Despite the ubiquity of free e-services (e.g., free music/video streaming services), little empirical research has examined how consumers assess such service offerings. This research reveals the crucial role of consumer-perceived nonmonetary costs (NMCs; e.g., related to advertising intrusiveness) to better explain the zero-price effect (ZPE). Four experiments show that free e-services elicit positive affect in consumers, which leads to two distinct effects that drive the ZPE: a benefit-inflation effect, such that consumers overemphasize the benefits of free e-services, and a cost-deflation effect, such that they also judge the corresponding NMCs as lower. Furthermore, the authors find that the social norm of reciprocity increases consumers’ acceptance of NMCs. This research provides managerial guidance on how to better market free service offerings. Companies that consider providing basic and premium offerings should include a free basic option, which increases consumers’ benefit perceptions, lowers their perceptions of NMCs, and consequently increases demand for this service option. Finally, the findings help managers model the trade-off between immediate additional revenue generated by the fees consumers pay for a premium option and the revenue stream that a free basic option generates (e.g., through higher advertising revenues).
AcquistiAlessandroJohnLeslie K.LoewensteinGeorge (2013), “What Is Privacy Worth?” Journal of Legal Studies, 42 (June), 249–274.
2.
AggarwalPankaj (2004), “The Effects of Brand Relationship Norms on Consumer Attitudes and Behavior,” Journal of Consumer Research, 31 (June), 87–101.
3.
AlhakamiAli S.SlovicPaul (1994), “A Psychological Study of the Inverse Relationship between Perceived Risk and Perceived Benefit,” Risk Analysis, 14 (December), 1085–1096.
4.
AnderlEvaMärzArminSchumannJan H. (2016), “Nonmonetary Customer Value Contributions in Free E-Services,” Journal of Strategic Marketing, 24 (January), 175–189.
5.
AndersonChris (2009), Free: The Future of a Radical Price. New York, NY: Hyperion.
6.
BagwellLaurie SimonBernheimB. Douglas (1996), “Veblen Effects in a Theory of Conspicuous Consumption,” American Economic Review, 86 (3), 349–373.
7.
BaumbachElisa (2016), “The Zero-Price Effect in a Multicomponent Product Context,” International Journal of Research in Marketing, 33 (3), 689–694.
8.
BiswasAbhijitPulligChrisKrishnanBalaji C.BurtonScot (1999), “Consumer Evaluation of Reference Price Advertisements: Effects of Other Brands’ Prices and Semantic Cues,” Journal of Public Policy & Marketing, 18 (Spring), 52–65.
9.
BryceDavid J.DyerJeffrey H.HatchNile W. (2011), “Competing Against Free,” Harvard Business Review, 89 (June), 104–111.
10.
ChandonPierreWansinkBrianLaurentGilles (2000), “A Benefit Congruency Framework of Sales Promotion Effectiveness,” Journal of Marketing, 64 (October), 65–81.
11.
ChandranSucharitaMorwitzVicky G. (2006), “The Price of “Free”-Dom: Consumer Sensitivity to Promotions with Negative Contextual Influences,” Journal of Consumer Research, 33 (December), 384–392.
12.
ChoChang-HoanCheonHongsik J. (2004), “Why Do People Avoid Advertising on the Internet?” Journal of Advertising, 33 (Winter), 89–97.
13.
DouWenyu (2004), “Will Internet Users Pay for Online Content?” Journal of Advertising Research, 44 (December), 349–359.
14.
DowlingGrahame R.StaelinRichard (1994), “A Model of Perceived Risk and Intended Risk-Handling Activity,” Journal of Consumer Research, 21 (June), 119–134.
15.
EtgarMichael (2008), “A Descriptive Model of the Consumer Co-Production Process,” Journal of the Academy of Marketing Science, 36 (March), 97–108.
16.
