Dollars and Sense

We should watch out for trial offers and promotions. Marketers know that once we own something, we will value it more and have a harder time giving it up.

Companies employing trial offers are using the same business model as drug dealers: First one’s free. Then we’re hooked and begging for more.

The first is the gap between the time when our money leaves our wallet and the time we consume the good for which we’ve paid. The second factor is the attention we give to the payment itself. The formula is: Pain of Paying = Time + Attention.

Another effect of free is that once something initially costs us nothing, it becomes very difficult to start paying for it later. Let’s face it: When the pain of paying is zero, we often get overly excited—and we get accustomed to that price.

We don’t handle it in a way that makes sense, we handle it in a way that feels good. (That probably applies to how we handle most things in life, too, but this is neither the time for philosophy nor the place for therapy.)

Price of Free. George is excited to get free parking and free drinks. Sure, he’s not paying for them directly, but these “free” things get George to the casino in a good mood and impair his judgment. These “free” items, in fact, extract a high cost. There is a saying that the best things in life are free. Maybe. But free often ends up costing us in

experiences. A good experience with a product—a car, a computer, a coffee, a vacation destination—will make us overvalue that product by projecting our past experience on to our potential future consumption.

the amount we’re willing to pay for things often depends, to a large degree, on how fair the price appears to be.

What should not matter in a perfectly rational world? Sale prices or “savings,” or how much we’re spending at the same time on something else (relativity) The classification of our money, where it came from, and how we feel about it (mental accounting) The ease of payment (pain of paying) The first price we see or previous prices we’ve paid for a p