utilitarian good, and are not influenced by affect. Another explanation could be that when products are equivalent, such as different brands of the same generic drug, people just go for the one with the lowest price. Finally, they found that certain individuals gain more utility from consuming the same brand repeatedly.8 Therefore, the necessity of the good, other accessible equivalents, and brand loyalty should be considered.