Among startups in tech world, conventional wisdom to succeed involves these steps 1) introduce a product for free; 2) get tons of users; and 3) finally, figure out a business model later when you have enough users. Since such an approach has worked for Google, FB and other companies (e.g Whatsapp) that got acquired by […]
Among startups in tech world, conventional wisdom to succeed involves these steps 1) introduce a product for free; 2) get tons of users; and 3) finally, figure out a business model later when you have enough users. Since such an approach has worked for Google, FB and other companies (e.g Whatsapp) that got acquired by these companies, startups often assume this principle is universal and applies to them as well. This general model may work for many companies but might not work for all companies.
Alternative approach is to try step 1 and 3 together. Yes, put a price tag either when you launch a product or very soon after launching. Here are the top reasons why you should introduce a product with a price tag.
When customers get something for free, they perceive value of the product or service to be low and they have low or no expectations from it. If the product fails, they would just assume product is bad and stop using the product. However, if a customer pays for a product and it fails, they would send a flaming email or pick up a phone to call. Startups shouldn't underestimate the importance such a feedback early in the product cycle.
Tons of products are offered free, pricing a product might help it stand out. Charging a price for a product or service shows your confidence in your product and signals market that product is mature enough to command a premium.
Startups often have to re-pivot multiple times to find the right product vs. market vs. business model fit. Rarely, a company has continued with same product and business model with which it started. Testing business models helps companies to test and innovate fast. Testing a business model after the product matures would limit options and might be hard to change course hence it is better to start testing early, even from the launch.
Pricing is an important tool to gauge value that a product or service delivers. Experimenting with price teaches a lot more about the value that a product creates, elasticity among customers and gauge your value vs. competition.
Not that free products don't drive culture of accountability within a company but paid product has a stronger contract to drive accountability. Employees within your company would feel the pain when they see a paid customer asks for refund or drops your subscription pointing to a defect.
Charging a price doesn’t mean that you should be rigid and haggle for price with your customers. While clearly stating your business model and pricing structure, you should offer free trials and limited offers as appropriate to attract customers. Good Luck!!
Image Courtesy: Sira Anamwong, freedigitalphotos.net