Friday, May 14, 2010
The difference between 'free' and 'almost-free'
Some more on behavioural economics (for my presentation).One of the stories I like best is from Dan Ariely's now-famous book predictably irrational on how customers reacted to free shipping from Amazon.com.
Several years ago, Amazon.com started offering free shipping of orders over a certain amount of spend. Ariely explained that if you bought a single book for say $16.95, you might pay an additional $3.95 for shipping. But if you bought another book, for a total of say $31.90, you'd get shipping for free.
The result? Sales rocketed everywhere - with the exception of France. In France, there was no increase in sales. Were the French more disciplined than the rest of us? And were able to resist something free?
As it happens, no.
Amazon in France were actually charging one franc for delivery as part of the deal. I believe there was a clause in the France legal system that meant they could not give free shipping on books. But a franc is only about 20 cents. It is nearly free.
In the end, Amazon decided to make it free in France and pay the daily fine for the privilege. And sales jumped dramatically like every other country.
Why such a big difference between free and almost free? Chris Anderson in his book Free: The future of a Radical Price offers a feasible explanation. When stuff is free, you don't need to think. You don't need to put your brain through any mental exercise to consider if this is good value or not. No risk.