Free at What Price?
Posted by Gail | Filed under Psychology, Smart Shopper
So I’m standing at the Big Screen showing a couple their numbers when I point to the whopping interest rate on a credit card and ask the fellow, “What possessed you to sign up for a credit card with a 18.99% interest rate?”
“The free T-shirt.”
My eyes started popping. “What?”
“I did it for the free T-shirt.” At least he had the grace to look abashed!
The power of FREE has made fools of just about everybody at one time or another. Just hearing that something is free makes some people’s tummies flip in anticipation. Yup, FREE can make us do some pretty weird things.
A study done in 2006 by Kristina Shampan’er and Dan Ariely asked people to choose between:
- A free gift certificate, and
- A $20 gift certificate for $7.
Every man jack chose the FREE one, despite the fact that the $7 one was a better value. FREE had done it’s dirty work again!
So, why does FREE work so well? First, when we get something for nuthin’ we feel really smart. And since it’s FREE, there’s no downside. Having paid not a cent, we have nothing to lose. Or do we?
By allowing a FREE T-shirt to influence his decision, my boy is racking up interest on all his other purchases at a significantly higher rate of interest than he needs to be paying. He’s paid about $672 dollar for the T-Shirt so far!
FREE lowers our expectations for what we’re getting. When Google Docs was introduced, if it had come with a high pay-to-access price-tag, it would have begged comparison to a bunch of already well-established word processing programs. By making the product FREE, perception shifted from comparison to automatic acceptance, with a side of “hey, this thing works well considering it’s free!”
In his fascinating book Predictably Irrational, Dan Ariely (who is a Professor of Behavioral Economics at MIT) describes his chocolate-selling experiments to demonstrate the differences between social economics and classic economics with regards to things that are “free.”
In the cafeteria next to the cash register he sold a Lindt truffle for $.15, or a Hershey Kiss for $.01, but you could only choose one. Seventy-three percent of people chose my favorite chocolate: the Lindt. Then Ariely lowered the price of each chocolate by one cent, bringing the Lindt to $.14, and the Kiss to $0. Under a classic economic model since the price differential and opportunity costs of each option were the same, the results should have been the same. But they weren’t. Nope. FREE won the day: 69% chose the Kiss.
FREE is so powerful, we don’t even have to see the word to recognize how good we’ll feel following through. Think of the acronym BOGO… it’s a word unto itself now. Buy-One-Get-One has become synonymous with FREE even when it isn’t. So now retailers using BOGO at half price, giving us a measly 25% off, and we rush to make the deal.
With the economy in tatters and consumerism way down, you can expect to see more FREE offers from retailers looking to lure people into their sphere of influence. Whether it’s free coffee with a meal, or a free gift with purchase, no doubt the full influence of FREE will be brought to bear on us to help us feel better about opening up our wallets.
July 2, 2009 at 8:44 am
I have seen a lot of coupons for consumable lately, “Buy one get one free”. But, if I wasn’t going to get one in the first place, the coupon is just encouraging me to spend money on something that I didn’t particularly value.
The BOGO deals are great if there are two people that wanted/needed something (my boyfriend and I buy our running shoes when it’s BOGO instead of buying them brand new at full price. I have a particular type/model that I have been buying for many years since it supports me feet properly, and they aren’t cheap!), But, when it comes to using the Jugo Juice coupon I got with a sample smoothie, it’s doubtful I’ll use it.
In high school, I had a friend who was a sucker for BOGO deals, even though she had no need for two of the item in question. Heck, she didn’t even need the first one, and never could understand when I would remind her that just because it’s on sale doesn’t mean she needs it.
July 2, 2009 at 9:13 am
Nothing is Free..Ever!!
July 2, 2009 at 9:19 am
Free works against you when it comes to people’s commitment. An event that people have not paid for will have a lower attendance than one paid for. Which reminds me…when’s the picnic?
July 2, 2009 at 9:23 am
Oh and in response to John, there are plenty of freebies out there. Check redflagdeals!
July 2, 2009 at 9:29 am
The BOGO at half price is only worth it if the two items you’re purchasing are about the same value/price. I went to a shoe store with “BOGO at half price” sign in the window.
