Everyone loves a bargain, and nothing’s better than free stuff. Any deal with the word “free” attached — an email account, kids meal, or magazine trial issue — brings customers running. But these aren’t just good deeds. Companies do it to boost their bottom line.
And that doesn’t always mean taking money out of your pocket. For instance, when Google sells billions of email subscriber and Web search data points to marketers, that doesn’t cost you anything directly. But it helps companies boost sales by figuring out better ways to market to you.
But in many other cases, free products have a hidden cost. They might lead you to spend more money right away or lock you into a deal that’s costly in the long run. So be on guard when you see the word “free.” It might end up costing you a lot of money.
The Psychology of Free
Something about freebies seems to short our brain’s logic circuits and sometimes leads us to make bad decisions. In his book “Predictably Irrational,” behavioral economist Dan Ariely gives several examples of ways that the psychology of free leads consumers to behave irrationally.
In one experiment, Ariely set up a temporary candy stand on a college campus. Students had the choice of buying a Lindt truffle, a gourmet treat that typically sells for about $0.50, for just $0.15 or getting a Hershey’s Kiss worth about $0.05 for $0.01. Unsurprisingly, 73% of the passersby decided the truffle was a better deal.
But when the experimenters dropped the price of both items by $0.01 — $0.14 for the truffle and free for the Kiss — suddenly the percentages reversed. Now 69% of the students found the free Hershey’s Kiss more appealing than the truffle even though the truffle was $0.36 off its retail price and the price difference for the Kiss was only $0.05.
The testers repeated the experiment several times, experimenting with different prices. Each time, the availability of a free product led people to make a different decision from the choice they made when money — even a tiny amount of money — was involved. Ariely and his colleagues called this “the zero price effect.”
Ariely gives several other examples of how free goods drive consumers to make hasty decisions on his blog. For instance, he explains how the Danish government offered voluntary sterilization surgery as a free service to all its citizens from 1968 to 2010. Then it decided to start charging for the procedure — about $1,300 for men and $2,500 for women.
When the government announced the upcoming change in 2010, the rate of people seeking sterilization suddenly increased fivefold as citizens rushed to get the surgery for free. Perhaps some had already planned to have the procedure, but others had probably never thought about it before. It just suddenly became appealing because it was free for a limited time.
A similar situation occurred at a nightclub in New York City that offered free tattoos for one night only. Of the 76 patrons who opted for the tattoo, 68% said they wouldn’t have gotten a tattoo if it hadn’t been free. Being free made the tattoo appear to have a higher value.
When Free Isn’t Free
You might not let a giveaway lure you into unplanned surgery or spur-of-the-moment tat. But there are many subtle ways in which freebies can tempt you into decisions that hurt your wallet. You’ve probably encountered at least one of these supposedly free things that have hidden costs.
1. Free Shipping
Internet superstore Amazon offers free shipping to customers on certain orders. To get the deal, you have to buy $25 or more in eligible products.
At first glance, it seems like a sure money-loser for Amazon. After all, shipping isn’t free for them, and the bigger the order, the more it costs to ship. So shipping big orders for free must cost the company tons of money. And it does. But in the long run, Amazon makes more money on additional purchases than it loses on shipping.
Offering free shipping brings in business partly by making Amazon more attractive than its competitors, making you more likely to choose Amazon for online shopping. But offering free shipping on orders above a specific price also makes you more likely to order extra stuff so you can avoid shipping costs.
For example, suppose you want a book that costs $14.95, but the shipping would add an extra $5. You decide to buy a second book for $12.95 to put you over the $25 free shipping limit. That’s good for Amazon but not so good for you. You just spent $7.95 more than you would have by paying for shipping, and you also have an extra book you didn’t really need.
If you think no one would ever buy a book they didn’t really want just to get free shipping, think again. In “Predictably Irrational,” Ariely notes that Amazon’s sales shot way up when it started offering its free shipping on large orders — but not everywhere.
In France, where Amazon reduced its shipping charge to 1 franc (about $0.20) instead of cutting it to zero, orders didn’t increase significantly. Even though 1 franc was still a trivial cost, it wasn’t free, and so it didn’t lure people to purchase more.
One way to avoid Amazon’s free-shipping trap is to shell out $119 per year for an Amazon Prime membership, which includes free shipping on all orders (in addition to many other perks). Unfortunately, this deal can also lead to overspending.
