In a series of price experiments, it was discovered that price reductions brought little change in the number of sales of full and discounted products. However, when the price was dropped to zero, the free products took a large market share away from the higher priced item. The results were published in a November-December 2007 paper entitled “Zero as a Special Price: The True Value of Free Products“.
Interestingly, when Amazon began its “free shipping” campaign in Europe, sales dramatically increased —but not in France. Due to a computer glitch , the shipping was not zero but 1 franc (only about 10 cents)– despite the very low shipping cost, sales remained about the same.
Since so much on the Internet is free, I wonder if free ceases to be special online.
Joe, you and I discussed this one yesterday right? The value of FREE all depends on the situation or product. When something is FREE, there is no perceived value and yes, it ceases to be special. I’ll use the example I mentioned yesterday. I present you with two identical coats, one free and the other costs you $20. I’m willing to bet you respect and take care of the 20-dollar coat far more than the same FREE coat. Of course people are always going to be drawn towards FREE. Then again, nothing is truly FREE. FREE shipping? Yeah it’s FREE but you’re still buying something. And a FREE web services essentially translates into an acceptance that you could eventually be blitzed with advertising. Personally, I’d prefer to pay for a service IF the service provides true value AND solves problems for me. Would I pay to use FACEBOOK? Heck no! I got by just fine before; I’d do just fine w/o it. What I will pay for is a service like Basecamp (project management). They solve problems for me and likewise, I tend to value and use the service more often.
While everything might currently be marketed as FREE, let’s not forget the old saying, ‘Time is Money’. And if that still rings true, how much ‘money’ are you wasting with FREE?
Absolutely Phil. And there is the element of perception which the free shipping plays to. The case of France sales not jumping because of a measley 1 franc shipping cost shows free shipping has power. But I agree that people will value something they pay for more than something that is free. The dilemna online, where almost everthing is free, is to use the “power” of free to get folks to try your product and service and then provide a more advanced version (more valuable) for a fee.
I am so interested in how perceptions play a role in marketing goods and services and how to harness the power of free, in all it’s variations (eg the “money back guarantee”)
Money Back Guarantees work well because the seller is saying to the buyer, “We believe in our product”. That said, the phrase is generally attached to infomercials… eeek. I agree, FREE has power and it definitely reels people in. That’s why I mentioned Basecamp as a good example of the “power” of free. They get folks to try the product and service and then provide a more advanced version (more valuable) for a fee. They offer a free service which you end up loving. Eventually, you need more and when you do, you simply upgrade and start paying.
I guess that’s the real difference between the online and offline world. In the offline world, you pay first and experience the value afterwards. You’re certainly not driving off the lot w/o paying for the car. In then online world, value is expected before payment. Which I guess answers your question. Free has ceased to be special online, it’s just expected. Right?
Yes, I think you’re right Phil. Offline, you may get a “free sample” or a coupon, but are otherwise expected to pay for the product first. Online, customers expect the free sample (and sometimes the whole enchilada)before they buy anything. Plus, there are a lot of red oceans out there.
I think part of the reason online real estate listing sites like Zillow are playing for the ad dollars is because it’s virtually impossible to charge to list properties (though some sites let you list for free but require payment for “featured status”) so they generate a ton of traffic and sell ad space. It will be interesting to see if that ad money is enough to sustain them. If not, they will have to get in the middle of the transaction somehow.