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Free thinking?

Here is a test for you – I want you to choose QUICKLY between the following two items. Which would you rather have? A free £10 Amazon gift voucher, or a £20 Amazon gift voucher for £7? Which one did you choose? The free one? Even though it does not provide such good value as the other choice?

Buy-one-get-one-free? Three for the price of two? Have you ever stopped to wonder at why you behave the way you do when things are provided for free?

Maybe you don’t think there is anything strange in it. Then what about the giveaway pens, key rings, notepads which we all collect from exhibitions and conferences and yet rarely use? Or the extra items you ordered from Amazon just so you qualified for their free delivery? Now do you see some of the irrationality creeping in?!

The cost of picking up free things can be significant. But on the other hand, it can work wonders for you if you are the company offering a freebie! Provided you understand what is going on, that is.

Dan Ariely, a Behavioural Economist, undertook a series of experiments into this area of consumer behaviour to try and establish where the power of ‘Free’ comes from. His conclusion is that when we make purchases we roughly calculate the advantages and disadvantages of buying the item. Is the disadvantage of paying that amount worth the advantage of owning the item/having the experience etc? But, when things are free, we do not factor in any disadvantages, so the advantages (and the product/service) are in fact enhanced beyond their real value.

Another theory is that we no longer consider free items in the context of a commercial transaction, instead relating it to other areas of our lives where things are provided for free eg friendship, community, etc. This means it is less of a rational decision and much more of an emotional one.

So, beware of the word ‘Free’. As consumers it often leads to us making bad decisions. But as companies it can create a powerful demand for our products and services, demands which may well surpass all expectations and projections.