Planet Money
4:46 pm
Fri July 13, 2012

The Cost Of Free Doughnuts: 70 Years Of Regret

Originally published on Mon July 16, 2012 5:06 pm

A lot of the online services you probably use are free. Gmail is free. Facebook is free. Yahoo News and NPR are free (though we certainly solicit contributions!). But increasingly, online companies are trying to figure out how to start charging, at least for some services, some of the time.

But today, we have a cautionary tale about charging for things that were once free. It's the story of how one small mistake moving away from free can cause trouble that's impossible to fix.

The story starts when Russ Roberts, a George Mason University economist, started hearing about how veterans don't like the Red Cross. That struck him as odd, and when he asked about it, he always got the same answer: the doughnuts.

"And I thought, the doughnuts?" Roberts says. "What could that be?"

Go to any VFW hall, even today, and you'll get the same story: During World War II, the Red Cross had comfort stations for soldiers overseas, with free coffee and free doughnuts. Then, in 1942, the Red Cross started charging for the doughnuts. Soldiers have held a grudge ever since.

Turns out it's true.

"It keeps coming up, that they were charged for coffee and doughnuts," says Susan Watson, archivist for the Red Cross.

The organization started charging only because the U.S. Secretary of War asked it to. British soldiers had to pay for their snacks, and the free doughnuts for Americans were causing tensions. So the Red Cross complied, after protesting to no avail. It didn't last long — for most of the last 70 years, Red Cross doughnuts have remained free — but veterans haven't forgotten.

Chalk it up to something called categorical change, says Uri Simonsohn, a University of Pennsylvania business professor. Price changes, people can adjust to. But this was different.

"Imagine, for Thanksgiving, you go to your parents' for dinner and after a nice dinner they say, 'That's going to be $10 per person,' " Simonsohn says. "You would be upset."

The problem isn't the price — $10 for a good turkey dinner might not be such a bad deal — but that you're being charged in the first place. It changes the relationship. For the veterans, the Red Cross went from being a little like Mom, to being the corner store.

So for all the Internet companies out there looking to charge for your service — take heed. Changing categories is really difficult.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

MELISSA BLOCK, HOST:

One of the biggest questions of the internet age is how to turn a free service into something people will pay for. Today, NPR's Planet Money team offers a cautionary tale. Chana Joffe-Walt has the story of how one small mistake in getting away from free caused trouble that's been impossible to fix.

CHANA JOFFE-WALT, BYLINE: A while back, Russ Roberts, an economist at George Mason University, mentioned to me that he'd heard veterans do not like the Red Cross and he found that curious.

RUSS ROBERTS: I think most of us think of the Red Cross as a pretty mom and apple pie organization and I wondered what could possibly created hostility about the Red Cross. And this person said, well, the doughnuts. And I said, the doughnuts? How could that be?

JOFFE-WALT: The story was that, during World War II, the Red Cross set up comfort stations for soldiers overseas. You could go there if you were a soldier and get coffee and doughnuts for free until 1942. Nineteen forty-two, the Red Cross started charging for the doughnuts. Soldiers have held a grudge ever since.

Russ Roberts said, I swear, you could go to any VFW hall today, mention the Red Cross. They will bring up the doughnuts.

HOWARD DUNN: Huh, Roosevelt?

TOM CAIN: Red Cross.

JOFFE-WALT: Which, of course, I did and which turned out to be absolutely true. Here's Howard Dunn(ph) and Tom Cain(ph) in Brooklyn, both guys who served in the 1940s, and first thing they had to say about the Red Cross...

DUNN: Well, they always gave out their doughnuts and coffee, but I feel they shouldn't charge the service people.

JOFFE-WALT: Charge the service people for what, I asked. The doughnuts, he said. Next stool over at the bar, Major William B. Harris.

WILLIAM B. HARRIS: We all felt the same. It was a shame. It was a disgrace. I still remember very vividly and I'm 93 years old.

JOFFE-WALT: Harris actually me, like everyone else I talked to at the VFW hall, that he was never personally charged for the doughnuts, which made me wonder if this really happened. I called the Red Cross and said, have you guys heard of this? Here's the archivist, Susan Watson.

SUSAN WATSON: Oh, funny you should ask that. Before I even came to work for the Red Cross, I heard about it. It keeps coming up that they were charged for coffee and doughnuts.

JOFFE-WALT: And Watson told me it is true. The Red Cross did charge for doughnuts, but only during a brief period and only because the U.S. government asked them to.

The U.S. soldiers went over to Europe to fight in the war, Watson told me. The Americans arrived well-equipped. They had these nice comfort stations with free doughnuts and the British had their own stations, but they had to pay for their snacks. It was a tense situation, so tense that the U.S. secretary of war wrote the Red Cross a letter asking the organization to help ease this tension by charging for donuts.

WATSON: We actually have documentation of that. We have the letter that he sent out.

JOFFE-WALT: The letter, I checked, is posted on the Red Cross website, where it also says the Red Cross was, quote, "adamantly opposed to charging for doughnuts and protested vehemently, but lost the fight when it received this letter." The website continues, the organization has been living with the ramifications ever since.

URI SIMONSOHN: If you see gray and you're surrounded with white, the gray will seem darker to you.

JOFFE-WALT: Uri Simonsohn is a business professor at the University of Pennsylvania and he says what's true for colors is true for prices. Gray seems darker next to white. A couple cents for a doughnut seems outrageous next to free, but Simonsohn says people adjust to price changes.

It's 70 years later and the veterans have not adjusted, which makes him think that what happened here was something different, something called a categorical change.

SIMONSOHN: Just imagine, for Thanksgiving, you go to your parents' for dinner and, after a nice dinner, they say, that's going to be $10 per person. You'll be upset.

JOFFE-WALT: Not because $10 is too much to ask, but because they changed the nature of the relationship. That, Simonsohn says, is what the Red Cross did with the servicemen in 1942. It went from being more like your mom to being like the corner store and this was terribly disorienting to servicemen because, until that moment, it never would have even occurred to them that the Red Cross doughnuts could have a price.

SIMONSOHN: I wouldn't tell my wife tonight, you know, I'm changing this diaper for free tonight. I wouldn't say that. Just saying, free, would imply that non-free was a possibility.

JOFFE-WALT: So, for all the internet companies out there looking to charge for your service, know that changing categories is really difficult. Just ask the Red Cross, an organization that now brings free doughnuts to any event that involves veterans and pleads...

WATSON: Here, they're free. You know, let's get past this.

JOFFE-WALT: I told the guys at the VFW hall that the Red Cross always brings free doughnuts now and here's what they had to say about that.

CAIN: Stale doughnuts, probably, too.

JOFFE-WALT: Once you leave the free category, it's really hard to go back. I'm Chana Joffe-Walt coming to you for free from NPR News. Transcript provided by NPR, Copyright National Public Radio.