The Path to Freemium (Part 1)

Before you can effectively apply the freemium model to your organisation or product you must first consider your customers and their target behaviour. In this 2 part series, I’ll cover the full journey to freemium.

What is freemium?

So you've heard the term freemium and you want to know more.

What does freemium actually mean, how does it work and where's the return on investment? Freemium is itself a nebulous word that you can take at face value and get little to no benefit, or adopt as an innovation strategy to disrupt your marketplace to gain a customer focused advantage against your competitors.

Fred Wilson summarised what freemium means into a simple, succinct statement:

Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base.

Fred Wilson
Union Square Ventures

You don't have to look far to find great examples of successes with a freemium model. Here are just 2 examples I've picked for this article:

Spotify has 30 million reasons why freemium works

Rockstars GTA online provides free DLC for all

Both companies took a risk with freemium, put their profit model in the hands of their customers, and have been rewarded by taking that leap of faith. So, are you ready? Let's get started on your freemium journey to find out if you can reap the rewards of this innovative model.

Leading the horse to water

Describe your target customers

Our first step in the freemium process is to acquire a lot of customers very efficiently. You'll need to get to grips quickly with your customer acquisition model and product offering. Remember most customers are like sheep and tend to find comfort in numbers. The more customers you have, the easier it will become to grow that number - the viral effect from fear of missing out. Through social channels, word of mouth and organic marketing the right product or service can just snowball if you have something customers truly desire. It's crazy to think that Angry Birds acquired 50 million downloads in just 35 days!

The more engaged customers you have, the greater number of valuable target customers you'll have access to. The key word here is valuable - (those likely to pay for your product or service) as you’ll want to track how much time you allocate to servicing those free customers (those who will never pay) - a business can’t run on the free part of freemium. 

Tip: Consider profiling your target customers so they are easier to identify and target. In digital we have the luxury of using data to aid us with this, our ability to learn from habits and behaviours is far superior to that of a traditional model. The faster you can identify who your target customers are, the more efficient you will become in servicing their target behaviours and conversion opportunities.

Making them drink

Delineate target behaviours

Once you have understood who your target customers are likely to be, you can begin to innovate your offerings and customer experience around their target behaviours. So, what are target behaviours I hear you ask?

Target behaviours are things you want your customers to do in order to experience your product or service to understand it's value. Look back at your customer profiles and consider how and when they are likely to engage in these target behaviours.

The biggest challenge businesses face is tackling the indecision of the customer.

Indecision is a psychological trait that most customers are affected by and you’ll need to work those target behaviours if you want to win them over. I like to use the 20/60/20 rule to summarise most target behaviours at this stage. If you are unfamiliar with the rule, it roughly applies itself as;

  • 20% of the people will immediately be on board with whatever you are selling
  • 60% of the people can be influenced one way or the other depending on future interactions
  • 20% of the people will immediately be opposed to whatever you are selling

What we really care about here is the 60% - those potential customers who want you to convince them of a purchase in one shape or form. 

Freemium works best when you have a product and/or service that has a lot of depth or hidden value and simply showing or explaining the product to the user just isn’t a strong enough conversion proposition - people gain this through their future interactions with your product/service.

The freemium model removes the initial cost of trialling this to the user - often seen as a huge barrier to conversion. Freemium models also help build a solid user base which helps with the virality/confidence other users will build with your product.

That's it for part 1. In part 2 we'll cover;

  • Define conversion opportunities
  • The risks of freemium

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