A few years ago I went shopping with a friend for a new motorcycle. He didn't have a particular make or model in mind. His only two criteria? Big engine, since too much horsepower is never enough, and since he's tall, a relatively relaxed riding position.
I suggested a Hayabusa. Giggle-inducing power, comfortable bike. Or an XS-14R; he's kind ham-fisted where braking is concerned, and Kawasaki's ABS is really good. Both were also within his budget, especially the Hayabusa since the dealer was offering a $2,500 discount on a previous year's model.
He rode them both. Loved them both.
Then he became fixated on a ZX-6R KRT. Great bike, sure. But a much smaller motor. And a riding position that made him look like a contorted praying mantis. Seemed odd.
Until it hit me.
The purchase of any bike 750cc and under came with a free helmet.
The Zero Price Effect
A 2017 study published in Marketing Science found that people tend to significantly overvalue "free."
As the researchers write:
When faced with a choice of selecting one of several available products (or possibly buying nothing)... people will choose the option with the highest cost-benefit difference.
However, decisions about free (zero price) products differ, in that people do not simply subtract costs from benefits but instead perceive the benefits associated with free products as higher.
Or in non researcher-speak, free is so tempting we stop being logical.
Since my friend also wanted a new helmet, getting one for free was extremely -- even irrationally -- enticing.
After all, the math didn't work. We eventually negotiated $3,200 off the price of the Hayabusa, a price so good that I was tempted to buy it. (Fortunately, I remembered that no discount is sufficiently high when you don't actually want -- much less need -- a particular product or service; a sale isn't a sale when you aren't in the market.)
The free helmet was only worth $250.
So why would such a smart guy be so easily swayed?
As the researchers write:
A free (product) involves benefits and no costs, while a (better product) for any positive price involves both benefits and costs -- it is possible that options that have only benefits create more positive affect compared with options that involve both benefits and costs.
In short, free results in instinctive mental shortcuts. Zero is zero; what math do you need to do? Free doesn't seem to require a cost/benefit analysis; what are the downsides of free?
Free seemingly makes an otherwise thoughtful decision simple: "Sure, (that) might be a good deal... but (this) is free!"
When "Free" Works, and When It Doesn't
Two months later my friend traded in his 6R for a 14R. (The previous-year Hayabusa was long gone.)
But don't think badly of him. We've all been blinded by the power of free. Free shipping on products for a cost that exceeds those savings. Free samples that make us feel the need to reciprocate the provider's "generosity" by making a purchase. Free quotes that make us enter a sales funnel we struggle to escape.
Whenever something is free, stop and consider the intent, and see "free" as a reason to do even more math. See "free" as a reason to go one step farther in evaluating costs and benefits.
And then consider harnessing the zero-price effect as a marketing and sales tool for your business. As the researchers write:
The most straightforward managerial implication of our findings pertains to the increased valuations for options priced at zero.
When considering promotions at a low price, companies should experiment with further discounts to zero, which likely will have a surprisingly larger effect on demand.
When trying to use bundling with a cheap good in order to bring up the sales of another good, it might be wise to go all the way down with the cheap good and offer it for free.
Because we all love "free."
Even when "free" isn't actually the best deal.