Hey there 👋 - Abhi here!
Happy Thursday to the 2,291 marketers reading this newsletter.
Today, we'll break down The Zero Price Effect with an example from Amazon and, as always, we'll end with 3 ways we can apply it to scale your work.
Estimated Reading Time = 4 minutes
The Zero Price Effect
Only one word can improve your:
That word is "free," and we all love to see it!
But why does it work? How powerful is it? And how can you apply it to your work?
For that, let's first breakdown the Zero Price Effect with the help of an experiment.
The Hersheys-Lindt Experiment
As part of an experiment, behavioral economist Dan Ariely, and his team, set up a stall selling two chocolates - Lindt truffles for 15 cents per piece & Hershey's kisses for 1 cent per piece
With the given prices, 73% of customers bought the Lindt truffles given its's relatively higher quality and amazing value for money - which is exactly what I would do.
But when the team reduced both chocolate's prices by 1 cent (Lindt truffles for 14 cents and Hershey's kisses for free) the results almost reversed!
Now 69% of people chose the free Hershey's kisses.
Even though the difference in price was the same (14 cents), we tend to discard rational analysis when there's an element of "free" present in the equation.
And Amazon was one of the few companies that leveraged this effect at a large-scale.
The Amazon Example
Amazon's free shipping initiative was a real game-changer.
Even today, the free shipping drives a large chunk of Amazon's revenue:
- it's the second most cited reason why people subscribe to Prime
- it can improve average order value by as much as 90% as consumers attempt to hit the free shipping threshold
And now, we see several businesses leverage the same effect successfully:
- Food companies with their calorie conscious audience
- SaaS businesses growing with their freemium models
- Tourism agencies with their "free" water
But why does that matter to you? How does it translate to your business?
3 Tactics For You
It's not just the money
The zero pricing effect applies to more than financial costs.
It can also play a role in the food or beverages industry, for instance.
Think of all those Coke Zeroes & Zero-Fat Greek Yogurts that stand out from the rest of the crowd, compelling you to spend more than you usually would to be just 5% healthier.
You need to do the same for your business - pick one element that may be a point of friction for your offering (calories, time, etc.) and make sure it hits 0.
If you can't (or don't want to) compete on the basis of price, the power of zero will help you grow your business even more than you can imagine.
Provide free value
Nothing helps conversions and customer acquisitions like a free trial.
While the quality of such customers may be questionable, I have a fix for you.
Work on user personalization: something that requires your customer to put in some effort, input some information, or build something on top of your platform.
It all goes back to the IKEA effect - when your users put work into your platform, they start to value it even more. Then paying for a subscription gets that much easier.
Free a part of the bundle
The classic example: A hotel room for $760 with "free" water is valued more highly than a hotel room worth $750 and $10 of water.
For you, this is an easy win. If you have a bundle of any sort, stick to the same price and add an element of "free" to the less valuable segment.
For instance, a bundle of $99 for a guide and 1:1 chat would turn into an offer where the guide is still worth $99 but the customer gets a "free" 1:1 ch on top of it.
That 1 simple word is going to get you so many more sales!
If you give this (or any of my tactics) a shot, I'd love to hear the results.
Clickworthy Resources
That's all for this Thursday. 1 marketing effect, 3 tactics and 3 resources for you.
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See you again next week,
Abhi
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