Free Items Have Higher Perceived Value Than Paid Products, According to New Study

Promotional products have an advantage over retail items when it comes to user impression, according to new research. An upcoming article in the Journal of Consumer Research has found that end-users place a higher value on a products given as a free gift with purchase than they would if those same items were made available at a low cost.

Many businesses, from cosmetics to automobile retailers, use promotional products as free gifts to entice sales. In "Free Offer ≠ Cheap Product: A Selective Accessibility Account on the Valuation of Free Offers," researchers Mauricio M. Palmeira (Monash University) and Joydeep Srivastava (University of Maryland) wanted to determine what importance users placed on those items, and if receiving the items for free changed their perceived value.

Palmeira and Srivastava conducted a series of studies where some consumers were offered an item as a free gift, while other subjects were offered that same item at a discounted rate. The results showed that on average, users who received a free item estimated its value to be higher than those who paid a discounted price for the product.

In one study, participants were offered a free or discounted package of spaghetti with the purchase of a jar of organic tomato sauce for $8.95. They were then asked how much they would pay for the spaghetti individually. People offered free spaghetti were willing to pay an average of $2.95 for it, but those offered the spaghetti for $0.50 were only willing to pay an average of $1.83.

The writers suggested that when an item is given as a free gift, end-users equate its value to that of the brand giving the product; when they pay for an item, they assume the value is relative to the amount they were charged. If a high-end electronics company offers a phone accessory for free with purchase, consumers assume it isn't cheap, but they may believe that same item is cheaper if they are charged $1 for it.

"Promotions with low discounted prices devalue products more than free offers," the authors write. "In fact, free offers may not devalue products at all when they are paired with an expensive purchase, as consumers will use the price of the focal product to estimate the value of the supplementary product. If Mercedes-Benz promotes a car with a free GPS system, we expect the GPS to be high quality."

The full article with research will appear in the December 2013 volume of the Journal of Consumer Research.