According to a new university study, giving away a free product as part of a purchase actually boosts the perceived value of the freebie.
Researchers at Monash University and the University of Maryland explored the practice of stores offering bonus products for free or at a low discounted price with a required purchase. For example, many cosmetics companies offer free gift-with-purchase.
The researchers found that, since consumers believe the value of a free product is likely to be "consistent with the value of the purchased product," pairing a free product with a high-end product may very well increase perceptions of its value.
In one study, participants were offered a free or discounted package of spaghetti with the purchase of a jar of organic tomato sauce for $8.95. They were then asked how much they would pay for the spaghetti individually. People offered free spaghetti were willing to pay an average of $2.95 for it, but those offered the spaghetti for 50 cents were only willing to pay an average of $1.83.
In another example, a bottle of wine with purchase given by a luxury jeweler was perceived with a higher value than when the wine came with an extra $1.00.
"Free offers may not devalue products at all when they are paired with an expensive purchase, as consumers will use the price of the focal product to estimate the value of the supplementary product," wrote the authors, the Mauricio M. Palmeira (Monash University) and Joydeep Srivastava (University of Maryland), said in statement.
A similar theory came from the 2008 bestseller Predictably Irrational: The Hidden Forces that Shape Our Decisions by Dan Ariely, a behavioral economist at M.I.T., although it also came with a warning to consumers not to be fooled by such freebies.
According to Prof. Ariely's studies, while most purchases are based on the highest cost/benefit difference, the value of a freebie is often perceived as higher than a typical cost/benefit analysis. In the book, the professor writes that "FREE! gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is."
As one stark example, he notes how people regularly don't calculate the value of their time when waiting in line for a free item or free entry. Free shipping can also lead to irrational purchasing. But it also extends monetarily when consumers are enticed to buy something they don't really want or need in order to collect a "free" gift.
Do you agree or disagree that offering a free bonus item distorts consumers' typical cost/benefit purchasing rationale?