It’s not all about the Benefits – Cost Perceptions as Additional Drivers of the Zero-Price Effect

When faced with a choice of selecting between free and priced products, consumers attribute additional benefit to the free product and show an irrationally high shift in demand for the free product (zero-price-effect). In this research, we apply the zero-price-effect to free e-services which incorporate non-monetary costs e.g. customers’ attention to advertising. Results show that consumers underestimate these non-monetary costs for the free-offer, such that not only the benefits of the zero priced good increase but at the same time the non-monetary costs of the low-value good decrease. Thus in addition to the benefits, the consideration of non-monetary costs serves as an extra variable for explaining the zero-price effect.