Though the payoff from free/style business is obvious for customers (free stuff!), what possible reason would managers have to implement such an approach?
The organisational value in free/style comes about because it addresses the fundamental problem all firms face; how to get customers.
In traditional approaches to business price acts as a barrier to entry, and lots of activity is related to knocking that barrier down.
Marketing does this by trying to convince customers there is no risk in paying the price…
The problem is when there is a price, the customer always has a risk!
Free removes this
What’s the payoff for the manager adopting free?
- Overcoming the natural aversion to change and risk that humans have
- New customers using their offering, experiencing their service and giving their organisation the opportunity to prove the ‘value’ the marketers keep spending money on convincing them is there…
- Opening the channels for dialogue about their experience and opportunities in the future
- Customer information that you would normally have to pay a third party to collect
Why wouldn’t managers want these opportunities?
The only reason could be that what they need us to pay upfront as they can’t deliver on their promise
Of course it is not so simple to make free//style work for everyone, but given the compelling reasons to, you should be trying…
PS Thanks to Bwagy for asking the question. To see how he approached it check his book and “pay what you want” consulting.
The Free phenomenon is scary because it suggests everything we know
about business could be wrong. At its heart, it is counter-intuitive to what we have been taught as business people. It goes to the heart of our understanding of the world, it disrupts our cognitive map and that scares the crap out of us. So we reject its challenge to protect our paradigm, a reaction as old as the search for mans place in the universe (just ask Copernicus).
But do we need to be so afraid? Does Free mean less (or even) no revenue? As far as I can tell the answer is NO. Free doesn’t mean no one pays, it just shifts the revenue collection point. Public goods such as street lighting demonstrate how Free has been around longer than Google.
One of the loudest voices in the anti-free brigade has been the traditional content providers such as magazines and newspapers, their catch cry being who is going to pay our journalists and columnists. But realistically it has never been the subscribers anyway! Charging for magazines and newspapers has always been a double dip, a second income stream after the advertising! Conde Naste recent closure of titles was not related to falling readership but reduced advertising (and competition amongst its titles for the advertising).
At its simplest form, price is a barrier to entry for customers. It is the cost of trial and by charging an up front fee (purchase price) any organisation is creating a reason not to buy. Most of the time it is this barrier that marketing is trying to hurdle, providing the reasons why a customer should pay the price.
So if magazines and newspaper were free, the customer would have no reason not to pick them up off the shelf. Circulation up, and advertising becomes more valuable enabling increased charges to offset loss of subscription income!
Seeing price as a barrier to entry allows Free to become an opportunity. It is still your choice, but consider how you will compete once your competitor’s allow Free access. Now that’s something to be afraid of.
If you’re really interested in Free you should check out Wired Magazine’s resource about Chris Anderson‘s book Free! Why $0.00 Is the Future of Business, or download the audiobook here.
You may also like to read Malcolm Gladwell‘s article in the New Yorker: “Priced to Sell. Is free the future?”, in which he criticises the gravity and true importance of Free. If you read Malcolm’s article you should also read Seth Godin‘s response to this: “Malcolm is Wrong”.
Do you thnk free is something to be feared? Let us know in the comments below.
Saying something isn’t ‘rocket science’ is supposed to be denigrating as it implies that whatever is being referred to it is less complex and therefore more easily explained or understood.
However nothing could be further from the truth. Rocket Science is perhaps one of the most simple things in the world to explain (and do the calculations for) since the personal computing revolution! Solving the problem of launching something into the atmosphere* basically requires an understanding of mass, acceleration and gravity. The relationship between these variables is also reasonably fixed. In other words to achieve event A, you simply need to solve what combinations of B, C, D are required. The rules are fixed and everybody plays by the same ones.
If only business was so simple.
Imagine being able to get (and keep) profitable customers, by determining the appropriate ratio of value, experience, availability and communication (or whatever variables you decide to include in the equation) and launching your start up.
I wish!
Although this approach seems to be the one used by many (consultants and academics in particular), most people know no such model comes close to ensuring (or even explaining) success. One explanation could be that we just don’t know (or haven’t discovered) the appropriate variables and their relationships yet. Better science, more empirical investigations and smarter people is needed to identify the ‘parts’. After all, this has worked for all those other really difficult questions in disciplines like medicine, chemistry, quantum physics and rocket science!
I don’t want to deny the vast contribution this approach (and the disciplines mentioned above) has made to the development of knowledge and improvements for society BUT I’m not sure I’m happy to accept that this method of discovery is the only way to reveal ‘facts’ about our world.
What if the ‘truth’ about business, is that it is not possible to know or understand the elements of success because there is an infinite number of variables with contingent (and subjective) relationships between them, which are determined on an ad hoc basis? In business terms this translates to mean that each individual customer uses a personal set of attributes to make their decision to buy (or not), deciding which ones are relevant, important and the impact each has on each other based on their own life experience. This certainly sounds like a more realistic description of my customer experience (and managerial frustration!) than LOYALTY = (f)UTILITY*(SATISFACTION/TRUST).
Does this mean that we need to abandon hope in the quest to understand how to be successful in business? Personally, I don’t think so. However I will explore the consequences of accepting that business can’t be explained by a single model and how we might continue the search in a subsequent post.
How about for now we just concede that ‘Business isn’t rocket science; it’s much more complicated than that!’
* I will concede that rocket science involves more than launching something into the atmosphere, but give me some poetic license for the purposes of illustration – it’s not a Wikipedia entry!
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