Whether it’s been lamps to light a house or games to play on phones, starting with a free product and moving to profitability has led many companies to success. The initial cost of something free, however, can be a daunting proposition, depending on the circumstances, and giving away the right thing at a loss is essential to making money with such a maneuver.
The simplest way to use freebies, and the one that earned many freebie programs the “razors and blades” moniker, is to create a captive audience. By offering a free product with an obvious benefit that also has renewable components, a business can generate a user base that keeps coming back time and time again. This type of freebie works best with products that have such a combination of durable and disposable or consumable components.
Though razors and blades gave the method its name, one of the most notable uses of the model is that of lamps and oil. To create a market for its oil in China, Standard Oil provided millions of safe, reliable lamps that used it, and which advertised the oil on the lamp itself. These lamps not only introduced Chinese peasants to the brand and to the oil, but generated consistent demand for reliable light. Once these customers had the product, they needed the ability to operate it, which could be most easily purchased from Standard Oil.
A relative newcomer to the world of modern marketing, “freemium” pricing is a product of the digital age and is primarily seen in software, including games and tax software. When a product is offered as a freemium item, the core features can be used free of charge. A game, for example, still provides its baseline play experience, and a piece of tax software will still handle the sorts of individual income taxes and tax credits that most users are likely to need to handle over the course of doing yearly taxes. For many users, the free product satisfies all relevant needs.
Other users, however, find that a required feature is missing, or that they would enjoy the product more with some additional convenience features. In the case of tax software, users might pay extra for the ability to file business taxes or report income from farming; in a game, a user would consider paying for additional powers, more time to play, or advantages over other players. Formerly-free users turn their hard-earned dollars over, either way, to access components that were previously unavailable.
Freemium pricing for certain services can also help a business grow alongside its customers. Offering a free service with a few basic features, as well as premium versions with stronger customer support and other features that require more face time with the customer, allows the freemium provider to avoid expanding certain services until customers demonstrate an interest in them.
Free Samples and Trials
One of the easiest and most time-honored methods of using a freebie, the free sample is just that: a small taste of the product at no cost, with the expectation that potential customers will be drawn in by their initial experience. A close cousin of this model is the free trial, in which users can enjoy the full benefits of the service or product for a short period, but must pay to continue using it. This model is best for products that provide an immediate, tangible benefit, such as food or software, which can be acted on more than once.
What do you think?
By using these three methods when they fit a product or service, you can significantly extend your existing market or create new markets entirely. A carefully-applied freebie can also generate trust and goodwill among your customers. Have you had a major success or failure involving free products? Is there a company you’ve stuck with because of a freebie or a loss-leader product? Tell us your story in the comments.