Tim Baker argues that giving something away can seriously undermine its value in the eyes of potential customers
There’s no more attractive price than Free! This might seem obvious, but Free actually bends the ‘demand curve’ (the relationship between the price of something and the volume of demand) disproportionately – demand at zero is substantially higher than demand at even 1p. This is perfectly demonstrated through an experiment involving chocolate (1): when students were offered the chance to buy a high class Lindt truffle for 15 cents or a Hershey’s Kiss for 1 cent, 73% opted for the truffle. When the offer was repeated at 14 cents for the truffle and 0 cents for the Hershey’s Kiss, 69% chose the Hershey’s Kiss. Nothing about the price/quality equation had changed but introducing free reversed the preference, because when we choose ‘free’ there is no risk attached. There is no possibility of loss because there is literally no cost.
This perhaps explains why free is such an attractive pricing strategy for the arts, because it is seen to overcome the perception of risk in attending an unknown event. However, free is not without problems – and not just the fact that there is no income. Perhaps the most prominent example of free as a pricing strategy in the arts is the free entry to national museums introduced in 2001. The removal of entry fees coincided with a 62% increase in the number of visits. However, ‘visits’ is not the same as ‘visitors’. Research by MORI (2) found that while the number of visits increased by nearly two-thirds, the number of people claiming to have visited increased by only one-third, illustrating that a good proportion of the increase in visits was actually an increase in frequency by people who were already going. As the evaluation points out, however, the biggest issue is who makes use of free entry: “Although there has been a rise in visiting among those who might be described as being ‘socially excluded’, the most significant impact on visiting appears to have been among those groups who traditionally have always gone to museums and galleries.” The national museums that had previously charged for admission were awarded extra government funding to compensate them for the lost ticket income, but this was predominantly benefitting existing attenders. This presents a moral argument against using free as a pricing strategy for the publicly subsidised arts.
More recently, free was used to encourage young people to try theatre. The aims of ‘A Night Less Ordinary’ (ANLO) included increasing the number of young people attending for the first time and for participating young people to continue to attend beyond the project duration. However, evaluation undertaken by &Co found that only 8% of respondents in a survey of young people taking up the offer were first time attenders (3). Although ANLO achieved only limited success in introducing new people to theatre, the research suggests it was more successful in getting them to try something different: 53% used their ticket to try a type of show they hadn’t seen before and 21% of respondents said not knowing if they would enjoy the theatre put them off. The ANLO research also found that 80% said they would now be more likely to re-attend, but would pay only £10 to do so. This highlights the problem of using free to stimulate trial. Free attracts big initial take-up, but the gap between free and paying full price is so large that retention of trialists is limited.
Academic research in the commercial sector concludes there is a threshold at 20% – reduce the price by 20% or less of the standard price and the subsequent effect is positive; reduce the standard price by more than 20% and the subsequent effect is negative (4).
When price is reduced (either partially or all the way to zero), it has the expected result of stimulating demand – purchase rates of the product spike due to existing and new consumers purchasing more of the product and making their purchases on an accelerated timescale. However, because the promotion is price-based, it focuses the consumer on price and makes them even more price sensitive. Consequently, the new consumer will be more likely just to wait for another reduced price trial. The research also found that a reduced price lowers consumers’ reference price for the product – they now expect it to be sold at a lower price than they did before. When the reduced price trial finishes and the product returns to its standard price, consumers perceive the price change as a price increase rather than a return to the standard price and purchases decrease.
Chris Anderson argues that where marginal costs are low, ‘free’ can be used as a strategy to reach the largest possible audience (5). However, he also acknowledges that people don’t care as much about things they don’t pay for. When something is free, people behave more irresponsibly. How often in theatres do we find it is people with complimentary tickets who don’t turn up? Even the smallest amount of payment represents a conscious investment. This is the biggest problem with free as a pricing strategy for the arts: art is the very definition of a high value experience. If we give it away we undermine its value.
For free (yes, really!) resources on pricing, visit www.thinkaboutpricing.com
(1) Ariely, D. (2009) ‘Predictably Irrational’, Harper Collins
(2) ‘The Impact of Free Entry to Museums’, MORI, 2003. http://www.ipsos-mori.com/DownloadPublication/541_sri-the-impact-of-free...
(3) ‘A night less ordinary - what did we learn?’, Peer Sharing Day summary report, 2011.
(4) DelVecchio, D., Henard, D.H., and Freling, T.H. (2006) ‘The Effect of Sales Promotion on Post-Promotion Brand Preference: a Meta-Analysis’ Journal of Retailing Volume 82, Issue 3, pp203–213.
(5) Anderson, C. (2009) ‘Free: The Future of a Radical Price’, Hyperion.