Is Free Better than a Discount?
Of course free is better for the customer, but it may also make for a more efficient promotion than a discount according to research described by the Harvard Business Review blog post “A Discount May Devalue a Product More Than a Giveaway.”
A new study in the Journal of Consumer Research found that offering a discount devalues a product significantly in the minds of consumers, while offering something free as a promotion has little affect on the perceived value. Consumers that received free bread sticks as a promotion from a pizzeria said they would be willing to pay $5.06 for them once the promotion was over – just slightly less than their perceived value without the promotion. On the other hand, consumers who received the breadsticks at a discounted price of 50 cents were only willing to pay $2.76 post-promotion.
So, keep in mind that offering steep discounts may boost sales in the short term, but could actually be a losing proposition if it decreases the perceived value of your services and products in the minds of your clients. Instead of offering discounts, try adding value by throwing in a freebie add-on. If the freebie is paired with a high-end product or service, it could actually increase the perceived value of the free product moving forward.
