The Business Dangers of Giving Away Free Products and Gifts

Are you thinking of giving away a free product or gift to entice more customers? If so, you might want to check out this article on the business dangers of giving away free products and gifts. We’ll look at the science behind why it might work, the dangers, and how to use it for maximum advantage. 

In this article, you’ll discover:

  • Why free products and services are often undervalued and not appreciated by customers;
  • The best ways to make free items more desirable; and
  • How you can increase your profits without giving items away for free.
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Why we love the word free

The word free has been a part of human culture for generations. In monetary terms, the word free seems to have gained popularity when American Tavern owners advertised free lunches to drive people into their bars. This later spread into popular culture as writers, politicians, and economists started using the term “there’s no such thing as a free lunch”.

This drew the attention of people to the process of people using free products to generate profits. The Tavern owners offered free lunches to entice people to stay and consume more alcohol. In essence, the free lunch was simply the cost of getting people into the bar. We all know that bar owners give away ‘free nuts’ to increase our thirst. But despite being aware of this, we all still eat the nuts. The reason for this is that as humans, we have an emotional connection to the word free. 

Bar owners give away ‘free nuts’ to increase our thirst. Despite being aware of this, we all still eat them. The reason we have an emotional connection to the word free.

An experiment conducted by behavioral scientist Dan Ariely showed just how powerful free gifts can be in fuelling human action. His team ran a test to see if people actually overvalue the word free. In one test, they placed luxury chocolate for sale at 14c and another well-known brand of lesser quality for 1c. In the experiment, the vast majority of people purchased the more expensive chocolate at 14c. This makes sense - the cost of both chocolates was low, and so, people chose to pay for the higher-quality brand.

So next, they changed things up. They dropped the price of the chocolate by 1c each. This made the cheaper brand free and the more expensive version 13c. In this version of the experiment, the vast majority of people chose the free chocolate. But it wasn’t only choice that was affected. Emotions were as well. 

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In another version of the experiment, they asked the participants to rate how attractive they found the chocolates. Again, people found the free chocolate more attractive. So, with an abundance of evidence to suggest that making something free draws people in to take action, why wouldn’t we all give free offers? Well, it turns out that free isn’t all it’s cracked up to be and for businesses, it can be dangerous to go down the route of giving away free items.

Why no one likes to be caught hook, line and sinker

In society, you’ll find examples of ‘free’ all around us. However, as a species, we have been using ‘free’ to capture animals for years. From baiting traps to the bait on a hook, we know that free food is used to entice animals to their doom. And so, we’ve become accustomed to treating anything free with a degree of caution. Even our language has evolved to address this danger.

We say things like “this sounds a bit fishy” and “what’s the catch”? This is a concept in behavioral economics called Value Pay Off. It’s where we think something is too good to be true, so we look for negatives. And that’s what can happen when you make a product or service free. People start to look for what’s wrong, which adds a layer of friction to the purchasing or action-taking decision. It can also cause issues later on when you want to charge for goods and services. Let’s look at this next.

When we think something is too good to be true, we look for the negatives. And that’s what can happen when you make a product or service free.

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