Free and Zero are unbeatable lures; (September 14, 2009)
You have this experiment. A group is offered a choice; a Lindt expensive truffle chocolate for 15 cents and a Hershey for one cent. A significant majority of the group was willing to pay 15 cents. The prices were altered; the piece of Lindt is priced 14 cents and the Hershey is free; the price difference is the same in both trials. Almost all the group could not skip the attraction of the free Hershey.
My hypothesis is that the reverse must be true for the “haut de game” or the most expensive items. A group of wealthy individuals who knows quality is offered the choice between two expensive items of exactly the same quality and appearance; one item is priced $900,000 and the other $800,000. My contention is a significant majority would select the less expensive item in this trial. Now the prices are changed from $900,000 to $1,000,000; exactly the same price difference. I am pretty confident that a significant majority would opt for the one million dollar item simply for the additional zero; an all rounded number that may stun acquaintances.
Now and then you read challenging or controversial best-seller works such as “The tipping point” by Malcolm Gladwell (see my series of reviews), “Earth is flat” by Thomas Friedman, or “The long tail” by Chris Anderson that sort out “leaders of opinion”. Chris Anderson (longtail.com) published another challenging book “Free! Enter the free of charge economy”.
So far, there are many aspects in the economy that digital technology made free of charge from free programs, free loading of digital books and music, free access to many internet networks, to publishing webs, to information webs such as Google, Facebook, Wikipedia, Flickr, Trillian, Tripod, Twitter, and so on.
The musician Derek Webb permitted free loading of his album in return of the loader’s electronic address. Webb gathered 80,000 mailing addresses which packed his concert tour. This one who can afford to pay is willing to pay if he wants the product. This one was willing to pay far expensive concert ticket than a lasting album simply because this free loading enabled him to appreciate the album and return the gesture.
Yes, someone has to pay. The basic model is the “freemium”. A standard version is disseminated for free so that those professionals who can afford to pay for the “premium” version cover the expenses and generate the profit. This model is adopted by the photos site Flickr, the instantaneous messages plate-form Trillian, and the loading of iPhone applications AppStore. The McKinsey Journal is applying the same economic model for business investment; only the professionals would purchase expensive targeted advice. This economic model is working because digital technology has reduced the basic cost for standard versions.
Before WWI the economic principle was “Demands carry the economy”. This is exactly what “free of charge” trend is emulating: you buy what you urgently need after testing and loving the product. Basically, it means “We make profit from those who can afford the product”. The previous principle was upturned in the next century; it was states “Offers drive the economy” which means “We produce and then we find ways to encourage consumers to purchase. We entice the consumers by promotional gimmicks, by much lower prices, by creating new trends of standards of living, and by lavishing plenty of credits.” Fundamentally, it meant “We make profit of the pennies from the million of customers.” It worked for a while until what is being produced is getting too expensive, of lower quality, and basically not that essential in tight financial downturns. How about educating the consumers of what is essential for resuming a decent life without the faked propaganda of what constitute a “high standard of living”?
They say “Free and zeroes are sources of irrational excitation”. I beg to differ. The excitation is not irrational at all. Only the most boring individuals are not attracted by zero and free of charge.
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