Rory Sutherland Rory Sutherland

The Wiki Man | 8 March 2008

Rory Sutherland's fortnightly column on technology and the web

As you probably know (to your cost), Amazon purchases above a certain value incur no delivery charge. This offer works because so many people buy extra books to lift their order above the free-postage threshold. Predictably, in every country in which the retailer has launched the scheme, there has been an immediate and sustained uplift in sales. Except France. There the introduction of the offer had almost no effect. Yet this isn’t another case of l’exception française: in France, it emerged, the scheme was minutely different. Rather than offering free postage, as elsewhere, the company charged a trivial amount (around 10p). This seemingly irrelevant detail was the problem: once amazon.fr removed this charge, making the offer truly free, it worked as well as anywhere else. ‘Free’, it turns out, is not merely an arithmetic extension of ‘cheap’, it is something else entirely.

I learnt this from a new book called Predictably Irrational by MIT’s Dan Ariely which arrived from Amazon this week (along with a second book I didn’t really want). One chapter suggests the word ‘Free’ possesses the power to divert us from otherwise rational economic choices. For details of an Ariely experiment testing this thesis, see Tyler Cowen’s blog at http://snipurl.com/spectator.

Freeconomics, as it has inevitably become known, has become a hot topic. Chris Anderson — of Long Tail fame — is now writing a whole book on the subject: http://snipurl.com/spectator2. It’s a concept critical to many industries; it may suggest, for instance, that record labels should abandon attempts to charge for recorded music and seek advertising support instead — implying that the Ovaltineys foresaw the future of the music industry in 1935 (http://snipurl.com/spectator3).

But Freeconomics, it seems, works in both directions. Just as ‘free’ is many times more potent than ‘cheap’, so it seems ‘unpaid’ can be much more motivating than ‘badly paid’.

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