The Hedonic-Shift for Freebies: How Preference for Hedonic Options is Disproportionately Enhanced when Their Price Falls to Zero

Perhaps more than ever before, consumers are increasingly spending more and more of their time in consumptions that are completely free - think Facebook, Google, Wikipedia, etc. An important managerial prerogative is to optimize the product mix for what will be offered for free, and what not. In this paper, using various kinds of promotional and market formats, we examine the relative advantage of offering hedonic (vs. utilitarian) products for free. We conclude that it makes more sense to offer hedonic (vs. utilitarian) products for free. This gives a discontinuous and significant preference boost to the product relative to when (i) non-hedonic options are offered for free, or (ii) hedonic options are offered at discounted but above-zero prices. Shampanier, Mazar and Ariely (2007) demonstrate that, while deciding about free products, people don’t simply subtract costs from benefits but instead perceive the benefits associated with the free products as higher since the zero-price is used as a qualitatively different price point than other non-zero prices. This theoretical rationale for differential comparative frames is similar to the one offered by past research which has compared zero-price to other non-zero price offers (Diamond and Sanyal 1990; Chandran and Morwitz 2006). These researchers find that since the monetary value of free promotions is often not explicit, “free” promotions evoke a non-market transactional mindset instead of a monetary, cost-benefit based mindset evoked by non-zero prices. This affective deconstruction of the zero-price effect is analogous to the affect heuristic (Finucane et al. 2000; Slovic et al. 2002) and also to the “how do I feel about it” heuristic (hereafter HDIF heuristic) (Schwarz and Clore 1988). Both the Affect heuristic and the HDIF heuristic theories argue that integral affect (experienced feelings about the stimulus) is commonly and forcefully used as a source of information in evaluative judgments. Instead of rationally calculating evaluations from a target’s attributes, consumers often base their choices on feelings as they hold the target’s representation in their mind.