Magento 1 : Use Event to add product to cart and change the Quote Item Price.

addOrUpdateProductPrice.php

<?php 

Class MyNameSpace_MyModule_Model_Observer extends Mage_Checkout_Model_Observer_Abstract  {
  
   /**
    * Add product to cart or update product price 
    * 
    * @event sales_quote_collect_totals_before
    * @param Varien_Event_Observer $observer
    **/
  public function updateProductPrice(Varien_Event_Observer $observer){
    
    $quote = $observer->getEvent()->getQuote();
    $mySku = 'my_sku_product';
    
    /** @var Mage_Sales_Model_Quote_Item $item */
    foreach($quote->getAllItems() as $item){
      
      if($item->getSku() == $mySku){
         
         Mage::register('quoteHasAlreadyOurCustomProduct', true);
          $product = $item->getProduct();
          
          /**
           * Here We reload the product to set our customs Datas.
           * @var Mage_Catalog_Model_Product $product
           **/ 
          $product = Mage::getModel('catalog/product')->load($product->getId());
          
          /** 0 for Free **/
          $myCustomPrice = 0;
          /** Tax class Id 0 in order to don't apply any Tax **/ 
          $myCustomTaxClassId = 0;
          
          $product->setName('My Custom Name');
          $product->setBasePrice($myCustomPrice);
          $product->setPrice($myCustomPrice);
          $product->setTaxClassId($myCustomTaxClassId);
          
          $item->setProduct($product);
      }
    }
    
    /**
     * Add our custom product to the cart
     **/ 
    if(!Mage::registry('quoteHasAlreadyOurCustomProduct')){
      
      $product = Mage::getModel('catalog/product')->loadByAttribute('sku', $warrantyProductSku);
      /**
       * Here we can't use $product directly because its not a real instance of Mage_Catalog_Model_Product when we loaBbyAttribute
       **/
      $quote->addProduct(Mage::getModel('catalog/product')->load($product->getId()));
    }
    
    $quote->save();
  }
}