I had selected one pair of shoes at $39.95 and the other at $29.95. After looking at the price difference in the shoes, it wasn’t such a deal. I wanted “the half off” or 25% of each pair so I kept looking until I found two pairs (one was $29.95 and the other $27.95). So I saved.
One really needs to look out for those tricky words.
July 2, 2009 at 9:36 am
‘Back in the Day’, that is before TDDUP and Gail’s Blog, upon reading the weekly flyer my DH would head to a certain Canadian retail institution so that he could ‘Save More than He Spent’…i must say that we ended up with so many pyrex 9×13’s with or with out accompanying lid that i started giving them away. When that store started a campaign ‘free gift with purchase’ i was doomed. After a few weeks of junk and the reality of having to purchase the armoire (not on sale) to house the ‘great deals and freebies’ my DH succombed to common sense…years later the children and i still snicker when he reaches for that flyer and i am the queen of the one dish dinner…lol
July 2, 2009 at 9:42 am
Gail… the story you tell about signing up for the credit card to get the free t-shirt was how my husband ended up with 11 credit cards at one time. 11 yes that is right. Many from department stores that have the highest interest rates. Does anyone need 11 credit cards NO but he had them and it was just too tempting for him not to use them. I have gotten us down to 2 cards but it took a lot of years to get him to stop signing up to get the ‘free’ item.
Take it from someone that has lived the experience. That ‘free’ whatever is going to cost a lot in the end.
July 2, 2009 at 9:43 am
How true. I’ve finally learned the lesson to only go for BOGO offers that I will use, especially things that store indefinitely, like toilet paper. And I am laughing at the credit card for a T-shirt example; my brother did that very thing for a Sears card once!
And for any other bibliophiles out there: _Predictably Irrational_ is quite an engaging read. I picked it up at the library and am about half-way through. It’s not a light read, but it’s not particularly difficult either. And it’s not written in the dry language of academe.
July 2, 2009 at 9:44 am
I really don’t get how people judge the “free” experiments in the way that they say that something being “free” blinds people to a better deal. It’s only a better deal if you would buy the product anyway, not if it’s something you wouldn’t normally spend your money on.
For example, in the chocolate experiment, the first section only dealt with subjects who a) had some money on them and b) were willing to buy something unnecessary. So they bought the “better economic deal” and took the Lindt. But in the second section, the experimenters were now dealing not only with subjects from the first set, but also subjects that a) may or may not have had any money and b) may or may not have been willing to buy something that was unnecessary. If you were going to spend money on chocolate in the first place, then the Lindt chocolate is by far the better deal. But if you weren’t going to buy any chocolate, then the free hershey’s kiss is the better deal, because you aren’t out the money for something unnecessary, and even a kiss is better than no chocolate at all.
Maybe I’m taking the wrong interpretation here, but I really don’t see how the “free” blinds you, if you weren’t willing to spend anything in the first place. Can someone help explain?
July 2, 2009 at 10:20 am
It’s amazing what people will do for a ‘deal’. I have a family member who will buy almost anything if it’s on sale, including things she can’t personally use. Passing up a good bargain is like a cardinal sin. ‘Free’ just amps that up even more.
The problem, of course, is that buying stuff you don’t need and can’t use isn’t a bargain at any price. It’s an important lesson to learn, I think. Once you can recognize that you’re less likely to overspend.
July 2, 2009 at 10:42 am
At a seminar I attended a few months ago, Danielle LaPorte of whitehottruth.com said, of the swag bags you get at those sorts of talks…
Everyone gets so excited about the bag full of free stuff! It’s free! But it’s not really free. When you get that bag of pamphlets, booklets and mints and such home, you then have to find places to put everything. That’s not free. That takes up valuable time to sort AND valuable space in your home to store.
July 2, 2009 at 11:47 am
How true what John says…nothing really is free. Even the “free” sites like redflagdeals and canadasamples. Sure the item itself may be “free” but as an example, both sites are offering “free” Coach (yes the designer) pencils. You fill out a form and print it off (first cost – my paper and my ink) and then you take it to a Coach store (providing the city you live has one) (second cost – I have to drive to the mall and back home – fuel and wear and tear on my vehicle) My “free” item is no longer free but this is where people forget to include the cost of the “free” item. Many people would jump at the chance to have a designer item for “free” so they run and fill out the form, print it off, drive to the mall, get the “free” item and see something else they “have to” have, put it on a credit card and drive home…..But Honey…it was “free”
July 2, 2009 at 12:07 pm
I don’t see anything wrong with what T-shirt guy did. I’ve done the same thing, twice even. The interest rate the card charges is of no matter if you don’t run a balance, which is where I presume this couple went wrong.
