by Dr. Charles Alonzo Peters
Entering the Chicago subway station, I was reminded of the irrational power of “free”. Previously solemn commuters were now rushing the entrance nearly killing themselves trying to get one of the free coffee mugs being handed out by a local merchant.
From the way they were acting you’d think they were giving away gold. Yes “free” can make us do some crazy stuff. I’m sure if you put “Free” on a sack of manure you’d have people fighting over it.
I understand the power of free. I’ve fallen to its seductive charms all too often – the free T-shirt in college that enticed me to sign up for a credit card (leading later to over $5,000 in debt) ……. and the time I waited nearly two whole hours just to get into a free movie screening …. and the time I drove way out of my way to get the “free” cookie promoted at Dunkin’ Donuts.
Quite simply, “free” makes us think irrationally. Behavioral economist Daniel Ariely illustrates this point in his book, Predictably Irrational. Take the following scenario for instance:
You’re presented with the choice of a free $10 Amazon gift certificate, or the opportunity to purchase a $20 Amazon gift certificate for $7.
According to Ariely, most people instinctively chose the free $10 Amazon gift certificate. This despite the fact that purchasing the $20 gift certificate for $7 brings you more profit ““ $10 (free certificate) vs $13 ($20 certificate purchased for $7) ““ and thus is the better choice.
In another experiment Ariely uses Lindt chocolate truffles and Hershey Kisses.
Lindt chocolates are premium high end treats while Hershey Kisses are pretty standard candy fare. Ariely and his colleagues offered passer-bys the choice of purchasing a Lindt truffle for 15 cents or purchasing a Hershey’s Kiss for a penny.
Realizing a great deal when they saw one 73% of the participants chose the Lindt truffle.
The prices were then lowered by a penny ““ the Lindt chocolate reduced from 15 cents to 14 cents and the Kiss reduced from one penny to FREE.
Even though the Lindt chocolate was still the better bargain and still only 14 cents more expensive than the Hershey’s Kiss, the number of people now choosing the Hershey’s Kiss skyrocketed from 27% to 69%.
The power of the “free” Hershey’s Kiss had silently persuaded people to make the less valuable choice.
Marketers understand that “free” is our intellectual blind spot. They make full use of this fact to seduce us into spending more than we need. In essence, “free” has become the ultimate consumer trap.
Take freecreditreport.com as a prime example. Who hasn’t heard their cute jingles or seen their commercials plastered over the airwaves? Tempted by the offer of a free credit report, many have ventured to the website only to find that to receive the free credit report they have to sign up for an expensive credit monitoring service.
Yes they could cancel the service and still get the free credit report, but many forget to or never realize they signed up for the credit monitoring service in the first place!
Have you ever seen those magazine offers emphasizing 2 FREE Trial Issues. Who wouldn’t be tempted to to give it a try? – I mean it is a free trial, right? Well as with most every other offer, the devil is in the details. You see the 2 FREE Trial issues are free only if you decide NOT to purchase the subscription.
Your reward for taking the trial and actually subscribing to the magazine ““ the trial issues are folded into the regular subscription. Instead of getting 12 more issues, you receive only 10 more issues. This means you actually pay for the trial issues. So much for free.
Other’s have been taken in by informercials that offer a “free” trial CD, video, or sample only to find that while the sample item was indeed “free”, the over inflated shipping and handling charges were surely not.
Yes in this society “free” always seems to have some hidden strings attached. So how do you keep from getting suckered by the “free” trap?
First. Always read the fine print. There’s bound to be a catch somewhere – the free two months gym membership, only valid if you sign up for a three year contract.
Second. Consider the opportunity costs. The opportunity cost is simply what you would do if you didn’t take advantage of the “free'” offer. If you wait two hours in line to get a free movie pass your opportunity cost is all the things you could have done with your time instead of wasting it standing in line.
Finally, think about unforeseen costs associated with the “free” offer. That “free” donut offer may sound tempting until you take into account the gas, your time, and the fact you’ll likely purchase something in addition to your donut.
So BMWK family, have you ever been seduced by the “free” bug? What are some of the “free” traps you’ve encountered? What’s the craziest thing you’ve ever done to get your “free” on?
Over the next few weeks you’ll get great weekly insight and tips on managing your greenbacks by Dr. Charles Alonzo Peters of MochaMoney.com so be sure to check back.