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The Freemium model offers users a product or service for free, but with the option of paying for better functionality. It is quite a widespread pricing model, especially among businesses that offer online services. This model aims for consumers satisfied with the product or service they regularly use to make the leap to the premium version. They will then start to pay for access to extra functionality or more advanced features. If you think this could interest your target market, start by analysing your pricing strategy and your costs to avoid potential losses. Then decide how you will introduce this pricing model into your e-commerce business. Read on to find the keys to success.
The primary value of the Freemium model is that the free version offered to all consumers is a quality product, which creates a positive buying experience. It is not the same as free samples which are time-bound and can be of poor quality. With Freemium, the free version has no expiry date. Prime examples of Freemium are in games or mobile applications, like Spotify, which has more than 165 million premium subscribers worldwide.
How to kick-start Freemium in your business
The first step to implementing a Freemium model is to define which extra functionalities and features will only be available to premium users. You can use various criteria:
- Limit functionality: limit the use of specific functionality to premium clients. Returning to Spotify, for example, the ability to download music and listen without a signal is restricted to premium accounts. Also in this category is the ability to limit ads in paid versions of online services and applications.
- Limit capability: offer free users full use of your product or service, but with limited storage, monthly usage, data processing, etc. This is the case with Dropbox and other clouds.
- Limit support: reduce customer service to the minimum for free clients so that support and advice from the company are the main value-added offered to premium customers.
By creating these limits, you should also add a selection of different tariffs adapted to your target markets, encouraging user conversion. By offering different plans you employ psychological tactics, like the decoy effect. This makes it easier to speed up the final buying decision and encourages users to move to paid subscriptions. You can also include plans specifically designed for groups whose loyalty you want to win, like creating a special student or family plan.
Advantages of the Freemium model
- It generates higher web traffic for the business.
- It reduces customer acquisition costs as the complimentary version is attractive.
- It creates a pressure-free environment where users can choose if they want to pay for the benefits or not.
- It increases the brand value.
- It helps increase customer loyalty as they are satisfied with the brand.
On the other hand, one of the main risks of the Freemium model is that it attracts lower quality users, who are less likely to make the leap to the premium version. Despite this, this pricing strategy could be an excellent opportunity to reach competitive market positioning and boost your revenue. Start by analysing your product and service catalogue to identify which are suitable to offer as a Freemium version, or find new business opportunities in niche markets that you do not yet penetrate.
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