I signed up for a Home Depot card to save 10% on my purchase that day. We spent over $3K on that one sale, riding lawnmower, bug killer etc. I paid the bill when it came and I’ve never used the card since. I couldn’t even tell you what the interest rate was. Same thing for my TSC store brand card. I signed up and was approved for $3500 on the spot. Took my free $100 gift certificate, paid the card balance when the bill came and have never used the card since.
There’s nothing wrong with taking advantage of free, as long as you can afford to avoid the pinch.
July 2, 2009 at 12:19 pm
I have to agree with Arthur. There is nothing inherently wrong with free. I purchased a dish washer to replace my non-functioning dishwasher. I was going to purchase one no matter what. I ended up buying it at Best Buy because I got a 50$ gift certificate with my purchase. All that FREE did was influence were I purchased it. Either way – I was getting it.
FREE is not free when it prompts you to spend money you wouldn’t have spent if it was not free.
I think the Hersey Kiss experiment was flawed. I wouldn’t have bought either chocolate probably because I wouldn’t have wanted to even spend 1 cent on it. But for FREE? Heck yeah… I would have picked one up.
July 2, 2009 at 12:42 pm
The problem is that free-tshirt-guy signed up for a card and (I’m assuming, since he’s talking with Gail) carried a balance on it… I think the point is that the interest and hassle of all that debt is more $ than the value of a tshirt.
I saw it all the time in university – students signing up for credit cards for a free hat. The limits on your credit cards can be considered “potential debt”, and every card you sign up for and then cancel appears on your credit history.
July 2, 2009 at 1:10 pm
On Tuesday I spent $55 on books. The book store was having a buy 3 books get one free deal. I definitely wanted one book in particular and there was one book I was buying for my cousin for passing her grade. So, I figured, if I buy one more book, I’d get one for free. So, I did. My cousin’s book ended up being the free one since it was $10.99 and the rest were between $15-20 each.
I haven’t bought any books in quite a while, so I feel that it was an ok treat for myself, however, I just wish I had come across this “deal” when I had more cash to justify it.
July 2, 2009 at 1:55 pm
What about those hotel billboards on the hwy that read ” Free Breakfast ” ?
The price of the room surely includes the brekkie cost.
The sign should read ” Breakfast included”. But that wouldn’t be near as tempting or fit on the sign.
And the ” free” WIFI – someone is paying for that service. How much cheaper would the hotel room be without the extra ” free” stuff ?
Loss leaders and hidden costs.
July 2, 2009 at 2:04 pm
I noticed you mentioned BOGO and you enjoy the art to saving money, so I wanted to quickly tell you about my website BOGOfetcher:
You can get local BOGO (Buy One, Get One) deals emailed to you weekly from BOGOfetcher! Over 90 nearby grocery stores, more than 15 neighborhood pharmacies, plus the shoe stores, fast food and other places you already shop have amazing bargains you can receive weekly, at no cost. No personal info is required other than your email address, city and state so we can send you the BOGOs in your area. You can even do a local search without signing up using the “Find BOGOs” tab! After that the BOGO’s will begin to roll in. And simply unsubscribe if you’re not satisfied.
July 2, 2009 at 2:06 pm
I was at a “grand opening” once, and there was a game that would spin a wheel for the free prize. I participated (I was there anyways), when my prize came up, it was a cheezy backpack with commercial endorsements all over it , so I said “you can give it to someone else, thanks”.
The guy looked at me like I had 3 heads! “But it’s FREE, you can have it”. I explained that was nice but I didn’t want it, maybe someone else would. And he shrugged and put the prize tag back on the wheel as I happily walked away.
Why would I want something for FREE that I wouldn’t be willing to pay for? It takes up space in my life, and that is something I seems preciously short of while providing for all the things I DO want!! I wasn’t always that way, there was a lot of my life that I would make room for anything free “just in case” it came in handy…. not anymore!
July 2, 2009 at 2:25 pm
This is a really good post – especially since the sales will be starting soon!
