I once won free Chick-fil-A for a year. When Chick-fil-A opens a new restaurant, they allow 100 people to camp in the parking lot for 24 hours to receive the prize. Yup. A year of free food (52 free combo meal vouchers to be exact).
People go bananas for it.
The opening of a new restaurant is a very regulated and structured process. You have to arrive promptly at 6:00am to make sure you are one of the first 100 people to arrive. You receive a wristband and get to go pick out your parking space to set up your tent for the next 24 hours. People take off work for this. They travel many miles and cancel their plans for these openings. At the opening I attended, I met a couple that travels the country just going to Chick-fil-A openings.
The particular opening I went to was in Colorado in mid-April. We received an unseasonably late and extremely heavy snowstorm. However, that didn’t stop anyone, we were all fixed on the prize of free food for a year. We were all huddled in our thin tents sitting on a concrete parking lot waiting for the 24 hours to be over and the glory of the 52 meal vouchers to be handed to us.
Pics or it didn’t happen? Here’s a picture of me before the frostbite set in.
Why Do We Love ‘Free’?
The word ‘free’ illicits a response in our minds that’s completely different from any normal business transaction.
This emotional (and sometimes unfounded) reaction to the concept of free is perpetuated in the book Predictably Irrational by professor of Psychology and Behavioral Economics at Duke, Dan Ariely. While talking about the impact of the concept of ‘free’, Ariely says, “ ….in the land of pricing, zero is not just another price. Sure, 10 cents can make a huge difference in demand (suppose you were selling millions of barrels of oil), but nothing beats the emotional surge of FREE! This, the zero price effect, is in a category all its own.”
Chris Anderson, author of The Long Tail, and ex-CEO of WIRED wrote in his book Free – The Future of a Radical Price that “charging a price — any price creates a mental barrier that most people won’t bother crossing”. This is a concept that Nick Szabo, economics professor at George Washington University calls “mental transaction cost”. Szabo goes on to say “the only business model that delivers money from sender to receiver with no mental transaction costs is theft”. Now that isn’t too sustainable, is it?
How to Capitalize on ‘Free’
If you’re running any type of business, from software to food to retail, mental transaction cost is a problem you’re dealing with on a daily basis. One effective solution to address this issue is running a giveaway.
Giveaways thwart mental transaction costs by taking the ‘cost’ out of the formula. When you run a giveaway, you get current and prospective customers envisioning themselves using your product.
It’s not just the winner who will experience this, other entrants will avoid mental transaction cost by being exposed to the ‘free’ brand offering through the giveaway. We recently wrote a blog post about folks who enter a significant amount of giveaways daily, also known as sweepers. In the comments, we had a significant amount of people talking about this point precisely. One commenter said, “I have seen great contests put on by brands which I wouldn’t have ever thought to try/buy – but now am a continual purchaser and email subscriber”.
Another commenter noted, “I have found so many products I never would have tried and loved if not for the sweepstake”. They’re now customers because the giveaway helped them overcome the mental transaction cost.
And surprisingly, the ‘free’ business tactic actually scales for large companies. The convenience store chain 7-eleven gives away unlimited free slurpees on July 11th every year (Get it? July 11th = 7/11. Funny, right?). There’s no coupon needed, no restrictions, no catch. You’d expect them to lose a lot of money, right? Well actually they make boatloads of money through doing this. In an article published by USA Today, the company said the sales of slurpees skyrocketed by 38% of July 11th during the 2011 promotion.
Moreover, retail giant Costco is infamous for the large quantities of free samples they give away. An article by The Atlantic highlighted that when free samples of pizza are provided, Costco sales of pizza go up by 600%, when wine is sampled, sales go up by over 300%.
What Does This Mean For You?
Well, obviously you should give away thousands of samples of pizza, of course. Just kidding! But seriously, the psychology of free has a place in every business’s marketing strategy.
Giveaways are powerful—powerful as a marketing tactic and powerful as a tool to elicit an emotional response to your brand. Giveaways encourage a casual website visitor or new social traffic to imagine themselves as one of your customers without having to take out their card.
Giveaways allow you to break down the walls of the mental transaction cost to spread brand awareness and capture new social followers, email list subscribers, and brand advocates.
Have you had experiences with the ‘psychology of free’? Let us know in the comments below!