The campaign period for the Philippine national elections has just kicked off. Candidates are walking the streets and going to podiums to talk to people and make campaign promises. Social media, radio and TV are littered with paid advertisements pitching candidates’ platforms.
Just like previous campaigns, one thing has remained constant across the narratives: the promise of something free — “libre” — in local parlance. Free housing, free medical assistance, free education, tax-free transactions — free things are common elements of candidates’ speeches. In fact, a senatorial candidate’s 30-seconder YouTube advertisement boasts of four programs that consist of giving something free.
The power of free has been proven effective, not only in politics but also in policymaking, business and everyday negotiations. In the book Predictably Irrational, author Dan Ariely avers that people change their behavioral patterns when something free comes along. Free is a powerful emotional trigger that’s often irresistible.
Ariely describes a series of simple experiments that offered subjects something desirable — chocolate — at a variety of prices. Two types of chocolate were used — common Hershey’s Kisses and a deliciously decadent Lindt chocolate truffle. In the first scenario, people were offered a choice of buying Lindt truffles at 15 cents per piece or the less-tasty Hershey’s Kisses at 1 cent per piece. A 73 percent majority chose Lindt.
The next experiment reduced the price of each product by 1 cent — the Lindt truffle was offered at 14 cents while the Hershey’s Kisses was free — and 69 percent of people chose the Hershey’s Kisses! Although the price differential remained the same, people just couldn’t escape the emotional pull of “free” even if it meant foregoing the moment of bliss of biting into a Lindt truffle.
The author attributed the preference for “free” even when the rational choice would be the bargain item to an aversion to loss. Essentially, anything free carries no risk. Conversely, anything we pay for with our hard-earned money carries a risk. When we buy something, we may or may not like what we bought but, in effect, we are actually losing money. When it’s free, we perceive it as having higher value because it doesn’t carry any risk.
In behavioral economics, this is termed as the zero price effect. The principle suggests that items with a price of zero are not accounted for by a linear utility model, where a decrease in the price of a good corresponds to a proportional increase in utility and demand. In other words, traditional cost-benefit models cannot account for the psychological effect of getting something for free. Free goods have extra pulling power.
Psychologists, meanwhile, call it “positive charge” — an unexpected joy when offered with a surprising gift. According to Psychology Today, “When offered a free item, people typically have lower expectations regarding its quality, and these lowered standards are easily surpassed.”
The concept of “free” has been turned into a repeatable and successful business model by tech companies. Under the freemium model, a business gives away services at no cost as a way to establish the foundation for future transactions. “By offering basic-level services for free, companies build relationships with customers, eventually offering them advanced services, add-ons, enhanced storage or usage limits, or an ad-free user experience for an extra cost,” Investopedia says.
The freemium model is behind the success of companies like Facebook, Google, YouTube and Amazon, which offer free content, free use, free shipping, and so on. Brick-and-mortar businesses have been using the “free” model for a long time with free toys, free services, free warranties, free deliveries — the list goes on. Today’s public policy has also highlighted the importance of free in quelling Covid-19, with free vaccination programs and free tests.
But what is not recognized by buyers, consumers and the public are the hidden costs of zero-priced options. As Ariely put it: “We often pay too much when we pay nothing.” Decision-makers often fail to acknowledge that giveaways are not completely free but come with wider costs.
Many marketing ploys involve buying extra products in exchange for something free. Tech companies condition your behavior to use a free app or service in exchange for being bombarded with advertisements and even with fake news or propaganda. When voters believe in campaign promises to free housing, free education, free everything, what are they giving away? Are they giving away their future and the future of their children?
It’s hard to control the emotional pull of free but if you’re in business, a consumer, or part of the electorate, you must break away from the emotional appeal of free and be deliberate in thinking rationally before making any decision.
The author is the founder and CEO of Hungry Workhorse Consulting, a digital and culture transformation consulting firm. He is a fellow at the US-based Institute for Digital Transformation. He teaches strategic management in the MBA Program of De La Salle University. The author can be emailed at rey.lugtu@hungryworkhorse.com.
Source: https://www.manilatimes.net/2022/02/10/business/top-business/the-psychology-of-free/1832391/