Why would you select the poorer of two promotional offers? If the worse offer is “free” then you are drawn to it like moths to the light. It defies all rational behavior norms. It is predictably irrational.
Advertisers have known forever that the word “free” can motivate consumers more than any other word associated with their ad copy headlines. Consumers act so irrational when it comes to “free” offers that federal and state governments have had to step in to regulate the use of “free.”
You can see the Federal Trade Commission’s Guidelines for use of the word “free” here.
When it comes to comparing the value of deals, our brains don’t work the same if one of the deals is “free.” The response of the brain is activated by this absolute term "free." If “almost free” is substituted for “free” the response isn’t nearly as effective as consumers act more rationally.
Dan Ariely, a behavioral economist, in his book Predictably Irrational describes an early experience of Amazon.com with a “free shipping” promotion. In a multi-country campaign with free shipping as the promotion for buying a second book, every country except France had a significant increase in sales. After investigating, Amazon determined that the promotion had been altered. Instead of “free” shipping, in France, the shipping was “almost free” with a very small (about 20 cents) charge. The difference in the overall cost to the consumer was miniscule. When the French offering was changed to “free”, sales did increase significantly.
“Free” elicits an emotional response that overpowers the rational part of our brain’s ability to process and evaluate various deals. Shampan’er and Ariely (see link to paper below) attribute the brain’s emotional response to two things. The first is that “free” makes us feel good. The second is risk aversion. There’s no downside, i.e., nothing to lose, if our decisions turns out to be a mistake.
Ariely and others have conducted a variety of tests to validate this hypothesis. One involved Amazon gift certificates. Which would you rather have: a $10 dollar certificate for FREE or a $20 certificate for $7? The $20 certificate is a better value, but virtually everyone chose the $10 certificate. When the prices were changed to $1 for the $10 certificate and $8 for the $20 certificate, the response changed dramatically. In this scenario, 64 percent chose the $20 certificate.
Eliminating the “free” from the offer allowed our minds to work on a rational level and allowed consumers to choose the best value. For a more thorough discussion of this topic, you can view and download a copy of Shampan’er and Ariely’s paper: Zero as a Special Price: The True Value of Free Products.
Several years back, Macy’s gave away free cosmetics at its 34th Street store in New York as part of a price-fixing settlement in the cosmetic industry. One estimate was that 1,500 to 2,000 people lined up to receive the FREE cosmetics. The people in line had no idea what brands were being given away, yet they were willing to wait hours for a chance to get “free” cosmetics. This is not rational behavior.
Kantar Media recently released research that involved surveying over 2,500 online shoppers to find out what would motivate them to place an online order.
Kantar's survey found the following factors as motivating online buyers:
Do you notice a pattern? More than three out of four online buyers listed “free shipping” as a factor that would motivate them to purchase. The second most leading factor was “free returns.”
Why am I not surprised?