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The Free Trade Experiment

Posted on 27 Nov 2012 | Author Stefanie | Comments 6 comments | Tags

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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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