The Durk Pearson & Sandy Shaw®
Life Extension NewsTM
Volume 19 No. 7 • December 2016


WHICH ONE SAVES YOU THE MOST?
BUY-ONE-GET-ONE-FREE OR 50% OFF

When you buy one and get one free, it is the same as getting 50% off when you buy two. So, why is it that consumers have a marked preference for the first option?

The difference may be because “when prices are mentioned, people apply market norms, but when prices are not mentioned (i.e., the price effectively is zero), they apply social norms to determine their choices and effort.” (Shampan’er, Working Paper, MIT) There is a switch to seeing the item being offered as being outside of a market where qualities other than price are what determines value. Because those qualities add value to the product, the consumer perceives it as being worth more than “zero.” Thus, “they overreact to the free product as if zero price meant not only a low cost of buying the product but also its increased valuation.” (Shampan’er, Working Paper, MIT)

Thus, offering an item for “free” (e.g., having a price of zero) increases its attractiveness much more than if it were offered for a penny. It makes sense, therefore, to offer two items for “buy one and get one free” rather than getting 50% off when you buy two.

The paper (Shampan’er, Working Paper, MIT) we’ve been discussing here shows that a price of zero increases the value of an item beyond what it would be if it were priced at a penny. Another paper (Murayama, 2010) found that a monetary reward had an undermining effect on intrinsic motivation. The zero price increased the intrinsic value of the product by removing its purchase from the market. The other paper, looking on the transaction in the opposite direction, showed that the zero price would prevent the undermining effect that a monetary price would have imposed.

References

  • Shampan’er and Ariely. Zero as a special price: The true value of free products. Working Paper, MIT. web.mit.edu/ariely/www/MIT/Papers/zero.pdf. Accessed: November 20, 2016.
  • Murayama et al. Neural basis of the undermining effect of monetary reward on intrinsic motivation. Proc Natl Acad Sci U S A. 107(49):20911-6 (2010).

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