Dan Ariely writes about FREE in "The Nuances of the FREE! Experiment" , reflecting on the references to his truffle vs. kisses study in Predictably Irrational in reviews by the NYT and Time Magazine. Specifically, he says that he concludes FREE is a very powerful tool because when they dropped the price of $.26 truffle and $.01 kiss by a penny the percent choosing one over the other went from 40% each to 90% for the free alternative.
Here's my comment:
I think your conclusion from the Truffle Hershey Kiss experiment is not complete.
Your study proves several things:
1) Price does not equal Value. Dropping a $.26 price by a penny and a $.01 price by a penny is not the same relative change.
2) There are as many people (40%) who will pay a premium ($.26) for quality as people (40%) who will pay a little ($.01)for lower quality. Since the company who sells the truffles will make a much higher profit than the company who sells the kisses, this is the better choice.
3) Charging a little ($.01) will win fewer (40%) eyeballs than free (90%).
4) Media who offer a premium product online for a premium price will generate as many eyeballs as the micropayment guys and make a whole lot more money. This principal is supported by the fact that HBO has all time high subscribers and profits even during this economic crisis.
