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There Ain't No Such Thing As A Free Lunch

30/11/2015 09:27, author Mateusz Chołaściński

While I do not agree with everything that Milton Friedman said, the statement I've borrowed for the title of this piece is spot on as far as pricing policy goes. Hardly anything of value comes for free. Nothing which is manufactured by people is free. There always is a price to pay. Either that, or it's the value itself that fades away.

I’m not going to repeat myself and explain my views on value, price, or the value vs price relation (see e.g. This is the price you pay). Instead, I’ll provide a couple of illustrative examples of where the statement used in the title really fits.

Free content

The Internet is a fantastic source of information. It has all the information you need. However, the manual is missing. You are given valuable content mixed with biased views, tainted with prejudice. As a result, the ‘free’ content consumers do not read, but scan, they don't digest, they choke. They are have become used to avoiding sites that require them to make an effort. Thumbs up, LOLs, and LMFAOs are the interaction and discussion tools of the day. Media that don't deliver video-like dynamics are boring. The attracting-attention nodes are in fact the same, it's just that they bring up a different image every time the page is refreshed. So, is it free after all? Well, two effects can be observed here. The first – in order to produce lots of content quality must be compromised. It’s just cheap, mass-produced junk food. There used to be media that delivered valuable, meaningful content. But it did not pay off, and it’s too costly now. Alternatively, 'watch this ad' might pop-up. But this business is becoming unprofitable. The Google AdWords culture has forced media to back off from the pay per display model and to switch to pay per click, forcing (in principle) action. Also, sites overloaded with ads are too off-putting to keep visitors returning. Finally, a group of free content users block ads (now just how ungrateful is that!). So once again, content itself must become cheaper to manufacture to justify its zero price. At best – to cost nothing.

The second effect is that people click on content without a second thought and this might well cost a lot, a company's reputation for instance. I find it amazing how many people fall for such clickbait. What do you do when you see “You are not going to believe what she did on her 16th birthday!” (under a subtly-blurred nude photograph)? Or how about “We have 500 smartphones to give away for free!”? The more sensational the headline you see, the higher the chance that someone is trying to fool you. It really must feel humiliating when you can't resist the temptation to click the rotten link, and you end up with a worm living in your facebook account, throwing this silly content up on your wall. I mean, c’mon people, think! Don't get sucked in by these tricks which prey on human curiosity. Surely you're not that gullible that you agree to become one of the army of fools who like empty sites for re-sale.

Cheap flights

Have you seen the latest Emirates commercial? The one with Jennifer Aniston? It’s all about value. First class flights with a spa and an on-board bar. Whatever the price is , it’s hard to argue it’s unfair. It’s not operating in the measurable zone. It’s all about emotions. Where you travel to is actually not that important. Cheap flights on the other hand, like those Ryanair offers, occupy the other end of the scale. They offer to ship you from point A to point B, like a parcel. Or cattle. And that’s about it.

In the middle we have the mainstream, not-so-cheap and not-so-exclusive offers that propose flights with seat selection, checked luggage and a snack all part of the bundled product. Both Emirates and Ryanair actually differentiate their offer against this mainstream. Emirates will charge you a lot, but you'll probably have a pleasant stay on board. Much nicer than in the business class of mainstream airlines (What no spa? No bar?). The positive differential value - and only the value - is communicated. The price remains hidden until later. Cheap airlines on the other hand communicate price, one so low that it's close to zero. Flights are practically for free. And this is what you see when you decide. It's only when you buy your ticket that you learn about the terms: seat reservation costs (they are not going to sell more tickets than there are seats, so what’s the issue?), checked luggage costs, printing a boarding pass at the check-in desk costs. Once you are in the airport you can actually feel the negative differential value vs mainstream airlines. The long queue that forms after the first boarding announcement does not move for 15 minutes or more. You have a chance to watch the passengers with priority tickets glide smoothly past, hassle-free. Well guess what? Yep, it’s done on purpose. You are supposed to see them, and envy them. Try exceeding the strict limits – you are likely to hear that your luggage is too big to take on board, the check-in desk is closed, so you are going to miss your flight. Unless, that is, you are willing to fly without the luggage you had hoped you could sneak in. Try not printing your boarding pass. You’ll get to experience first-hand how the most expensive printing service on this planet operates. Ryanair simply cannot tolerate exceptions from the strict rules. Exceptions would allow misbehaviour. And if you hear stories about how badly a customer was treated you will curse the airline, but you won't be able to resist buying the next offer. And you had best behave, or pay extra for your luggage, seat, meal on board. Or you’ll just accept to have nothing for they won't even treat you like cargo to be delivered.

Group buying

A great mechanism to force suppliers to discount prices is to build scale. They either discount, or they lose a big chunk of sales. Retail chains have this power, and as they grow, it’s often easy to force suppliers to deliver even better value at even lower prices. In the services market small, independent customers can often buy from a broker, a service distributor who negotiates on behalf of their many customers. No need to keep an inventory just have a negotiation desk, good CRM, and vouchers. The difference between the retail chain trading goods and a broker trading services is that in the latter case the price is the only negotiated asset. Service providers really hate to be blackmailed by people who do not produce any goods nor deliver services. They agree to discount because it’s often necessary simply to be visible and to survive in the market. The value then is delivered to individual customers who have no negotiation power left. These, by the way, are the customers of the broker, not of the service providers. Skinflints not willing to pay a fair price for fair value. So the best thing to do is to deliver no more than is absolutely necessary. Bought a day in spa with a 50% discount? Prepare to have, at best, a moderate experience. The best staff will take care of the customers paying the full price, so say hello to trainees. You'll also be the last one on the list they get round to. There won't be any aromatic oils or relaxing music either. Why should there be? You’d like to re-schedule? Off you go and ask your broker! If your only criterion is price, you are not going to be loyal, are you? And by the way – there is no reason to complain, because you got exactly what you paid for. Sorry.

Free is either not really free, or carries zero value. Cheap will give no more than covered by price. And low prices do not cover much. This is why I never buy gifts on group deals, I pay for textbooks (or e-books) if I want to learn anything, and buy checked luggage if flying with cheap airlines for more than just a weekend.

And how about this text or the other articles? Is it generated quickly, without any effort? Let me reveal some of the details of the writing process. I usually write during my commute on the train. Or in the evening, the daytime is reserved for customers. It’s Friday, 10:56pm now. No partying with friends, I'm writing this article instead. One text takes up to 5 hours spread across 1-2 weeks (not including the thinking process!). Some editorial work follows, including proofreading. It costs time and money. So why do I write and share “for free”? Well, it’s not really free. One day you might be looking for pricing training, a piece of analytics or some advice for your business. And I’ll be there, one of the service suppliers you choose. Yes, it is in fact a form of advertising. And I hope you don't mind reading it.

Image source:Trap by Vlastimil Koutecký