Free products are not valued less than paid for ones

The Internet is awash with free products. Wherever you look you can get books for nothing, DVDs, audio products, software – even advice and consultancy services. However, old-fashioned commercial enterprises find it hard to understand how they can make a profit when their products and services are given away free of charge. Equally, many people with a branding perspective point out that “free” means that people do not value what you are offering.

Of course, both points of view are based on assumption, not evidence. There are millions of people who value their mobile phone which they received free of charge, even though it has an actual price tag of £500 or more. They did not pay for the phone, they received it free, but nevertheless still value the device because of the service it provides them and the connection it gives them to their friends and family. Equally, millions of people get a car “free” with their job; yet they still value the car because of the ability it gives them to travel. People do not always value the item itself, but what the product represents or provides them. And as the mobile phone industry has shown, focus on that aspect of value and you can make profit from giving your products away.

The New York TimesSadly, the newspaper industry is still stuck in old-fashioned thinking, that profit can only be derived from selling a product at a fee so that people “value” it. The Times, for instance, set up a paywall preventing anyone from receiving the content unless they paid for it. Other newspapers such as The New York Times offer a small amount of content free, but force you to pay for the rest. Readership of newspapers which are no longer free has fallen, but the publishers cite sales figures pointing out that they are now profiting from their online activities, instead of losing money.

That all sounds great until you question how are these businesses going to grow their profits in the years to come, when readership falls. The only option is price increases to consumers and advertisers alike or to grow their actual sales – but that is proving harder than they think.

Now, new research reveals an interesting twist to this. A study of New York Times readers has shown that people mostly do not want to pay for news – they expect it free of charge. But the interesting part is that when companies like the New York Times introduce fees for  previously free products the consumers value the item LESS. In other words, people value the free item MORE than they value the paid-for version, which puts to bed the argument from the branding “experts” that free is seen as low value.

The reason why the paid for item becomes less valuable in the eyes of consumers than the free version is because asking them to stump up cash reveals that the company is motivated by profit rather than by serving its customers.  As the research reveals, people are more inclined to pay for previously free items if the profit motive is hidden in some way, such as promoting the change on the basis of fairness to all. That really means, once again, focusing on the value the item provides to the consumer rather than the value it applies to the company selling it. The two are not the same, yet so much business thinking appears to suggest they are.

You can make money from free products and services if you focus on the value such things provide your customers. They will pay for that, even if the original item is free. In other words, as if we really need it repeating, focusing on the customer is what works..!

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