The Freemium Model and Customer Dependency

Start your “free trial” today. These are words we have become all too familiar with and fatigued by

Start your “free trial” today.  These are words we have become all too familiar with and fatigued by - to the point where we block it out.  The savvy individual knows that nothing is free, and with B2C products, all they want in return for 1 month of our time - to“test” their product - is a credit card number. For those of us who are financially scrupulous, we don’t even like crossing that threshold for that request, because God Forbid that in a month’s time you forget to cancel that YouTube Premium subscription you got. Then many start feeling buyer’s remorse, upon that charge you begin weighing the opportunity cost of that video and a Chipotle bowl (to our unfamiliar European and Asia Pacific readers, it’s good food at a reasonable price).

 The freemium model for a large percentage of products has run its course. Individuals that don’t have a brand familiarity with a product are simply unwilling to put that much skin in the game, not because they’re uninterested in the product but because they aren’t interested enough to compromise. at a pay wall barrier. A “no” isn’t the end of a conversation, it’s the beginning of a negotiation.  What you need as a company is more information.  To resolve this issue, you need to give more. It can be a costly proposition, but at scale, it becomes well worth the return. Instead of giving a month, you give them 6-12.

 

While burning money on a risk seems like a gamble, it really isn’t because what that consumer has really given you is more time to learn about them and build a customer relationship. You’ve gotten their initial interest, now you can begin the work of using data to figure out what they need. If the customer is continuously receiving value from the exchange, they will stay.  

 

The model around this is to find out exactly what your customer needs and this hinges on a few factors: First and foremost, establish trust, and don’t automatically lock them into a negative options payment obligation - warn them repeatedly when their trial is about to expire. Establish expectations and intent by determining whether this is actually a qualified prospect that can afford the product at the end of the trial. Second, use the initial interest to build a customer avatar. Determine what offering piqued their interest and drive the sales funnel further through the experience so that the prospect is continuing to receive value to the point where they are dependent or enthralled by your product and will ultimately pay for it. Now here’s the real kicker, you then set your prices at triple or quadruple the cost of service when the trial is complete so that you ultimately don’t lose anything and model in that initial “freemium” lost cost over the customers estimated lifetime contract value.

 

This is a model that works across B2C and B2B and with the more scale the better, because depending on your targeting strategy, you still need to model your approach around a likely conversion rate - even with the most precise account-based marketing strategies.  There are multiple ways to create a freemium model.  Freemium does not strictly mean “free trial” it simply means you are giving a customer something they need at your expense for a set period of time.

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