Consumer behavior On Unbundling - Valuing Free

 United Airlines used to run an Ad showing their early days when a business man hitches a ride on a two-seater. The pilot asks, " let us see, you want to have coffee, while we are in the air?". As far as we can look back air travel always included the entire package, from free two checked in bags to coffee. How would customers value something that has been free all along? What is the reference price?  Dan Ariely, author of the book Predictably Irrational and a behavioral economist, says this in an interview with the WSJ.

BUSINESS INSIGHT: On the other hand, what about companies that set the initial price of something too low, even offering a product or service free of charge in order to encourage people to use it? Isn't that why so many online publishers are facing such great difficulties, because they initially offered their content for free and then consumers couldn't move past that anchoring point?
DR. ARIELY: The truth of the matter is that it's very hard to realize the value of something even after you've used it. Say you use e-mail. How valuable is it to you? Sure, if something is free then people will start using it. But what companies don't realize is that the mapping of utility to money is very difficult. People won't say, "This is so great. I'll pay $20 for it." Instead they'll say, "I used it for free all along and now you're charging me? I'm not interested."

If there are substitutes, like other email services that are still free, the reference price stays at $0 in their mind. But if there are no clear substitutes or if there are services that have a higher price, then these serve to assign values to the unbundled services. In the Airline baggage fee case, the next best thing is  to use overnight shipping with FedEx or UPS to your destination. The high price of these services help to serve as the reference points and help to improve perceived value of the unbundled components in the minds of the consumers.