Since the time Philip Kotler wrote his valuable tome on Marketing, technology has evolved so much that new pricing models like Freemium pricing are possible for both Consumer-oriented and Enterprise-oriented product startups. In addition, Free Trial pricing models and conversion to paid ones are common in both. In a price-conscious society like India, pricing can mean all the difference between a successful company and one that is not!
What have been some valuable lessons learned by companies in the recent past using all of these pricing models? If you were a product startup, what would be some of the pitfalls to watch out for?
Main lessons from using a Freemium Pricing Model for Consumer Internet Businesses
First, here are a few YouTube videos of Drew Houston presenting DropBox’s use of Freemium pricing with consumers, the lessons they have learned, and the pitfalls they encountered.
- Use of SEO for lining up free users is very expensive
- Affiliate Marketing is also expensive and does not work very well
- Make sure that there are enough Paid Users that can support Free Users and you can still make money! Make sure that the Long Term Value (LTV) of Paid Users > Customer Acquisition Costs (CAC) of all users. Otherwise, the more users you line up, the more you lose!
- Build as many tools that help your free and paid users do viral and word of mouth marketing for you as you are building features!
- Once you have given something for free, it is very difficult to take it back! But it can be done, as the videos show!
Drew Houston : Freemium for Consumer Internet Businesses, Part 1
Drew Houston: Freemium for Consumer Internet Businesses, Part 2
Drew Houston: Freemium for Consumer Internet Businesses, Part 3
Main lessons from using a Freemium Pricing Model for Enterrprise Businesses
First here are a couple of YouTube videos of Aaron Levie presenting Box.Net’s use of Freemium pricing with an enterprise product, the lessons they have learned, and the pitfalls they encountered. Their product is an enterprise collaborative portal that competes with Microsoft Sharepoint Portal but is hosted by Box.Net.
- Tomorrow’s Enterprise decisions are made by today’s free users. So keep them happy! They are your marketers inside the company.
- Sell enterprise freemium models to end users, not IT.
- Unlike other models, Inside Sales will be taking calls from already existing free users – no need to prospect them. They come already qualified!
- Conversion is key and is harder in enterprise freemium. This is purely because of the sheer larger numbers in the consumer space as compared to enterprises.
- Understanding the difference between a “Free Trial” customer and a “Freemium” customer! Freemium customers stay on long after Free Trial customers are gone because their trial period ran out!
Aaron Levie: Freemium and the Enterprise, Part 1
Aaron Levie: Freemium and the Enterprise, Part 2
Dumb Pricing Mistakes
Here is an interesting video on dumb mistakes that people make in pricing, especially multiple tiers with different sets of features. And how to fix them!
Pricing Strategies: The dumb pricing mistake people make (and how to fix it)
Price is what you pay. Value is what you get – Warren Buffett