Its almost everywhere now, Health Drinks with free product attachments, Perfumes with test packs, Vehicles with Free Services, Web Services with Free Trials, Mosquito Repellents with Free Device, Blades with Free Razors..just about everywhere.
Free isn’t Just Free, There is a direct or indirect price on shipping or serving free. so, unless you have the right business model or the right selling strategy, you; as a Business Owner end up paying a huge Premium for your Freemium and many times the damage is irreversible. The purpose of this post is to analyse what works as Free and what doesnt and what works even better:
THIS WORKS!
1. “Free” – to sell a attached product.
A good example would be Gillette, Free Razors to you, but you buy the blades from me; if you have a product which can be attached to a particular service or ancillary which would have perpetual demand as long as the Principle product is used; This Works
2. “Free” – to get the customer committed
I’ve seen this in “Pothy’s” (A Large Textile Store in Chennai), where all who get into this store are treated with some steaming south indian coffee and vada’s. This immediately gets me committed to this shop and I dont remember once instance where I came out empty handed when my stomach was filled.
Chris Anderson discusses “Free”
3. “Free” – to view advertisements
This three way advertising model works well for people providing information and content. The idea is to provide content which the user would be interested in and get paid by the Advertisers for promoting their products. This I suppose is the most used business model, but again as My Advisor Sameer, who has some strong and sane opinions pointed out, With a biggie like google managing to make only 200 crores on advertising in India, I feel others targeting this model have a very small piece to take home.
THIS DOES’NT
1. Free – to compete with competition
This is by and large the biggest mistake most startups do, In a drive to woo clients from in most cases a large established competitor, they tend to give their core offerings free. You can never create a business model later once you give your core offerings free
2. Free Now, Paid Later
I don’t remember one single product which I started using free and later paid to buy it. I might even stop using Orkut or Facebook if I have to pay for it now. In today’s freeconomy, If you are considering a “Penetration Pricing” Policy which your B-School taught you, most chances are that you sink before you sail.
3. Free – to sell larger Quantities
A Free Sachet goes free mostly, Even a free sample pack needs to have a price. In my opinion, Free Sample Packs of Shampoo’s, Soap’s etc have created a new markets for itself and continue to be sold because people ask for samples in the same quantities and not because people want to try and then upgrade to the regular versions.
THIS IS EVEN BETTER
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For startups in India who are building stuff for India:
– The 3 party /ad based models look sexy and off course it could be easy to get customers if you are charging zero.
– But India totally lacks the “internet population”
– Indian online CPMs are close to nothing
– So we just can not have a free based model
– Biggest free model of all Google also make just 200 crores out of India, which is peanuts by any standards
– Because to be successful each startup should have the potential to get to 100 – 200 Cr revenues all by itself.
“Free†prompts the user to waste”…Absolutely true.Amazing post.
I think ‘free’ signifies lack of credulity these days. Working with apartment managing committees, I’ve seen even ‘free’ versions of apartment accounting software aren’t selling well. Perhaps that’s why, software developers use another word ‘trial’. How much you rate this thought?
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