I have been tricked by FREE on a few occasions, until I got wise to the whole thing. Heading to conferences often means that while a booth is giving something away FREE it actually requires your time to speak to the person to get the item. Though I have been getting thrifty with these items I obtain from things like this. Samples are great – provided it is something you need. Though the last conference I was at, there were some major scores of items that I personally didn’t use, but I knew someone who would love it. Ended up putting together Christmas gifts from the loot I got from the conference that I was headed to anyways!
FREE doesn’t have to be scary – you just need to know how to make it work for YOU!
July 2, 2009 at 3:28 pm
Yes Derek RFD might have some freebies, depends if you are filling out online forms and stuff to get those and then have mailed to you.
If thats the freebies you mean I am not sure
If they are my buddy did that and now enjoys copious amounts of inbox spam.
July 2, 2009 at 3:35 pm
Just go into Costco and watch the General Public hover over the”free” samples offerred for eating some days.
BTW Its not free….you already paid for it!!
July 2, 2009 at 3:52 pm
Just like the free stuff at Costco, the rewards you get from credit cards are payed by you to the merchant who pays the cc company. The merchant must set prices to pay for the cc service and that difference is payed by the customer.
No free rewards evenif you do not pay interest fees!
July 2, 2009 at 4:13 pm
Re: the chocolate experiment. I’ll grant that there may be folks who would take a free chocolate, but not pay for either chocolate on the other scenario. But the point of the experiment is to show that humans makes irrational decisions, and that “free” is one of the words that can cause us to act irrationally. So while _some_ of the folks who took the free chocolate would not have taken either when you had to pay, many others changed their choice (i.e., previously took the awesome Lindt at .15, rather than the inferior Kiss at .01) when the inferior choice was free. Since it was previously worth the 14 cent premium to take the better chocolate for these folks, it becomes irrational (according to economic “rational choice theory”) for them to not pay the 14 cent premium simply because the cheaper option is now free.
For the experiment to be deeply flawed, you’d have to show that NONE of the folks choosing the free chocolate would take the Lindt on the other scenario–not gonna happen.
July 2, 2009 at 4:24 pm
I admit I love free stuff lol. It took some time to realize whether it I really needed it or not though. Really who cares if it was free if it is useless? lol that was the part that took awhile to learn…
I like getting free samples off the internet.. yes it does require my time.. but it is only something I look for when I am bored and trying to kill time anyway lol
I believe some stuff is truly free. Example I work in a grocery store and sometimes I get coupons to try new products for free from the sales reps.
July 2, 2009 at 5:54 pm
Ah,, that old marketing ply. Put up the word “free” and watch the folks run. And they literally do.
I remember working in an gourmet food store years ago. The store had a huge display of imported potato chips that were not selling. (At $5.25 a bag 20 years ago one need not ask why they weren’t selling). The owner of the store had to clear them out as the expiry date on them was quickly approaching. So, she put them on “SALE” at 50% off to get rid of them. Nothing. They sat there for a week and still didn’t budge. So, she yanked down the sale sign, and in its place put up a big sign, “BUY ONE, GET ONE FREE” = sold out in 2 days. Net result – the same.
It works. Just like creating the demand for something that people do not know they need. An excellent case is electronics. But hey, enough about marketing. The lesson is that marketers know our triggers and so should we.
July 2, 2009 at 6:29 pm
In defense of “Free”:
I’m not sure those studies, as described, were necessarily ‘accurate’. I’d certainly pick up a free gift certificate over a higher valued one that I need to pay for – unless I knew that the certificate was trustworthy and that there was something that I knew I would be purchasing to use the GC value. Otherwise, it’s like buying a coupon book blindly!
Likewise, I’m sure a lot of people who wouldn’t have bought ANY chocolate just helped themselves to a free Hershey’s Kiss.
And I’ve gotten lots of free stuff from RFD – and yes, you do get spam. But a gmail account dedicated to spam is also free. And if you object to Google’s advertising, Firefox browser and AdBlockPlus is also free!
July 2, 2009 at 7:13 pm
Did anyone go to the “free” buffet at Mandarin for Canada Day? I heard of people waiting in line from 9:00am till 6:00pm to get in for their “free” meal. How free was that?!? How much is your time worth? How much is your holiday worth?