First of all, since you no longer need to pay shipping costs, it’s easier to give in to an impulse purchase. Second, since you’ve already spent the $119, you’re tempted to buy and ship as many products as possible to ensure you get your money’s worth from your membership.
That doesn’t mean you should always buy just one item at a time and pay the shipping cost. For example, if shipping costs $5, but adding a $2 knickknack to your cart makes it free, then you come out ahead. But do the math on each purchase and compare the total cost complete with shipping rather than being distracted by the shiny word “free.”
Alternatively, if you can wait to place your order, put the merchandise in your cart and log out. Then, the next time you want to buy something, add the new product to your cart to see whether the new total is high enough to get free shipping. If it is, you’ve just saved a few bucks. If not, you can still pay for shipping or wait to add a third item.
And that applies to any online retailer offering free shipping, such as Walmart and Target.
2. Free Accounts
Banks often lure new customers with the promise of free checking accounts. A chance to avoid paying a monthly maintenance fee sounds like a no-brainer — until you look at the fine print.
In many cases, these accounts are only free if you meet certain requirements, such as maintaining a minimum balance, using direct deposit, or making a certain number of purchases with your debit card. And on top of that, these “free” accounts are often loaded with other banking fees, such as overdraft fees and ATM fees.
The word “free” can also cost you more when it’s attached to a credit card. Suppose you have a choice between two cards: one with a $50 annual fee and a 10% interest rate and a free card with no annual fee and a 25% interest rate.
If you never carry a balance on your account, the card with no annual fee is a better deal. But if you only make the minimum payment each month, the free card will probably cost you a lot more in extra interest than the $50 per year you’d pay for the other one.
To avoid paying through the nose for a free account, read the fine print and ensure you know what you have to do to get the free rate. For example, if you don’t mind keeping a $5,000 minimum balance in your checking account, great. But it’s vital to know about it so you can avoid letting your balance drop so low you have to pay the fee.
Similarly, if a free credit card comes with a higher interest rate, crunch some numbers and figure out whether that’s a good deal for you. A credit card interest calculator can help you do the math.
3. Free Trials
One type of offer that can cost you money is the free trial. Companies that sell subscription-based services, such as magazines, streaming services, or meal delivery, often try to attract new customers by offering a free trial period. For instance, they give you your first issue of a magazine or first week of a streaming service for free.
If you like the sample and decide to sign up for the long term, that’s good for you and the company. The problem comes when you don’t like the sample — or don’t like it enough to pay for it moving forward. If you don’t remember to cancel your subscription, you keep getting the same service and being billed for it each month.
Remembering to cancel before the trial runs out isn’t always easy. You may not get a reminder from the company to let you know when your trial period is about to end. Instead, they just start billing your credit card automatically. If you don’t check your statement every month, you might not notice.
Even if you do remember, companies don’t always make it easy. You may need to call customer service, wade through a long and confusing phone menu, and then spend an hour waiting to talk to a representative. And once you finally get one, they often do everything they can to talk you out of quitting.
To avoid getting roped in by a free trial, be very cautious before you sign up. Ensure you know what you’re agreeing to and how to cancel. To be on the safe side, search the Internet to see whether other people have had problems canceling a contract.
Then, if you still decide to take the free trial, make a note in your calendar or set a phone reminder to alert you about when it expires. That way, you don’t forget to cancel.
4. Free Gifts by Mail
Service providers aren’t the only companies offering freebies. Sometimes, you see offers online or in junk mail for free gifts. Unfortunately, many of these so-called gifts aren’t really free, as they come with shipping costs.
For example, some websites offer supposedly free jewelry with the caveat that all customers must pay a shipping and processing fee — say, $6.99 for each piece. The pieces available are pretty cheap-looking, and if the website offered them for $6.99 each, even with free shipping, many people wouldn’t look twice.
So when you see an offer for something you can get by mail for free, read a little further to see if there’s a shipping charge. If there is, ask yourself: Would I be willing to pay that amount for the same product in a store? If the answer is no, then this is one freebie you can skip.
5. Free Gifts With Purchase
A friend of mine spent a few summers selling pickles on a stick at a Renaissance fair. One year, to spice things up, he offered his customers a great deal: “Free pickle — when you buy the stick!”
