The Cost of Free

Are we so giddy about seeing something for free that we are no longer able to compare the value of the item? Why is it that most people will by a 15 cent Lindt truffle over a 1 cent Hershey Kiss but when the Kiss is free people barely buy the truffle.  If you want to see the value of free review the series of experiments done in the Predictably Irrational chapter called “The Cost of Zero Cost: Why We Often Pay Too Much When We Pay Nothing.”

Dan Ariely believes that we forget the downside of free. That we are so wired to be afraid of loss that the idea of “free” removes the loss – after all it is free.

This ends up being very useful in marketing. Give away something free with a purchase. Buy a computer and get a free printer. Buy $25 of stuff and get free shipping. (How much will you buy that you do not need for that free shipping.)

So when you are trying to sway the purchase decision consider having something free. It makes for such irrational choices and that may your product or service.

Paying More

Do people only pay more when the supply is low and the demand is high? Isn’t that what basic economics assumes? If you want to influence what people will pay review the series of experiments done in the Predictably Irrational chapter called “The Fallacy of Supply and Demand: Why the Price of Pearls – and Everything Else – Is Up in the Air.”

There is the idea that people will glom onto the first number that they process. They use this number to make the next set of decisions on how much they will pay. Dan ran a simple experiment where the people wrote their last 2 digits of their social security number down. Then they were asked to identify how much they would be willing to pay for each object. The amount they were willing to pay increased as the size of the last 2 digits went up. So from 0-19 people were willing to pay a lot less than the folks with the digits 80-99.

There are many places this trick is used such as in advertisements and suggested retail prices. When was the last time you have seen an advertisement that sold a car for 30,000? It is always priced at 29,999. When you get to the dealership they know that you now will be willing to consider some of those higher priced ad-ons.

So the next time you are setting a price and trying to get someone to buy, lead with a high number that the person will process. Next have them pick from a set of options, they just may be willing to buy more.

Making a Choice

Do you ever find that when you provide people a choice between 2 things that they always seem to pick the wrong one? If you want to influence what people select take the series of experiments done in the Predictably Irrational chapter called “The Truth about Relativity: Why Everything is Relative – Even When It Shouldn’t Be.”

Try the experiment done with a magazine subscription. One magazine had a very interesting deal.

( ) buy the online version for 59

( ) buy the physical copy for 125

( ) buy the online and physical copy for 125

Why do this? Well they were guaranteed more people would take the 3rd option for 125. If they removed the physical copy by itself most people would take the online version for 59.

To make this more generic, any time you have an Option A and an Option B, if you provide an option A-, most people will select A.

It does not matter whether it is magazines, TVs, people for dates or buying houses. If you provide 2 options and make one of them a less version of the same thing. People will take the full version. They will do this even if option B is the better fit. However when you take away A- it is not always clear what people will select.

Dan theorizes that this happens because people try to compare what they know. If there is only A and B you do not know what they are comparing to because A and B are different so they use something in life that is familiar to them. When you add A- the person is really comparing and A and A- and discounting B almost completely.

So the next time you are trying to get a decision made and you provide choices A and B, remember to add A- if you really want people to pick A.

Stories Provide Value

Significant Objects (http://significantobjects.com/) has writers create a story around an object. The object and the story is then posted to eBay. All profits are given back to the artists. The items are simple items worth very little and are selling for way more than you would expect.

“[The auction for this Significant Object, with story by Dan Reines, has ended. Original price: $.50. Final price: $12.50. Significant Objects will donate the proceeds of this auction to 826 National.]”

“[The auction for this Significant Object, with story by Jonathan Lethem, has ended. Original price: $1. Final price: $76.]”

So what is your story?