The Magic of Free …(a few thoughts on pricing strategy)

There’s a big difference between "almost free" and "free". This can have profound implications for your pricing strategy and the success of your new venture.

A common web business model is offering a free entry level account, with subscription for "premium" features. A free 30 day trial, with subscription needed to continue, is another approach. Done right, these are powerful pricing strategies for new ventures.

Risky Business

Think about it from the customer’s perspective – adopting your new product is a risk. Will it do what it promises?  Will it be worth the money I pay for it? And who the heck are you guys anyway?

Unless you have the credibility of established brand, it can be an uphill battle to get customers to adopt your new product.  

The Solution 

The solution is simple – take away as many barriers to trial as possible and let your product speak for itself. If it delivers real value to people, then it becomes a no-brainer for them to buy because you’ve helped eliminate most of the risk. And since they are used to your product by then, they often stop looking for alternatives.

Barriers to Adoption 

Cost (any cost at all) is a powerful barrier, so make a basic version free – or at least free to try. Even a tiny price like $1 is a barrier – not so much because of the money, but because they have to give you personal information (including credit card details) and put up with the hassle of payment processing.

A lengthy registration process has the same negative effect. "Why should I give you information about me? I don’t know what you’re like or even whether I want to use your product yet".

Get all these hurdles out of the way – ask for the bare minimum of information, maybe just an email and password.

If you offer easy, free trial and deliver compelling value to people, they’ll stick around. More importantly, they’ll often be willing to pay you for the service or an upgraded version of it. It’s all about taking the risk out of trialling your product.

Example 

A good example is Squarespace, the publishing service I have used to create this blog. They offered a 30 day free trial, and all I had to do to register was provide a login name, password and an email address. So it was a no-brainer to try their product. And since it delivered on its promises, and I had already built a prototype, I was more than happy to pay their monthly fee. In fact, I even opened up another account for a different venture of mine. Plus I’m telling all of you about it!

Final words 

So think about how you can use the magic of free to help your new venture. Exactly how you structure your revenue model depends on your business, but usually there’s a way to make the numbers stack up and still offer free trial.

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No competitors? Why no-one believes you…

264925781_ab5d0a1c8f_m.jpgCompetitors are a fact of life. Every business has them. In fact, there is no greater sign of entrepreneurial naivete than saying your idea/concept/venture is so unique it has no competitors.

Why? The practical (but slightly unhelpful) answer is no-one will believe you.

A more useful explanation for why you always have competitors is that business is about serving human needs …which are fundamentally constant.

Remember Maslow’s famous hierarchy of needs? At the base level are our physiological needs, which we look to satisfy first. Then, as those are sated, we worry about safety, then belonging, then self-esteem, and finally (at the very top) self-actualization.

No-one’s about to invent a fundamentally new and radically different human need anytime soon. What does change, however, is HOW we satisfy those needs. And this is what business is all about.

For example, communication with other people is a fundamental need; it’s part of belonging. Once upon a time, that only happened face to face, first with signs, then with spoken language. Then someone invented writing and suddenly communication could span time and distance. Then printed books shook things up.Then the postal service, telegraph, newspaper, telephone, air travel, fax machine, internet, email, mobile phones, instant messaging, blogs, voice-over-IP, … the list goes on and on, at ever increasing pace.

So, how does your “unique” idea/concept/venture fit into all this?

Well, if it’s any good, you have found a way to serve a fundamental human need cheaper or better than the alternatives. Maybe you took away some of the time delay, made it easier to understand, reached customers with less expense, delivered a product more reliably, or something else again.

These are all valuable benefits that people will pay real money for. So by all means talk about the advantages of your new venture. Just remember that there are always alternatives, which means you always have competitors. They may not be direct competitors as you see it, but there are always other people competing to serve the same human need as you.

So, whatever you do, don’t tell people you have no competitors. Particularly investors. You’ll just look silly.

Photo: “Hmm… I don’t think so!” by¬† littledan77

Help your favourite Aussie startup

There are a growing number of promising Australian startups …and I’m sure you’d agree that they deserve more attention than they get. To help fix this situation, I’m putting together a Squidoo lens on ‘aussie startups‘ that profiles and links to the best of them, as well as pointing out other resources and blogs that Australian entrepreneurs may find useful.

For those who aren’t familiar, Squidoo is a site that allows people to set up simple webpages on a particular topic that interests them. This can be a convenient way for others to learn more about that topic, and links from Squidoo tend to be well-regarded by search engines (which is something most startups want!)

So, if you know of (or are involved in) any Australian ventures that fit the following criteria, please let me know so I can include them:

  •  New (<5 years old)
  • Commercially driven (i.e. not a lifestyle business or not-for-profit organisation)
  • Entrepreneurial
  • Future looks promising

And of course, if there are any entrepreneurial blogs or resources that you have found useful, please let me know what they are and why you think they’re good.

The work-in-progress Squidoo lens for Aussie Startups can be found at:  http://www.squidoo.com/aussiestartups/