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I'd never seen the Hershey's / Ferrero Rocher experiment referenced in the article (that supposedly "started the free-mania") but couldn't the opposite conclusi
by tsmith 14y ago
I'd never seen the Hershey's / Ferrero Rocher experiment referenced in the article (that supposedly "started the free-mania") but couldn't the opposite conclusions be drawn from the experiment? I.e. that having a free option (somewhat obviously, perhaps) reduces revenue for the vendor?
In the experiment, when offered the choice between a Hershey's Kiss at $0.01 and a Ferrero Rocher chocolate at $0.25, 50% of respondents chose Hershey's and 50% chose Ferrero Rocher - for an average Revenue Per Customer (ARPC) of $0.13. When the price of the Kiss was lowered to $0.00, 90% chose the kiss and only 10% chose the Ferrero Rocher - for an ARPC of $0.026. All things being equal, the vendor would have to have 5X the number of "sales" to achieve the same amount of revenue, and the marginal Cost of Goods Sold/Cost of Sales would have to be zero to achieve the same amount of profit.
- eps 14y agoThe experiment comes from the "Predictably Irrational" book. A very good read in its entirety. [1] http://en.wikipedia.org/wiki/Predictably_Irrational http://en.wikipedia.org/wiki/Predictably_Irrational