Are we predictably irrational about the word free? Or is it the concept?

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Apple has just started an experiment that should be fascinating  for behavioural psychologist Dan Ariely.

Ariely is the man behind the popular psychology title, Predictably Irrational. In Chapter 3, he explains at length the powerful drive that FREE! has on our purchasing behaviours. Here is my description of Ariely’s experiment, taken from my book, The Curve.

Psychologist Dan Ariely demonstrated this irrational behaviour that relates to free products in a famous experiment using Hershey’s kisses. Ariely set up a table at a large public building. He offered two kinds of chocolates: high quality Lindt truffles and ordinary Hershey’s Kisses. A large sign above the table read, “One chocolate per customer”. Customers could only see the chocolates and their prices once they stepped close to the table.

Lindt chocolates are high-quality Swiss chocolates that Ariely describes as “particularly prized, exquisitely creamy and just about irresistible.” They cost Ariel about 30 cents each when he bought them in bulk. Hershey’s Kisses are less special: the company makes 80 million of them every single day. Ariely started the experiment by setting the price of Lindt chocolates at 15 cents and Hershey’s Kisses at one cent. “We were not surprised to find that our customers acted with a great deal of rationality: they compared the price and quality of the Kiss with the price and quality of the Lindt truffle, and then they made their choice. About 73 per cent of them chose the truffle and 27 per cent chose a Kiss.”

The purpose of the experiment was to see what impact free had on people’s rationality, so Ariely then lowered the price of both chocolates by one cent. The Lindt was priced at 14 cents while the Kiss was now free. “What a big difference FREE! Made. The humble Hershey’s Kiss became a big favourite. Some sixty nine per cent of our customers (up from 27 per cent before) chose the FREE! Kiss, giving up the opportunity to get the Lindt truffle for a very good price. Meanwhile, the Lindt truffle took a tumble; customers choosing it decreased from 73 to 31 per cent.”

Ariely repeated the experiment in different circumstances and with different conditions. His conclusion is that free is a very powerful motivational price. It gives us an emotional charge that increases the perceived value of what we are getting. More than that, we will often take the free option because it is perceived as being lower risk, as eliminating the possibility of loss. We often ignore the externalities (such as the time taken to download an app, or the limited amount of storage space we have on our iOS devices) because the lure of free is so powerful. Most importantly, Ariely shows that the difference between an app that is free and an app costs $0.99 is much bigger than the difference between $0.99 and $1.99. Even though a dollar is a tiny amount to pay for a game, an amount that most of us wouldn’t flinch from spending on a cup of coffee with barely a thought, it is vastly, unimaginably, infinitely more expensive than free.

Apple has just changed the word FREE in the AppStore. In its place, it uses the confusing phrase GET. It seems likely that this change is to comply with European regulation that are heading towards an interpretation that says that if something is labelled “free”, it can’t have upsell opportunities within the app.

So now we get to see if FREE is the powerful, emotive word that Ariely describes or if the more important element is the concept of free. Will we see downloads of free-to-play games falling because they no longer have the magic word “free”, or is the key value of the free-to-play business model the frictionless install and the easy experimentation that a zero price point enables.

In other words, this experiment will help to answer the question of whether free-to-play games are successful because they trick users into believing the game is totally and bait-and-switch them later (as detractors believe) or because they offer low-risk, low barrier installs that draw users in and then earn the right to users money through offering them entertainment value (as I believe).

My take: this change will have a negligible impact on the free-to-play business model, but it will remove a big stick that detractors have used to beat the industry with. I look forward to the results.

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