

The Cost of Free Doughnuts - kariatx
http://www.npr.org/blogs/money/2012/07/13/156737801/the-cost-of-free-doughnuts-70-years-of-regret

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brk
I certainly see the point they are trying to convey, but this is a bad
analogy.

The Red Cross receives funding through donations and/or government subsidies.
The donuts really are not their core product, if anything they would be more
akin to a retail 'loss leader'.

The average web startup only has one core product, at least it gets to the
Facebook scale of having thread its way into multiple aspects of your life.
These startups are only getting their money through venture investors, who
most certainly do not view their checks as 'donations'. So, there is a basic
requirement to transition from free to revenue generation in some fashion.

The troops most likely saw the donuts as a small token offering from the Red
Cross, and also felt they had done something to earn these free donuts. While
there is a lot of feelings of entitlement among some customers of free
services, I think the bulk of the users understand the company has to make
money _somehow_.

In many cases the 'freemium' model appears to work well, as long as the paid
versions offer obvious value. I wouldn't recommend for most people to not
offer some free version of the product, but I also wouldnt warn them against
charging for their products via a story about Red Cross donuts.

~~~
shinratdr
> I think the bulk of the users understand the company has to make money
> somehow.

Understanding and caring are two completely different things.

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jonny_eh
This reminded me a lot of what happened to Netflix last year when they spun
off the streaming service into its own $8/month product. Existing customers
who were already receiving it for "free" were totally livid, despite the fact
that people in Canada, who didn't have the DVD service, and could only buy the
$8 streaming service had no problem at all.

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hkmurakami
If I remember correctly, one of Dan Ariely's first two books covers this kind
of human behavior.

<https://en.wikipedia.org/wiki/Dan_Ariely#Books>

~~~
chimeracoder
_Predictably Irrational_ covers the case of an Israeli day care center, though
it's actually a slightly different story - in that case, the parents felt an
implicit moral duty not to pick their kids up late, which vanished once the
cost was quantified (in terms of a 'late pickup fee'), causing _more_ parents
to pick up their kids late, even though it was technically free before.

More importantly, when the fee was removed again, parents continued late
pickups at the higher (with-fee) rate. That's the real point of both stories -
once the terms of the agreement have been moved from the social to the
monetary realm, it's very hard to get people's brains to switch back to the
social terms.

~~~
einhverfr
yeah, quantifying the costs says "It's fine, as long as you pay extra." If
it's $10/hr extra, hey, that's an extra hour of day care for $10.....

Then when you remove the price you are sending another signal, which is "oh it
used to cost money but now we offer this for free!

It's worth really thinking through the whole social signal thing first....

with the Red Cross, one option might have been a donation box right next to
the donuts with a note saying what they had been asked to do and why.... and
soliciting additional donations, to be used to provide donuts to the British
soldiers, perhaps! That avoids changing the relationship.....

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morsch
Well, I'm not sure if my emotional attachment to Google is comparable to that
of wartime soldiers to free doughnuts. What's left is the fact that a free
service is very different from a paid service, and that pulling the rug under
your customers is going to leave them very disgruntled. I am not sure this is
a novel insight. I guess the historical analogy is still neat.

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milesokeefe
Perhaps a way to prevent the reaction from a change in category is to
discontinue and rebrand the product.

If the Red Cross had shut down the donut stations and then came back some time
later with comfort food in a modified form, the soldiers would see the new
stations independent of their anchor to the previously free stations.

~~~
philwelch
I think that idea might be a wee bit insulting of the troops' intelligence.

~~~
cperciva
Do you really think that the American troops were that much smarter than the
average American?

~~~
philwelch
Do you really think the average American would fall for that trick?

~~~
cperciva
Yes. I'm sure milesokeefe suggested it because discontinuing a product and
then relaunching it is _standard practice_ for companies which want to get rid
of anchoring biases.

(And I'm not sure I'd say that trying to evade cognitive biases is a "trick",
really.)

~~~
lelele
"discontinuing a product and then relaunching it is standard practice for
companies which want to get rid of anchoring biases."

Would you provide a few examples, please? Thanks.

~~~
Kerrick
Brinks Home -> Broadview [1]

Windows Vista -> Windows Mojave [2] (Although this was just to "taste test")

[1]: <http://en.wikipedia.org/wiki/Broadview_Security> [2]:
<http://www.youtube.com/watch?v=bXrKO33Rc2g>

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SatvikBeri
This is why "underpromise, overdeliver" is so important in managing customers.
People develop expectations very quickly, and then are delighted or
disappointed depending on how things turn out relevant to their expectations.

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kinleyd
"A lot of the online services you probably use are free. Gmail is free.
Facebook is free. Yahoo News and NPR are free"

Are these services really free? We may not pay cash to use these services but
we certainly are paying something.

~~~
NegativeK
So were the soldiers. They paid taxes, so they were funding the donuts via the
US government.

But that's not the point. The soldiers perceived the donuts as free, and
people perceive Facebook as free. Charging for donuts or access to your wall
will change that perception.

