Zero as a Special Price

Zero as a Special Price: The True Value of Free Products

Kristina Shampanier, Nina Mazer, Dan Ariely. 2007. (View Paper → )

According to standard theoretical perspectives, people will choose the option with the highest cost-benefit difference. However, we propose that decisions about free (zero price) products differ, in that people do not simply subtract costs from benefits but instead they perceive the benefits associated with free products as higher.

We test this proposal by contrasting demand for two products across conditions that maintain the price difference between the goods, but vary the prices such that the cheaper good in the set is priced at either a low positive or zero price. In contrast with a standard cost-benefit perspective, in the zero-price condition, dramatically more participants choose the cheaper option, whereas dramatically fewer participants choose the more expensive option. Thus, people appear to act as if zero pricing of a good not only decreases its cost, but also adds to its benefits.

After documenting this basic effect, we propose and test several psychological antecedents of the effect, including social norms, mapping difficulty, and affect. Affect emerges as the most likely account for the effect.

Free” is not just a low price, it changes perceived value, creating a discontinuity where people flock to the zero-priced option and even abandon a better paid one.

For digital products, that means freemium, $0 trials, and “free shipping” can spike adoption but also cannibalise paid tiers and distort mix/LTV. Treat “free” as a product lever with guardrails. Consider time-boxing or scoping freebies so they drive discovery rather than permanent substitution. Design with the zero-price effect in mind, measure the downstream revenue you might be displacing.