Free Isn't Quite What It Used to Be
Amazon may have ruined one of the most potent words in the DR arsenal
Happy Summer! Yes, I know it’s not official until June 20, but I regard Memorial Day as the start of the season — at least here in the Northeast. That’s when pools open and grills start sizzling. If it sounds like summer and smells like summer …
Unfortunately for my industry, this is also the time of year when HUT levels1 start dropping precipitously. Maybe that’s why there isn’t much going on in the world of direct-response television (DRTV) these days. With little to talk about, let’s do something a little different this week. Let’s use one of my sub-features as a launching off point for a longer exploration.
News(letters) You Can Use 📰
In the latest edition of Psychology of Marketing, the authors share a fascinating study by behavioral-economics superstar2 Dan Ariely:
In 2007, a group of psychologists … set up a shop and started selling two brands of chocolate—Lindt truffles for 15c a piece and Hershey’s Kisses for 1c per piece.
76% of customers grabbed the Lindt truffles. After all, a quality treat at a significant price cut is a no-brainer, right?
But then, Arely reduced both prices by 1c. Now Lindt truffles cost 14c a piece, while Hershey’s Kisses were free.
The new result? 69% now opted for Hershey’s Kisses.
Bottom line: Despite the price difference being the same, we tend to discard logic when there’s something that we can get for free. Free shipping, free gift, free anything.
The article cites other statistics that prove “free” is a “power word,” such as the fact that “half of Amazon Prime users say they’ve subscribed due to free shipping.” The authors then go on to advocate adding a “free product” to your offer and highlight free shipping, which they call “the holy grail of every customer.”
None of this will be new or exciting to DR marketers. That’s because free isn’t quite what it used to be. (More on this in a moment.)
The authors’ final suggestion, though, may be worth further consideration. They begin with a bold claim: “No matter what your offer is, you can always do the math so you don’t lose money.” Then they give the following example:
If your product costs $50 and shipping costs $10, it’s more effective to say the product is $60 but shipping is free.
Even if that’s not possible—like in the case of bundling products—you can always add the “free” part to the least valuable segment and write it off as an investment in higher AOV.
I have several thoughts about this.
My first thought is that this whole discussion proves, once again, that it’s Amazon’s world and we’re all just living in it. Let’s review.
For years, Amazon sacrificed profits for market share. The company didn’t even make a profit for nearly a decade. Then, it spent the decade after that reinvesting all of those profits in growth. As late as 2013, financial experts were still wondering, “Will Amazon Ever Make Money?” The answer in that particular article was ‘no,’ and the authors concluded: “Amazon is a stock investors should avoid.”
We’re now three decades into the Amazon story and that investment advice has taken its place among the worst of all time. Amazon stock is worth roughly 9X what it was worth at the close of 2013. More to the point, Amazon is the undisputed king of online shopping. It’s a great American success story. It’s also a story that created some serious downstream consequences for every other ecommerce seller on the planet.
Free shipping as “the holy grail of every customer” is a case in point. Someone trained Americans to not only value but expect free shipping with every order. That someone was Mr. Jeff Bezos. In doing so, he changed consumer psychology forever. It worked out well for Amazon, but it kinda ruined it for the rest of us. After all, very few of us can achieve the scale and efficiency required to offer free shipping on every order and still make money.
Never fear, Psychology of Marketing has a solution! Simply raise your price to offset the cost of free shipping. This leads me to my second thought. While that sounds good in theory, there’s just one problem and — well — it’s Amazon again. Along with training consumers to feel entitled to perks like fast and free shipping, the company is also responsible for exerting relentless downward pressure on prices. Remember when we were all worried about Walmart doing that? Seems quaint now, doesn’t it?
Let’s turn the example above into a thought experiment and try to guess what would happen. Your “product costs $50 and shipping costs $10,” so you “say the product is $60 but shipping is free.” Again, in a vacuum, problem solved! But in a world where Amazon exists? Unless your product has never been seen by anyone ever before, your prospect will quickly check Amazon and find several similar products for less (most likely, much less). As mentioned, their shipping will also be fast and free. As of last year, “roughly 71 percent of all U.S. Amazon shoppers were Prime members,” according to Statista. That’s 167 million people automatically receiving two-day delivery (or better) for free.
Yikes. Not only is free not what it used to be, but it seems neither are our profit margins. They’ve been squeezed down to nothing by competition on Amazon.
So what is the solution? If there is one, I think it can be found in the final suggestion the Psychology of Marketing folks made. In a word, “bundling.” I first learned about this technique from Chief Wizard Carlos Alvarez. In fact, it became the basis for one of my “Secrets for Standing Out on Amazon Search,”3 which Carlos graciously helped me compile. The secret in question: “Add accessories” to “create alternate listings.”
Let’s return to our thought experiment. Your “product costs $50 and shipping costs $10,” and you want to “say the product is $60 but shipping is free.” Rather than just raise your price and get killed by Amazon competitors, you could combine that idea with the bundling one and add several accessories to your offer. You could then fully follow the suggestion and make “the least valuable segment” (i.e. accessory) of that bundle free — thereby leveraging the power of free in a second way — but that isn’t always necessary.
The point is you will now have an offer configuration (i.e. listing) that’s not so easy to compare to competitive offerings on Amazon. Even if prospects find a product similar to yours on Amazon for less money, that product won’t come with all the additional stuff you’re offering, so it will be a somewhat apples-to-oranges comparison. Add to that the natural unease many people feel about buying knockoffs, plus whatever credibility you’ve built around your brand, and that might just be enough to save the sale — and your profit margins.
Borrow My Brain 🧠
If you liked the advice above and want me to help you brainstorm, select and test some new offer ideas, email me at jordan@scimark.com. My consulting rates are reasonable, and I provide free initial consultations and give special consideration to supporters of this newsletter (i.e. paying subscribers).
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“Household Using Television,” an ACNielsen term representing the percentage of households that have their television sets turned on compared to the total number of television households.
Ariely is so famous, they fictionalized his life and made a network TV show about it: NBC’s The Irrational. Not bad for a human-behavior nerd.
Paying subscribers: Email me at jordan@scimark.com for a free copy of this document if you missed out.