Wednesday 18th of September 2013
Freebies are always welcomed by consumers who are not even searching for the product. It is like
...a gift that makes them happy and helps them enjoy...
Freebies are always welcomed by consumers who are not even searching for the product. It is like a gift that makes them happy and helps them enjoy the benefits without paying a price. This is why most businesses offer discounts, referral offers, and loyalty membership programs to woo their target audience. Most consumers are price-sensitive and pay attention to the cost before purchasing. Customer churning increases when competitors price their products in the same range while offering better quality and service.
Thus, business owners must create a pricing strategy that helps them acquire more customers. Freemium is one such technique adopted by businesses offering digital products and services. It involves offering a service for free with basic functionality and charging a premium for additional features that make the service more suitable. It has benefitted several SaaS companies and is now considered a viable option by budding entrepreneurs for easy market penetration. Let us help you understand whether the freemium business model is right for your venture. It will help you clear doubts and make an informed decision.
The freemium business model is a free and premium offerings model where the organisation offers a free service with basic features to attract buyers. It evokes the desire to explore other paid functionalities and makes them purchase the premium service to take advantage of the full suite. Examples of Freemium business models include Spotify, Evernote, Dropbox, Mailchimp, LinkedIn, etc. YouTube has also adopted the freemium strategy by introducing paid subscription for an ads-free service.
Free service users have limited access to the product and are most likely to purchase the premium version. They can also continue using the free service for as long as they want without converting to a paid user. An entrepreneur who purchases a business for sale in New Zealand can use this model to increase the reach of digital products.
It is vital to understand the difference between freemium and free trial services. The latter are time-bound services that restrict usage after a certain period, such as a month or week. For example, a free one-month subscription to a streaming service like Netflix is a free trial model. Once the period ends, the customer must buy the annual subscription to continue streaming their favourite movies and OTT content.
However, with a freemium service, there is no time limit for using the free service. Also, free trial offers access to all the services without any restrictions on premium features. Many businesses misuse the free trial model by asking for credit card details of the user while subscribing to the service and start charging them if the user doesn’t cancel the paid subscription.
Freemium models are beneficial in quick customer acquisition and reduce the customer journey span by expediting the progress from awareness to usage. These free services often get promoted through word-of-mouth among peers and help in faster customer base expansion. Entrepreneurs get customer data for all the users even if they do not convert and can evaluate their behaviour and usage patterns.
Buying a business for sale in New Zealand that works on the freemium model can benefit the owner as they can nurture leads easily. They can place in-app marketing messages to push the users to upgrade, which is the cheapest way of advertising. The business can also include third-party ads in the app or software to generate income.
A freemium business model can have some disadvantages that make it less beneficial. These include the non-conversion of free users. Since there is no limit on the usage of the freemium service, users can continue to use the free version and never switch to the paid one. This reduces the opportunity to generate sales and profits from leads.
If the business tries to make the free version too basic and unprofessional, it might not generate any sales because users might be disappointed with it. In addition, many users are happy to switch to competitors’ products because they have not paid for the service and can easily move to another. The amount spent persuading free users to convert can financially drain the business because they might never purchase the paid version and ignore the marketing messages and calls.
The freemium business model is a good choice for entrepreneurs because it helps to expand into new markets and increase awareness rapidly. However, you need to conduct market research before launching the service. If a wide range of freemium services already exist in your niche, you may not be able to penetrate quickly. The growth of the service is widely dependent on referrals and word-of-mouth publicity.
Thus, it must offer something unique to the users to create a viral effect that makes it highly popular and increases the customer base. Thus, entrepreneurs who purchase businesses for sale in New Zealand in this segment must use social media for organic and paid promotions. The business model’s success will depend on the value offered by the service as a paid offering. If it is worth the customer’s money, they will buy it and increase profits.
Entrepreneurs looking for business opportunities in New Zealand must understand how to increase conversions for the freemium model to make it profitable. These entities can be expanded by increasing conversions which can be accomplished by pricing the paid version strategically. It should not be overpriced to turn away free users. They must be given payment plan options with EMIs and monthly, quarterly and annual subscription packages.
If the business faces customer churning, it must select the potential customers who can convert and offer a full-feature free trial for a limited period. It can help sway their opinion and introduce them to the beneficial features of the service that they had not used. Also, entrepreneurs must provide excellent customer support to attract free users and focus on innovation to maintain a competitive edge. The support team can follow up with customers to upgrade and persuade the users.
Wrapping Up
The freemium model has worked wonders for apps and software-based products. However, it may not work well for every business type. Entrepreneurs must understand the viability of the model and conduct thorough market research before adopting it.
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