I have better things to do on my Canada Day than to spend it in line waiting for a free lunch.
It’s very true that the word “free” can blind some people to the true value of the item. Caveat Emptor!
July 2, 2009 at 10:25 pm
I remember years ago – when I was in my 20s, seeing a promotion on my daily walk – to open a bank account and get a free clock-radio. So I opened the account – got the free clock-radio – then the next week, closed the account. To this day, 25 + yrs later, I still use my free clock-radio.
July 2, 2009 at 10:31 pm
I had to laugh after our neighbourhood garage sale a couple months ago. My neighbour thought I had made a killing…but I had planned to just give a few things away for free…but the bin kept getting empty quickly so I kept throwing more things in for free that I thought wouldn’t sell at the Salvation Army where I planned to drop everything else off after the sale. It felt so good…one kid was so excited to find a bag of lind chocolates! Seriously people were digging through my junk knowing that it was free :0
July 3, 2009 at 12:23 am
The Mandarin promotion had me giggling too. I have a bunch of friends who were there at 6 or 7 in the morning to line up for dinner!
Myself, I volunteered to work on my Canada Day, so I made an extra 50% instead of wasting 7 hours standing in line for a 20$ meal.
I was shopping today and ended up in a meat store that was having its grand opening. I heard a little girl ask her mother why they were in there. Her mother’s response? “Because the lady told daddy there were free samples, that’s why.”
Free IS a magical word.
July 3, 2009 at 4:32 am
I like seeing the BOGO Deals that I read them Buy one get it half off and the second one is half off or less if the price is the same…
Buy Three to get free is Stupid I never go for that deal since I never need four items and what happen to buy one or two to get another item free…
I’ve done get an item free but I neeeded that to buy another item….
How about the free item when u shop at Superstore but u need to speed $200 or $250 that shopping trip for that item.. I’ve spent that amount when I really needed too and received $25 gift card, pumpkin, folded lawn chair, etc…
How about the silly membership cards for stores that when u have to spend a few $ to make sure u spend thoughout the yr for the points that u never use to get a discount for a future purchase…
This sign must get alot of customers in the store when it says ‘up to’ in small print and huge print ‘75% off’ when there’s only an item or two which nobodys wants!!
The new advertising gimmet is play on words for us to buy it!
July 3, 2009 at 2:02 pm
The grocery store Metro just announced that since they started charging 5 cents for grocery bags in June, their usage has dropped by 70%. Environmental concerns, yes but the reusable bags have been available for a few years.
July 4, 2009 at 1:27 pm
In life, nothing is free. Beware!
Some restaurants are starting this new way to hook people up. When going to a restaurant (I’m not saying the name), they give you the receipt and they encourage you to fill out a survey (service appreciation) and you get an appetizer FREE!
I haven’t fell for that one. Yeah! Giving out my email and other personal info so that someone can use that info to give me phone calls and spams. Also, is the appetizer ONLY is free? Are we going to eat at that restaurant to eat only the appetizer with a glass of water? I don’t think so! We don’t want to feel cheap, so we’re going to take an entree with a dessert and a pop (FREE refill from $3.50 to $5.50). Another gimmick to make more money on our backs!
July 5, 2009 at 11:38 pm
When we first got our computer, our phone company just happened to be having a ’sign up and get a free digital camera’ promo. Since we were signing up anyway, it truly was a free camera, and decent quality to boot. My friend signed up a couple of years later and got a free laptop from the same company. Again, the only reason these were such sweet deals for us is because we had already planned to use that company…but I could see how a LOT of people would be lured by that.
On a side note…a business in our city advertises ‘free lollipops’ when you go there…I assume it works, since they’ve been using it for a few years!
July 6, 2009 at 6:38 am
Andrew, there are quite a few people who do in fact just ask for ice water, myself included. Drinking water doesn’t make you cheap – it’s a lot healthier than drinking the expensive pops!
But you are right – many people will buy the entree, and not take the appetizer. However, those Harvey’s “buy a burger, get one free on the next visit” is nice. I don’t go out often, but there is a Harvey’s down the street from my work, and I got a burger & fries one day, and was given a coupon for the free burger on my return. I did end up using it within the 2-3 week period, and I walked out with a free burger, nothing else. (I don’t actually *need* the fries! haha)
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