How to make money by selling for free
I have begun to write a fortnightly column (every other Tuesday) on Exchange 4 Media also called Marketing Unplugged. The first one appeared today and you can see the original by clicking here. The text of it is below:
Hello and welcome to the Marketing Unplugged blog. This is a blog that celebrates unconventional thinking in marketing strategy. I believe that marketing has become too process oriented and needs to take a more creative approach. Not just in communication, but in all aspects of the marketing mix and the marketing strategy formulation.
Let me start with the story of two Harvard graduates, Yifan Zhang and Geoff Oberhofer. They studied Behavioral Economics in their course and were inspired to take one of the principles of this new science and base their business model on it.
So they have started a business that they call Gym-pact. Their offer is simple. Gym-pact asks you to make a minimum commitment about how often you will use the gym. Suppose you commit to using the gym at least once a week. The gym is free so long as you come there at least once a week. But if you don’t show up, then you will be charged a penalty for that week. Don’t show up the next week either and you will pay another penalty and so on.
Their stated mission is that they want to help you stay fit. Working out in the gym is the classical case where you lose something in the present (the trouble of waking up early, going to the gym, the pain of the workout), so that you gain something in the future (lose weight, look good, stay healthy). The problem is that we much prefer present gain to future benefits. So we will always find excuses to not go to the gym now and let the future take care of itself. Gym-pact attempts to give you a benefit in the present for going to the gym (you save money) and also helps you gain in the future.
Isn’t this a brilliant use of price as a marketing tool? We all know that when we sign up for the gym we are determined to go there everyday. But soon our resolve weakens and we stop going. Gym-pact banks on this insight into human nature to make money. The beauty of the scheme is that the pricing strategy helps to build the brand even as it makes money for the owners.
This raises the issue about why we don’t use price more aggressively. Most marketers take price as a given – something that is determined by the finance people. Usually it is determined by taking costs and adding on a profit margin. The only variation to this is when we offer discounts to customers.
Chris Anderson is the editor in chief of “Wired” magazine and has written a book called “Free”. In it, he argues that one of the big changes in the new economy is that consumers are used to getting a lot of stuff for free. Businesses, however, still need to make money. So several industries have evolved models where that makes money even though some of their products / services are given away for free. Mr. Anderson outlines several such examples in his book. By the way, his book can be downloaded for free as an unabridged audio book from here (http://goo.gl/yKJ9). However, if you want a physical copy, then, of course you need to buy it. A classical case of giving something for free and charging for something else.
Musicians are doing that now. Some of them give away their music for free from their websites and then make money from concerts & merchandize. Not long ago, it used to be that concerts and merchandize were marketing tools for promoting the CD. How things have changed.
Stop press: Did you read that Amazon has priced its new Kindle tablet so aggressively that it is likely to lose $50 per piece? They plan to “sell millions” and so the losses aren’t going to be small. But they are taking the larger view and see this discount as a way of promoting their brand and gaining a long term customer. They will make money by selling books, music and movies to this customer.
Do you know of other examples of innovative uses of price as a marketing tool? Or do you have ideas on how an industry could use price more creatively? I would love to hear of them.
(Suman Srivastava is Founder and Innovation Artist at ‘Marketing Unplugged’. He believes that creativity in marketing is too important to be left only to the ‘Creative’ department. So his new company is focused on helping brands create innovative strategies. Until recently, he was leading Euro RSCG operations in India.)
Founder & Innovation Artist, Marketing Unplugged.