This promotion was making fun of another common type of freebie: the gift with purchase. For instance, if you buy $50 worth of skin care products at a department store cosmetics counter, the retailer might throw in a tube of lipstick. But just like my friend’s pickles, this gift isn’t really free. It comes with the condition you spend a set amount on a specified product type.
That doesn’t necessarily mean it’s a bad deal. If you want the skin care products and are willing to pay $50 for them, the lipstick is just a nice bonus.
But if the primary reason you’re buying $50 worth of skin care products is to get the free lipstick, you’re better off purchasing the lipstick alone. It almost certainly costs less, and it doesn’t saddle you with several pots of face cream you don’t want.
Another type of gift offered with purchase is a store credit for a future purchase. For instance, suppose a store runs a special sale: If you buy $50 worth of clothing, you get a gift card worth $10 off the next time you shop there. You need a pair of jeans that costs $50, so you buy it now to receive the $10 credit.
The snag is that the gift card has an expiration date, and if you don’t use it within two months, your credit disappears. You hate to let that $10 credit go to waste, so you go back to the store and buy a $25 shirt you don’t need. Even with your $10 credit, you’ve spent $15 more than you intended.
Kohl’s Cash is an example of this type of marketing ploy.
To avoid falling for this kind of deal, look at the whole thing as a package. If you think the skin care products and lipstick, taken together, are a good deal at $50, buy it. Similarly, if you wouldn’t pay $25 for that new shirt, but you think it’s worth $15, then it’s a fine way to use your $10 credit. Just don’t overspend solely to get a free gift or store credit.
Avoiding the Free Trap
The primary thing to remember about free offers is that there’s almost always a catch. The freebie is the bait, but there’s bound to be a hook.
In some cases, it could turn out the seller is making money in ways that don’t hurt you at all. For instance, a warehouse store offering free samples of its food may hope to tempt you to buy them, but if you don’t, they’re free. And a free, ad-supported streaming subscription is no problem if you don’t mind a few ads with your TV shows.
But you can’t be sure a freebie is truly free unless you take the time to check it out from all angles first. To protect yourself, take these precautions when someone offers you something for free.
Read the Fine Print
Before signing up for any deal, know what you’re agreeing to. Check to see whether you are agreeing to any kind of service or regular delivery. If so, know how to cancel before they charge you. If you’re unsure you can cancel later, don’t sign up.
Calculate the True Cost
In the case of a gift with purchase, look at the cost of the product you have to buy to get the freebie. Is the price you have to pay worth it?
And if you have a store gift card but the product you want costs more than the value of the card, look at the amount you’d have to pay in cash after using up your store credit. If it’s more than you’d be willing to pay for the item on its own, it’s no bargain.
Count Item Cost and Shipping Together
For a “free” mail-order offer, look at the shipping costs and ask if the item is worth that price. Likewise, if you’re thinking of adding something extra to your cart to get free shipping, compare the cost of the extra merchandise to what you’re saving on shipping. In both cases, the total cost — items plus shipping — is the number that counts.
Watch for Extras
Pay attention during checkout if you sign up for freebies online. Some sites make you scroll through additional offers before order confirmation. Sometimes, the yes box is checked by default. If you just click through, it signs you up for extras. So read carefully and uncheck any boxes.
Protect Your Personal Information
Sometimes, you have to provide personal data like contact info when you sign up for free stuff. Before handing it over, ensure you know how the company intends to use it. Don’t give out your personal information unless they guarantee not to sell it or spam you.
Use Cards With Care
Other free offers require you to provide a credit or debit card number for billing. Once the company has the number, it can keep charging you monthly, and canceling isn’t always easy. Avoid that by using a prepaid card with limited funds or one-time-use virtual account number.
As Dan Ariely’s research shows, just seeing the word “free” can lure people into making irrational decisions that aren’t in their best interests. The key to avoiding a supposedly free offer is to focus on the true cost.
Sometimes, the cost is financial, like a shipping charge for a sample. In other cases, you’re paying in hassle, such as dealing with email spam or unwelcome browser ads.
If you weigh these costs and decide the product is worth it, it’s OK to accept the freebie. But don’t jump at it automatically just because it’s free. By considering the actual cost, you can make a more level-headed decision.