FinucaneMelissa L.AlhakamiAliSlovicPaulJohnsonStephen M. (2000), “The Affect Heuristic in Judgments of Risks and Benefits,” Journal of Behavioral Decision Making, 13 (January), 1–17.
17.
FischhoffBaruchSlovicPaulLichtensteinSarahReadStephenCombsBarbara (1978), “How Safe Is Safe Enough? A Psychometric Study of Attitudes towards Technological Risks and Benefits,” Policy Sciences, 9 (April), 127–152.
18.
FornellClaesLarckerDavid F. (1981), “Evaluating Structural Equation Models with Unobservable Variables and Measurement Error,” Journal of Marketing Research, 18 (February), 39–50.
19.
GneezyUriRustichiniAldo (2000), “Pay Enough or Don’t Pay at All,” Quarterly Journal of Economics, 115 (August), 791–810.
20.
GouldnerAlvin W. (1960), “The Norm of Reciprocity: A Preliminary Statement,” American Sociological Review, 25 (April), 161–178.
21.
GreenbergMartin S. (1980), “A Theory of Indebtedness,” in Social Exchange: New Advances in Theory and Research, GergenKenneth J.GreenbergMartin S.WillisRichard H., eds. New York, NY: Plenum Press, 3–23.
22.
HawsKelly L.BeardenWilliam O. (2006), “Dynamic Pricing and Consumer Fairness Perceptions,” Journal of Consumer Research, 33 (December), 304–311.
23.
HayesAndrew F. (2013), Introduction to Mediation, Moderation, and Conditional Process Analysis: A Regression-Based Approach. New York, NY: The Guilford Press.
24.
HossainMehdi T.SainiRitesh (2015), “Free Indulgences: Enhanced Zero-Price Effect for Hedonic Options,” International Journal of Research in Marketing, 32 (4), 457–460.
JacowitzKaren E.KahnemanDaniel (1995), “Measures of Anchoring in Estimation Tasks,” Personality and Social Psychology Bulletin, 21 (November), 1161–1166.
27.
KahnemanDanielTverskyAmos (1982), “The Simulation Heuristic,” in Judgment under Uncertainty: Heuristics and Biases, KahnemanDanielSlovicPaulTverskyAmos, eds. New York, NY: Cambridge University Press, 201–208.
28.
KumarV.AksoyLerzanDonkersBasVenkatesanRajkumarWieselThorstenTillmannsSebastian (2010), “Undervalued or Overvalued Customers: Capturing Total Customer Engagement Value,” Journal of Service Research, 13 (August), 297–310.
29.
LastovickaJohn L.BettencourtLance A.HughnerRenée ShawKuntzeRonald J. (1999), “Lifestyle of the Tight and Frugal: Theory and Measurement,” Journal of Consumer Research, 26 (June), 85–98.
30.
LawlerEdward J. (2001), “An Affect Theory of Social Exchange,” American Journal of Sociology, 107 (September), 321–352.
31.
LeoneRobert P.RobinsonLarry M.BraggeJohannaSomervuoriOuti (2012), “A Citation and Profiling Analysis of Pricing Research from 1980 to 2010,” Journal of Business Research, 65 (July), 1010–1024.
32.
LiHairongEdwardsSteven M.LeeJoo-Hyun (2002), “Measuring the Intrusiveness of Advertisements: Scale Development and Validation,” Journal of Advertising, 31 (Summer), 37–47.
33.
LuschRobert F.VargoStephen L. (2006), “Service Dominant Logic: Reactions, Reflections and Refinements,” Marketing Theory, 6 (September), 281–288.
MendeMartinScottMaura L.BitnerMary JoOstromAmy L. (2017), “Activating Customers as Coproducers for Better Outcomes: The Interplay of Firm-Assigned Workload, Service Literacy, Eustress, and Organizational Support,” Journal of Public Policy & Marketing, 36 (1), 137–155.
36.
