The opportunities to adopt a free business model or some sort of it have never been greater. The advances on technology and globalization have obligated companies to create new business models and to differentiate in order to add value for their customers. But which business model should you implement? How many are there?
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The Mixer Event held past 5th of December gave its attendants some important lessons, students from EHL, EPFL and UNIL, met together to talk about entrepreneurship and innovation. Samuel Zeller, our special guest, told us about his experience as a freelancer photographer, the challenges he had to overcome and the strategies he used to do so. From his experience, there was one thing that specially caught my attention, it was the way he used “free” products to attract new customers.
We have been taught that “If you are good at something, never do it for free”.
After this conference, it was clearer for me, sometimes you can do things for free that can potentially lead to faster business growth and increased customer awareness. And there are several successful business models built based on giving things for free, here I refer a few of them:
This strategy consists on giving a product or service at a low price or for free to increase sales of a complementary product. For example, disposable razor companies such as Gilette give razors at a low price but charges for the blades. Or in the digital world we have bloggers who give free guides or free professional pictures to get more visitors and create more awareness.
Free samples (Clients and Influencers)
It is about giving free samples or even free products or services to customer or influencers to gain costumers awareness. This strategy is normally used to gain early adaptors for new products or services. Companies tend to give this free samples to a small group of people of their focus group or influencers to get a wider impact. This marketing strategy is widely used by food and beverage companies such as Nestle to promote new products.
“There’s never been a more competitive market than the Internet”
Consist on offering a basic plan for free or a paying premium plan with special features. This kind of business model allow customers to use the product or service for free and forever, the customer get used to it and they have a high incentive the use the premium service due to the constraints the free version has and the desirable features the premium one offers. Some of the most remarkable examples of businesses using this model are: Deezer, Linkedin, Spotify.
In this case, free products or services are given for free within a certain time limit. With this model users get to know your product or service but at the end they must decide if they are buying or not the product. This model has been used by the anti-virus systems companies, the user can acquire the program for free including basic features for one or more months, depending on the company. One of the latest examples of this model is the Super Mario Run App for IOS which has the first three levels for free and if you want continue playing the next one you have to pay.
And we could continue numering different free business models which are evolving to focus on an specific customer need, for example in the touristic sector, the most visited european cities have Free Walking Tours, which are free and entertaining tours where the visitor doesn’t have to pay an specific amount of money for the tour, but the amount he perceives as fair for the service given. Or we have Google and social media companies in general, which give their services for free for users but their source of income usually is advertising.
Why is giving products and services for free an increasing trend?
Over the past decade the concept of free has changed, it is not taken as a way of subsidysing other products, but as the real price for this product or service, because of the fast fall on costs due to improvements on technology, thus business have to use emerging strategies to monetize using differentiation, and customer needs. Nowadays is clear that practically everything web technology touches starts down the path to free, at least as far as we consumers are concerned. There’s never been a more competitive market than the Internet, and every day the marginal cost of digital information comes closer to nothing the speed at which industries of all sorts are becoming digital businesses and thus able to exploit those economics.
It is important to highlight that from the consumer’s perspective, there is a huge difference between cheap and free, this is what Josh Kopelman calls the “penny gap”. For that reason succeeding in some industries could be determined for having a product for free and a great market or one product with an small price and no market at all.
As my finance teacher would say “There is no such a thing as a free lunch”. But anyway, you can build a win to win relationship with your customer, and succeed in the attempt.
by Christian Melo
Last modified: 31 août 2020