$0 is better than ‘free’

Using “$0” or “at no cost” reminds people they are not losing money, rather than gaining something “free”. That increases conversions.

September 17, 2020

Topics: Pricing | Promotions
For: B2C, B2B Friendly
Research date: December 2019
Universities: Korea University and Pukyong National University

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📝 Intro

This Korean research from last year is beautifully simple and easy to apply. The fact that not everybody is using it yet just goes to show how slow academic research trickles down to marketers.

📈 Recommendation

When you are giving something away, as part of a promotion or for lead generation, say that it’s for “$0” or “at no cost” rather than “free” to increase conversions.

🎓 Findings

  • The “$0” vs “free” effect was tested in 10 experiments. Online, in a lab, and in a retail environment for various types of free promotions, such as free gift certificates, “buy one get one free” promotions, and free offerings. It worked better in all cases.

  • The effect is weaker when consumers are less price conscious or when the purchase is for someone else (i.e. a gift).

  • It’s stronger for products that consumers are price sensitive about (i.e. grocery products), as opposed to luxury products.

  • It’s also more effective for situations in which consumers expect good deals (e.g. discount stores) than for those in which consumers seek quality (e.g. department stores).

🧠 Why it works

  • Our preference for promotions is affected by the way they are presented. For example, we prefer “get 50% more free” (buy 2, get 1 free) than “get 33% off” (get 3, pay for 2) although they are the same thing.

  • People are value-conscious. We want to know how much we are spending or saving. Reminding us of the monetary value and cost shifts our mindset. This makes us value something ‘at no cost’ more.

  • Loss aversion theory tells us that people would rather not lose something than gain something. When we talk about “Free” we are thinking of a gain, while if we use “$0” we are reminded we are not losing money.

  • The effect works less for gift givers because they are thinking about pleasing the receiver, so are less concerned about cost.

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✋ Limitations

  • It’s possible that people are more suspicious of $0 offers (e.g. a phone plan) as they are predominantly used in telecom, insurance, leasing, and lending plans and often hide a lot of ‘fine print’. This could have implications for your brand. However, this study didn’t measure people’s perceptions and long-term behavior, only their immediate actions.

🏢 Companies using this

  • Some companies and advertising agencies occasionally use “$0” instead of “free” (e.g. IKEA) but the use appears to be spotty and inconsistent.

⚡ Steps to implement

  • Update your copy and promotions to use “$0” or “at no cost” instead of “free”.

🔍 Study type

Field, lab, and online experiments

📖 Research

🏫 Affiliations

Korea University and Pukyong National University. South Korea

Remember: This paper could be proven wrong in the future (although this is rare). It also may not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.

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