Pricing – Freemium the Maligned Option?

Pricing for Startups

As everyone in business knows, pricing is key.  Pricing of products and services for startups is far more complicated today than even ten years ago.   A good pricing strategy can involve new tactics such as freemium, special discounts, variable pricing, etc.

To maximize a company’s marketing efforts a well-thought-through pricing strategy can accelerate segmentation, enhance the value of your branding, maximize opportunities to remain competitive, and generate sustainable profits.

The important concept to keep in mind when considering pricing strategy is to aggressively manage and innovate one’s entire pricing package rather than simply reacting to short-term changes in the market or competitive pressures.

A Conscious Choice

In the era of evolution of the Internet the concept of “free” became a conscious choice for many businesses.  Then, the first Internet bust back in 1999 arrived, and free became a bit more suspect.  Despite growing skepticism over the Freemium pricing concept there still remains room for the option. I suggest those of you adamantly against freemium rethink your assumptions and recommendations and understand the competitive realities faced by most small businesses. As a small business, you are generally not Gucci, Prada, Google, Walmart, or Proctor & Gamble, all companies that can typically dictate terms.

The notion of having one price and committing to it is simply obsolete and ignores competitive realities.

Freemium’s Validity

Pricing models to fill capacity, bundling products, giving free product to create buzz, volume discounts, etc. are common in almost every transaction.  In addition, Freemium can be used to sell clients and improve relationships.

The reality remains that free and deep discounts are a prevalent competitive strategy and must be considered in one’s marketing mix to stay alive, competitive, and differentiated.

There are times when businesses large and small spend significant dollars without valid justification on items such as advertising designed to reach people who may not be customers or to generate leads that are poorly understood or executed.  Hopefully, free, if done right, simply focuses those costs on customers who have real potential of generating profits in the long term.  Thus, it can become targeted selling, branding and list generation for future sales or other advertisers.

Some Not So Obvious Freemium Related Recommendations to Consider

• Most professional firms have significant budgets to prepare business proposals which give potential clients significant free information.  For example, insurance companies market free financial assessments before selling life insurance.
• The best known “free” related company remains Google.  While Google makes oodles of money anyone can use their search engine, their email, Google+, and the list goes on.
• Frequent flyer programs, volume packages, friends and family, etc. are carefully designed to increase volume and build brand loyalty.
• Individuals and businesses download free materials and apps as creative marketing tools with the sole purpose of creating lead generation for suppliers.
• Groupon and other flash sites have built billions of dollars of sales for clients via deep discounts.
• Fitness centers typically offer free one day or one week trials.
• And my favorite marketing idea, which never fails, the free noshes and samples at the deli counter or at Costco.

Conclusion

Freemium is rarely a complete pricing strategy for startup businesses today.  Nevertheless, it can often bring real value to certain startup businesses that integrate the strategy into the company’s full assortment of pricing options.  Make sure to at least consider Freemium Pricing as an option in your startup’s pricing strategy.

Bert Shlensky is president of www.startupconnection.net and Freemium is a key opportunity in of the branding, sales and marketing strategies in their program.