Stefanie Hartman In The Press

The Free Trade Experiment

Posted on 27 November 2012 by Stefanie

The Free Trade ExperimentI just found this book that I thought was really interesting.  It’s called ‘Predictably Irrational’ by Dan Ariely.  He’s a pretty interesting guy.  He is the James B. Duke Professor of Behavioral Economics at Duke University and a founding member of the Center for Advanced Hindsight.  He did an experiment with giving away free items that marketers should read about.

Here’s a brief summary of one of his chapters:

The Free Trade Experiment

One of the chapters in Ariely’s book discusses the amazing power of giving away things for free. We all know that getting something for free makes people feel good. But Ariely takes it a step further and explains how attached people get to their zero-cost item, and psychologically, zero is very special.

Ariely wanted to find a way to explore his theory, so on Halloween, the author conducted an interesting experiment on trick-or-treaters.  After all – kids get zero cost (free) items every Halloween.  So he started out with a giving out three Hershey’s Kisses when the children first started to come to his door. But then he offered to make a deal.

He gave them a choice.  Each child could trade one Kiss for a mini Snickers bar or two Kisses for a full  sized chocolate bar. The result: after seeing the size difference in the chocolate, almost all of them traded the two Kisses for a full-sized bar.

As this is an experiment, Ariely changed the terms of the deal halfway through the night.

This time, the kids could now trade one (instead of two) of their three Kisses for the larger bar, OR get a mini-Snickers without having to give up anything in return. In terms of sheer volume of chocolate, the trade for the larger bar was still by far the better deal.

Here’s what’s interesting; when faced with this choice, most of them refused the trade, even though it cost them overall. Ariely later performed this experiment on his MIT students, and the majority there as well made the same mistake.

So what happened?

Ariely speculates that the underlying reason for the chocolate miscalculation was anxiety. He believes that people are naturally risk averse. He says, “there’s no visible possibility of loss when we choose something for free.” Therefore, most people are drawn to it.

I found this interesting because I know through consulting that when you give too much away free, you can ‘train’ people not to buy from you. In essence, they come to EXPECT all your products and services and help for free.  They might even get upset if you suggest a price to them.  Accordingly, when I consult, I walk the line with clients of suggesting what times we give for free, and what we just charge a small fee for and then strategically decide when we should begin to introduce the paid for items.

Having said that, I typically will include a free item to give people an incentive to buy.  Perhaps we can take this experiment to heart and offer our FREE items in a way where people can trade up for other items.  Like – download these 2 e-books and get this one for free.  OR sign up on this form to get a free item a month sent to you.  OR trade that for X.  It would be interesting to see what people choose.

OR even do something like what places like GROUPON does, where they offer deals, but only if the majority of people want it.  So everyone saves, but if only a few people want the 50% off then it doesn’t go on sale.  This company basically has the consumer emailing out to other consumers asking others if they want it in order for everyone to get the 50% off.  I might try this by asking my list which product or program item do THEY want a SALE on – the majority vote wins!  Great way to have people get involved and interacting.

Please let me know what your own FREE item experiences are.

All the best,
Stefanie

Article Written by Stefanie Hartman www.stefaniehartman.com
Article source: http://danariely.com/

2012 © Stefanie Hartman Enterprises Inc. You may republish this article, if you keep the article intact as is and credit the authors name and website: “Stefanie Hartman” and website: www.stefaniehartman.com. Thank you.

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The Free Trade Experiment

6 Comments For This Post

  1. Alice Says:

    Hey,

    I don’t understand the outcome of the second experiment?? Why wouldn’t the kids make the trade? They eagerly traded 2 kisses, now it’s only 1 kiss, they should’ve jumped at the opportunity. Did I miss something?

    There is no risk, no loss.

  2. Ernie Zelinski Says:

    Over the years I have given away over 13,000 copies of my books.

    Of course, some of these free copies will have been wasted and some of these will have definitely helped my sales, given that my books have sold over 650,000 copies worldwide.

    In fact, just last night I gave away 4 copies of my books.

    I have a rule, however.

    If anyone asks me for a free book (school teachers are known for expecting free stuff), I make a point of NOT giving it to them.

    The people who go around expecting and asking for free stuff are the last people who will be responsible for your getting a payback of some type. These are the people who suffer from the world-owes-me-a-living syndrome and are not likely to buy any copies of your book or tell people about it.

    My having given away 13,000 copies of my book pales in comparison to Marlo Morgan’s experiment.

    A few years ago, Marlo Morgan self-published a book called “Mutant
    Message Down Under.” Three years later, Morgan had sold 270,000 copies.

    This is a remarkable figure for any self-published book, but the most
    extraordinary fact was Morgan had given away over 90,000 copies of her book in three years. She donated the copies to prisons, women’s shelters, and other institutions.

    Giving away almost one hundred copies each day for three years straight is not something even major publishers would consider, but it paid off for Morgan. Her impressive sales were a result of the word-of-mouth advertising generated from the copies she gave away.

    Better still, when the book finally came to the attention of HarperCollins, the publisher paid Morgan a $1.7 million advance to take over publication of “Mutant Message Down Under.”

    So as Larry Kelly said, “Do it big or stay in bed.”

    One last note: If you would like a free copy of my book, don’t ask me for a copy. I just may give you one.

    I do, however, make available over half of one of my books for free on the Internet to anyone who wants it.

    Go to this webpage:

    http://www.real-success.ca/free_ebooks.html

    and you can download half of “How to Retire Happy, Wild, and Free” – mainly the top half.

    I believe that my giving away half of the book for free has contributed to its respectable sales over the years.

    Ernie J. Zelinski
    Author of “How to Retire Happy, Wild, and Free”
    http://www.retirement-quotes.com
    (Over 125,000 copies sold and published in 9 languages)
    and “The Joy of Not Working”
    (Over 250,000 copies sold and published in 17 languages)
    http://www.retirement-cafe.com

  3. Vickie Says:

    Hello Stefanie.

    ‘Predictably Irrational” Is an excellent book. Not only are his observations incredible, but after you read it you gain a more dicerning and freer mindset when engaing with and looking at the world. For everyone, but most importantly marketers…this is a must read

    thanx for sharing stumbles

    Vickie

  4. Carmen Says:

    this was just my experience not an actual test or anything…I actually got better results when I gave something for free to a client at the end of a consultation, without them even expecting it! First, I got a client who agreed to pay me for my expertise without getting freebies, then they much appreciated my free gift which in return brough me more of similar customers as referrals from that one client, and not because I gave something ‘free’ away but because I truly gave it from my heart.

  5. Bryan Says:

    In my hypnosis business, whenever someone finishes their Quit Smoking program, I offer a free CD — as a bonus.

    But, I use this as leverage (through reciprocity — see Cialdini) to get a testimonial from them.

  6. Gary L. Glasscock Says:

    Carmen,

    What you are describing is totally opposite of what Stefanie and the book are talking about. They are referring to giving too much away BEFORE you make the sale, kinda like an incentive. However, what you are describing is a free gift AFTER the sale has been made. Completely different thing.

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