Question

A Web site reviewing new CDs offers you a free subscription. All you have to do is complete a brief online application. What is the opportunity cost of this "free" offer? Why do you think the offer is being made?

Short answer

The opportunity cost includes time and privacy risk. The offer is made to attract users and gather data.

Step-by-step solution

Understand Opportunity Cost

Opportunity cost refers to the value of the next best alternative that must be given up to engage in an activity. In this scenario, when you complete an online application for a free subscription, your opportunity cost could involve factors like time spent filling out the application and any potential risk of sharing personal information.

Identify Non-Monetary Costs

Even though the subscription is described as 'free', there could be non-monetary costs involved. These could include the time invested in completing the application, potential privacy concerns, or receiving unwanted marketing communications as a result of sharing your personal information.

Analyze the Motive Behind the Offer

The company might offer a free subscription to attract new users, gather data for marketing purposes, or increase engagement with their content. By making it free, they lower the entry barrier to attract a broader audience which could later be monetized through advertisements or premium services.

Key concepts

Non-Monetary Costs

When something is offered for "free," like a subscription to a website, it's easy to think there are no costs involved. However, there can be non-monetary costs that play a role in the decision-making process. These costs are not about money spent but more about what you are giving up in terms of your personal resources.

• Time: Filling out forms and applications takes time, even if it's just a few minutes. This time could be spent doing something else productive or enjoyable.
• Attention: You might have to deal with ads or promotional materials that attempt to capture your attention regularly, which could be seen as a distraction.
• Enjoyment: If the subscription or additional notifications from the service aren't of your interest, they might take away from your online experience quality.

These non-monetary costs are important to consider when deciding if a "free" offer is worth it for you.

Privacy Concerns

A common concern associated with "free" online services is the privacy risk involved. When you sign up for a free subscription, you typically have to provide some of your personal information. This is often used by the company for their own purposes, which could bring significant privacy concerns.

• Data Sharing: You might have to share details such as name, email, and sometimes more sensitive information. This data could be used for targeted marketing.
• Third-Party Access: If your information is shared with third-party companies, your data might be used in ways you didn’t expect or agree to.
• Loss of Control: Once information is out there, you can't always control what it is used for or who accesses it, which may be concerning.

Always read and understand the privacy policy before signing up for free services to ensure your data is handled responsibly.

Marketing Strategies

Offering free subscriptions is a strategic marketing approach used by companies to attract and engage users without immediate monetary exchange. Such strategies help the businesses achieve several underlying goals.

• User Acquisition: By lowering the barriers to entry, companies can quickly grow their user base.
• Data Collection: Through sign-ups, companies collect valuable user data which can be leveraged for targeted advertising.
• Brand Loyalty: Once users are familiar with the content or service, they may develop a preference for the brand, potentially leading to future purchases.

These marketing strategies are designed to convert the "free" users into paying customers over time, making the initial free offer a key part of their broader marketing plan.