Freebies may cause consumers to devalue products

June 16th, 2009 - 1:43 pm ICT by ANI  

Washington, June 16 (ANI): Retailers who bundle together two different products-like razors and blades-and describe one as free hoping for immediate gains may actually have to face a reduction in their long-term profits, for a new study has shown that this strategy leads consumers to devalue the items when they are sold individually.

Authors Michael A. Kamins of Stony Brook University-SUNY, Valerie S. Folkes of the University of Southern California, and Alexander Fedorikhin of Indiana University say that describing a bundled item as free decreases the amount consumers are willing to pay for each product when sold individually.

The authors describe this as the “freebie devaluation” effect.

“Why does a freebie decrease the price consumers are willing to pay for each individual product? Our research shows that consumers tend to make inferences about why they are getting such a great deal that detract from perceptions of product quality. For example, consumers figure the companies can’t sell the product without this marketing gimmick,” they say.

The research team have also found exceptions to the “freebie devaluation” rule. For example, when the researchers explained that the products were paired so consumers would become familiar with the freebies, they were willing to pay more.

They also observed that consumers were willing to pay the same amount for a bundle describing one of the products as “free” as for a bundle without the “free” description.

“Our research shows that consumers take a mental shortcut when it comes to thinking about the overall mixed bundle price-a shortcut that they do not resort to when thinking about the price of just one of the items in the bundle,” the authors write.

The mental shortcut skips the sceptical thinking that leads to “freebie devaluation”.

“Our research findings have important strategic implications for retailers and manufacturers, suggesting that giving away something for free in the context of a bundle may come at the cost for the sellers. Sellers’ hopes for immediate gains from freebie bundle sales might be countered by reduced long-term profits,” the authors write. (ANI)

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