Paying Too Much When Paying Nothing

It's true - I feel like we all know it as both marketers and consumers.  Zero and/or free is a source of irrational excitement. 

Some part of my ear always twitches whenever I hear someone saying something was free.  Perhaps it's due to me being too much of a realist (and economist), but really.  Nothing's free.  That doesn't stop "free things"  from making some pretty big waves in the world of consumer behaviors.  

Take Amazon's free shipping for an example.  After the Super Saver shipping was introduced, Amazon saw increased sales everywhere, except France.  But, it turned out that the French division offered a 1 franc (about $.20) pricing instead of free shipping.  Once it was changed to free, France saw the same sales increases as every where else.   That is amazing.  Free is a cross cultural trigger.

Another example - Costco.  Ask anybody what their favorite part about Costco is, and 75% of the time they'll respond with "Free samples!"  I know people who go to Costco just to see what they're sampling that day.  Oh, and if they just happen to pick up two gallons of milk and some coffee while they're there, that's fine.  

In Predictably Irrational, Ariely theorizes that for normal transactions, we consider both the upsides and downsides.  But when something is free, the downside consideration goes out the window. "Free" makes us perceive what is being traded as immensely more valuable than it really is.   

And because of that, people go out of their way to get free things.  And in a true cost/benefit analysis, they pay too much in opportunity costs to pay nothing. 

While there is a lot of talk among behavioral economists and psychologists whether or not a free item is perceived as junk or not in the long run, the point is it does a great job at making people do things, and in that regard it is probably one of the strongest tools we have in our marketing toolbox.