Last time I went to Costco, I was deeply upset that they had decided to remove the free samples from the aisles (something related to Covid-19 apparently…)
But, it did have me wondering about samples. Why do they give out samples? Do they expect me to be so easily manipulated by free sample sausages that I would open up my wallet to a 50” OLED television? 😱
Well, the answer to that question is: maybe! Freemium models and products with free trials are becoming more of the norm these days, but why? What’s the science behind it all? Let’s explore.
Back to college — Economics 101: What determines price?
The price of a product is based on the relationship between its supply and demand. The price is the exact point where the benefits I would get from using a product, matches the pain of giving up some coin from my wallet. 💰 💰 💰
So far so good. 👌 But the key thing we need to understand here, is that the point moves. Its erratic! It’s crazy!
In economics, it’s constantly changing depending on what else is going on in the market. For example, whether an improved version of a product is available, or how much I believe in the product’s value, or whether people continue to need the product at all.
If the price is too high, customers might not buy the product, forcing sellers to reduce the price because they have too much stock. But if sellers see that there’s a ton of demand for their product, they’ll keep raising the price to see how far they can get it to go up (kind of like property values around the world right now 🙈).
Back to college — Economics 102: What’s the difference between price and value?
Price is what you pay, value is what you get.
Value on the other hand, is what our view of what the true price of something should be. What should we pay for it? (Overpaying for something generally gives most people bad vibes.)
Judging true value is hard, but for most people it comes down to how much utility or use a person might get from that object, based on their tastes and preferences. Sure, I might theoretically be overpaying for this house, but I love the patio, so am I really overpaying? 🙉
What’s super interesting here though, is that value is also hugely subjective. People’s are also quite erratic!
If I gave someone 3 slices of bread instead of 2, how much value would they get from that extra slice? They couldn’t even make an extra sandwich with it! 🥯 But give those slices to a dad with 3 children and it makes all the difference. (Pro tip: If you’re ever faced with this situation, it’s probably better to have no bread than trying to split the slices between your 2 favorite children.)
On the other extreme, if I gave you a years’ worth of bread all in one day, you probably wouldn’t find them valuable at all. That’s just too much bread for any one man to handle. No man could handle that much bread.
And no offense to bread, but bread is everywhere. I know that if I only had 2 slices, I could probably get another or something close to it pretty easily. So whatever. But a rare Top Shot NFT on the other hand, I’ll probably give up a child for that one (just kidding!)
So in summary then, the key element is how much will that something satisfy my most pressing needs and uses. As a customer, I’ll be motivated to adjust the price I’m willing to pay until it matches my perception of incremental value — I’m constantly assessing how much value will that extra thing give me. That’s what economists call marginal utility. 🧑🎓
Okay, so that’s the theory, but how is that relevant to getting free samples?
Okay, hang in there! So imagine yourself walking into a bakery. It’s 4 pm in the afternoon, and man are you hungry for a snack. 🍪
Lucky for you, there are freshly baked cookies straight out of the oven. You go up to the counter and you see two things: A tag that reads $2 per cookie, and another tag that just says FREE.
How many cookies would you get?
Behavioral economist Dan Ariely ran an experiment where he offered candies to students — he sold Lindt Truffles for 26 cents and Hershey’s Kisses for 1 cent each.
Uninterestingly, 40% went with the truffle and 40% with the Kiss. But here’s the trick. When they dropped the price of the Kiss by just one cent to free, suddenly 90% of the students wanted the Kiss.
Weird, huh? The marginal utility from the chocolate was probably the same, but making something 🆓changed everything.
Vinegar that is free, is sweeter than honey.
Psychologists call this Affect, where our sense of value is changed by our mood. Apparently, free makes people happier, and when they’re happier they make different decisions.
Dan Ariely says, “Most transactions have an upside and a downside, but when something is FREE! we forget the downside. FREE! gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is.”
Now, back to the Costco samples
Rationally, samples should theoretically help consumers learn more about the product — letting consumers taste the cheese first is a good way of getting them hooked on the stinky taste!
But Dan Ariely would say that more powerful than the taste of the cheese itself, was the affect of the sample on our emotional state. Samples create deep within shoppers a desire and lust for more. More of what? More of anything! It’s like samples create some sort of weird emotional imbalance inside of us that has us craving for more stuff. 🛒🛍️
And actually, later studies have shown that Costco shoppers were indeed more likely to purchase items after sampling products.
There are of course other factors at play here, like the design of the Costco stores themselves as a fun shopping experience, and the types of people that are more likely to frequent Costco stores, but intuitively, I think you’re feeling that there’s some truth to the reciprocity effect created by samples. 👊
So, do samples and free offers have the same effect in digital products?
Not surprisingly, this is becoming kind of a well researched area. For example, quite a few people have tested the word “free” in their copy:
– Adding a “Free Trial” button next to the “Buy Now” button increased trial signups by 158% for GetResponse.
– Billund Airport changed its CTA copy from “Shop Online” to “Buy Tax Free”. “Buy Tax Free” increased clickthrough rate by 49.85%.
– VenueSphere added the word ‘free’ to their sub-headline, which increased their leads by 69%.
– Adding “It’s free” next to the CTA button increased Soocial’s conversion rate by 28% (from 14.5% to 18.6%).
Sounds like easy mode, right?
Well, not really. Because the first and biggest problem with free is that it can attract the wrong type of customers. When you offer something for free you’ll attract people interested in only the free aspect of the product. They’re already in the mindset of wanting more and more free stuff.
Sure, it’ll look like you have a large base of users on paper, but how many of these users will convert into paying customers? And, before you say some ridiculously high number, even the well-established companies have problems with convincing free users to pay.
Only around 7% of people using Evernote for a year become premium users. It takes Evernote two years to convert 11% of their free users to premium. Dropbox is the same story, with a conversion rate around 4–5%. (By the way, do you use Evernote or Dropbox? 😺)
Unfortunately, there are some users who will probably never become premium users. For digital products where we have to regularly convince users to pay more than what they would for a New York strip steak, influencing the buying decision becomes more complex.
Influencing the buying decision most likely includes considerations and messaging around features, quality, convenience, speed, benefits, prestige, packaging, loyalty — as well as, of course, price.
Hey, what’s the conclusion?
There’s no doubt that free has a deep rooted psychological effect on consumers. The effects of offering free trials may not be the same nor as emotionally powerful as in the moment food samples, but in both cases, the broader goal of both is to influence and ultimately increase the customer’s perception of value.
And sometimes, you’re better off not opting to give it away for free or to give them that deep discount they’re threatening you with. 😡
But in my books, the real lesson here is for Costco. Please Costco, bring back your free samples. 😘😘😘