The concept of FREE! is one of the most compelling forces on human irrationality. Based on many examples, it has been proven that the market power of FREE! is not an extrapolation of discount.
In a famous experiment by Shampanier et al., the researchers offered to the participants a choice between Hershey’s (low-value chocolate) and Lindt truffle (high-value) for three different price offers – (0&14), (1&15) and (0&10). The first number inside the bracket refers to the price of Hershey’s in cents, and the second is that of Lindt. And the results showed the demand for Lindt dropped from 36% to below 20% in both the FREE! options and that of Hershey’s went up from 14% to 40%. Note that 40-50% of the participants opted for nothing.
In the real world, the appeal to free and unlimited has been hailed as a blockbuster success story behind India’s Jio telecom company. When it was launched for the public in September 2016, Jio SIM cards were available for free, along with 4GB of data a day, for three months. And the results? The Indian telecom industry, which had six players at that time, was reduced to four, and Jio captured about 350 million subscribers today.
Dan Ariely, Predictably Irrational
Shampanier et al., Zero as a Special Price: The True Value of Free Products, Marketing Science, 26 (6), 2007, 742
