On my way to writing about pricing tables, Jeffrey (my brother and business partner) shared with a client his thoughts on the use of “free.” I insisted that before discussing pricing in this column he should help me cover the phenomenon of free. After all, shouldn’t we discuss price before we discuss value?

There is true magic in free – you can see it everywhere. It’s hard to discuss free without referencing Dan Ariely and Chris Anderson. Most of the discussions online are about whether free is dangerous. Those discussions are fascinating but they mislead many marketers.

There is an intuitive sense among marketers that free is the perfect price, if only they can find a way to monetize it. The major variations on this theme are free with advertising, free but not fully functional, and free with premiums. Free is so pervasive that an acquaintance of ours whose liquid net worth is comfortably in the seven-digit range recently told us, with a straight face, that he preferred an iPhone app that clearly isn’t as good because it was free. Free or $4.99, that was the choice. He wasn’t scared about losing $5. That is what sent Jeffrey into an exploration of free and what free is all about.

There are two classic uses of free:

  • First is the free sample. We sell ice cream, chocolate, or some other addictive substance, so we offer a taste. That taste is the entire experience. With that taste, you know everything you need to know about the value. The next question is simply – should I exchange $5 for a pleasure I know? It sells! It’s magic! Let’s do that again!
  • Second is the puppy dog close. We are selling puppies, so we offer to let you keep an adorable little pup for a week while you and the kids fall in love with him. Living with that lovable little furball is the entire experience. You know the value since you are arguably having the entire experience. The next question is – how did you ever live without this little guy? Free strikes again; you’ll rearrange your life around this puppy.

Value is how we decide what we’re willing to pay. Value is the relative worth of something. Value is more important than price. Ten thousand dollars might be a lot of money for a watch but how about for open heart surgery? There is a book in us about value. Let’s not get distracted, we’re here today to discuss free.

The price of free is perceived in direct proportion to the value experienced. I’m calling that Jeffrey Eisenberg’s “Rule of Free for Marketers.” It’s not the offer of free that counts, it’s the experience that determines whether or not it is worth more or less than zero. If you sell ice cream, then you don’t need to give this a lot of thought. However, if you sell anything complex enough to require a change of habit, routine, business process, or relationships, then Jeffrey’s rule deserves careful consideration.

Let’s examine the three major variations of free:

  1. Free with advertising.Google Search is a perfect ice cream example since you don’t pay anything but experience lots of value. Facebook is a little trickier since without a social network a free profile isn’t worth much at all. Facebook made this model work by facilitating the creation of the network effect for every user.
    • Caution. If you can’t deliver on experience, then advertising won’t work for you.
  2. Free but not fully functional.Skype is a good example since you can call anybody else who has Skype on their computer for free but you can’t call them on a phone unless you pay. The free experience is good enough that you might be able to understand what you will be paying for if you upgrade but it isn’t as compelling as a puppy dog.
    • Caution. This is the most difficult free model to execute. A disabled sample doesn’t usually provide a compelling enough experience, especially in the context of a business.
  3. Free with premiums.Evernote is a perfect puppy dog example of a service worth paying for that is free. A software program like Evernote is too difficult to sample if it’s crippled. The value of a note program is evident only over time. That’s why Evernote is fully functional and free. The functional equivalent of tasting the ice cream is long-term usage. Most people who try an application (if they bother to try it at all after downloading it) abandon it pretty quickly. Evernote users increase over time; even people who stop using it come back because they miss it, and then they upgrade to premium services.
    • Caution. The “freemium” is a model often emulated by marketers who don’t truly appreciate the lesson implicit to its success. Unless you have a way of letting the customer experience the full delicious experience for free, there is no way that they will pay a premium.

As more and more products and services become free, the attention-getting magic of free is declining as rapidly as cynicism is increasing. So please remember that free has a price. Free is not a substitute for creating value in your product or service.

I think Jeffrey is channeling our Abuela’s “I’m too poor to buy cheap.” It’s still good advice, so don’t forget Jeffrey Eisenberg’s Rule of Free for Marketers – “The price of free is perceived in direct proportion to the value experienced.”