It is interesting, but what really interested me was the discussion of an experiment by M.I.T. behavioral economist Dan Ariely, the author of “Predictably Irrational.”
Here is the quote...
"Ariely offered a group of subjects a choice between two kinds of chocolate—Hershey’s Kisses, for one cent, and Lindt truffles, for fifteen cents. Three-quarters of the subjects chose the truffles. Then he redid the experiment, reducing the price of both chocolates by one cent. The Kisses were now free. What happened? The order of preference was reversed. Sixty-nine per cent of the subjects chose the Kisses. The price difference between the two chocolates was exactly the same, but that magic word “free” has the power to create a consumer stampede."
Why did 75% of the folks choose the more expensive option in the first case? Product differentiation?
Why did 31% continue to choose the paid for product in the second case?
Anderson's focus is on the different market once "free" is a price. Of course chocolates are not digital goods so offering them for a price of "free" changes the premise of Anderson argument to an extent.
The Internet - especially Google and Facebook - have made many of us think "free" is a new and wonderful business model. While it may be wonderful, it is certainly not new.
Still, what is most interesting to some one who wants to make money is what is it about the Lindt chocolates that made 31% decide to pay instead of taking the free alternative. Figure that out and I want to hear about it.
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