MontoyaAmanda K.HayesAndrew F. (2017), “Two-Condition Within-Participant Statistical Mediation Analysis: A Path-Analytic Framework,” Psychological Methods, 22 (1), 6–27.
37.
MussweilerThomas (2003), “Comparison Processes in Social Judgment: Mechanisms and Consequences,” Psychological Review, 110 (July), 472–489.
38.
NicolauJuan L. (2012), “Battle Royal: Zero-Price Effect vs Relative vs Referent Thinking,” Marketing Letters, 23 (September), 661–669.
39.
NiemandThomasTischerSebastianFritzscheTinaKrausSascha (2015), “The Freemium Effect: Why Consumers Perceive More Value with Free Than with Premium Offers,” International Conference on Information Systems, 36, 1–20.
40.
PeineKlausHeitmannMarkHerrmannAndreas (2009), “Getting a Feel for Price Affect: A Conceptual Framework and Empirical Investigation of Consumers’ Emotional Responses to Price Information,” Psychology & Marketing, 26 (January), 39–66.
41.
PetersEllenSlovicPaul (1996), “The Role of Affect and Worldviews as Orienting Dispositions in the Perception and Acceptance of Nuclear Power,” Journal of Applied Social Psychology, 26 (August), 1427–1453.
SchumannJan H.WangenheimFlorian vonGroeneNicole (2014), “Targeted Online Advertising: Using Reciprocity Appeals to Increase Acceptance among Users of Free Web Services,” Journal of Marketing, 78 (November), 59–75.
44.
ShampanierKristinaMazarNinaArielyDan (2007), “Zero as a Special Price: The True Value of Free Products,” Marketing Science, 26 (November/December), 742–757.
45.
SlovicPaulFinucaneMelissaPetersEllenMacGregorDonald G. (2004), “Risk as Analysis and Risk as Feelings: Some Thoughts about Affect, Reason, Risk and Rationality,” Risk Analysis, 24 (April), 311–322.
TaylorShelley E.FiskeSusan T. (1978), “Salience, Attention, and Attribution: Top of the Head Phenomena,” Advances in Experimental Social Psychology, 11, 249–288.
50.
TverskyAmosKahnemanDaniel (1974), “Judgment under Uncertainty: Heuristics and Biases,” Science, 185 (September), 1124–1131.
51.
van DoornJennyLemonKatherine N.MittalVikasNassStephanPickDoreenPirnerPeterVerhoefPeter C. (2010), “Customer Engagement Behavior: Theoretical Foundations and Research Directions,” Journal of Service Research, 13 (August), 253–266.
52.
VerhoefPeter C.ReinartzWerner J.KrafftManfred (2010), “Customer Engagement as a New Perspective in Customer Management,” Journal of Service Research, 13 (August), 247–252.
53.
VockMarlenevan DolenWillemijnde RuyterKo (2013), “Understanding Willingness to Pay for Social Network Sites,” Journal of Service Research, 16 (January), 311–325.
54.
VossKevin E.SpangenbergEric R.GrohmannBianca (2003), “Measuring the Hedonic and Utilitarian Dimensions of Consumer Attitude,” Journal of Marketing Research, 40 (August), 310–320.
55.
VotinovMikhailAsoToshihikoFukuyamaHidenaoMimaTatsuya (2016), “A Neural Mechanism of Preference Shifting under Zero Price Condition,” Frontiers in Human Neuroscience, 10 (April), 1–11.
56.
WegenerDuane T.PettyRichard E.BlankenshipKevin L.Detweiler-BedellBrian (2010), “Elaboration and Numerical Anchoring: Implications of Attitude Theories for Consumer Judgment and Decision Making,” Journal of Consumer Psychology, 20 (January), 5–16.
57.
WilsonTimothy D.WheatlyThaliaMeyersJonathan M.GilbertDaniel T.AxomDanny (2000), “Focalism: A Source of Durability Bias in Affective Forecasting,” Journal of Personality and Social Psychology, 78 (March), 821–836.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
