Pricing a new product in today’s marketplace can be a vexing proposition. Without any clear history as to what a consumer will be willing to pay for your new offering, applying a standard markup over cost may result in a correct MSRP… or it might not. If you set your markup too low you might end up crippling your own profits but a markup that’s too high could handicap sales. When premiering an item the pricing could always leave you wondering if you could have turned from reasonable profit to bonanza: Might this product at $20 retail have sold just as well at $200? As it turns out there is a completely different methodology of pricing making considerable headway and removes all doubt about exactly where to set your pricing. Just give your stuff away for free!
The Flavors of Free
Setting your price at zero is not as lunatic a prospect as it might seem to be at first glance. A number of very popular online companies have adopted the free pricing model as the base of their entire business and they’re doing extremely well, thank you very much. Here are the leading ways of how they’re managing to work the magic trick of Free Free Free:
1. Advertising Supported
In the publishing world this model is called controlled circulation and it’s still the status quo for many trade magazines. With the skyrocketing cost of printing and postage, controlled circulation has become a high risk gambit as many magazines are finding that the spread between the income they can secure from selling advertising and the costs they incur to produce and mail the magazine becomes prohibitive. Similarly, online companies need to bring in income from something in order to cover their costs and hopefully make a profit. If they can sell enough advertising or gather enough clicks onto banners provided by Google or other ad networks in conjunction with the provision of their free online product then the business model can work.
2. Partially Free
This legerdemain involves giving the headline product away for free but charging for supplementary or ancillary services or features. The types of applications are literally innumerable and they vary from the shareware model where you download a software program that is limited in functionality until you pay to unlock the features all the way to providing the primary tools for free and then charging for bandwidth, usage fees, transactions, technical support, queue jumping or pretty much anything you can think of. Surprisingly few consumers actually perceive these types of pricing models as “strictly paid” so they are growing in popularity by the day.
Of all the free pricing models this one may just be the sneakiest. You are provided a product or service absolutely for free, no strings attached… but then you get a call from the salesperson who is going to try and get you to buy an expensive and sometimes completely different product on the basis that if you’re the type of person who wanted the free product then you’ll certainly be in the market for the expensive one. In this model the free product is really only a ploy for the sales department to gather leads, and in many cases this can be a very successful strategy.
There are some instances where a product or service is completely and totally free for the user with none of the above catches, but there is always a ploy beyond sheer altruism. Perhaps you want to build a thriving community user base in order to build a reputation for your future paid products, or you want to charge corporate buyers for their version of the item based on its popularity among the general population.
Since money makes the world go round there always has to be some way for a company committed to the free model to keep the lights on and the payroll checks from bouncing. Consider applying some of these imaginative pricing models and you too might be the next free success story.