When it comes to defining a pricing strategy, a guestimate is not an option, in this piece, Caroline Franczia uses examples from Pretty Woman to analyse a particularly dangerous approach: a freemium business model.
I am categorical on this, in SAAS B2B, I am yet to be convinced that freemium* is a sustainable go-to market strategy. Why would you depreciate the value of your software, worth that, to your enterprise customer may be inestimable? This is what Vivian, in Pretty Woman identifies from her very first ever encounter with Edward Lewis. Don’t be put off by the girlie movie reference, when it comes to business insights, you’ll see the quotes are… on point.
“You can’t charge me for directions!” – Edward
“I can do anything I want to baby, I ain’t lost.” – Vivian
Except maybe – there should be at least one exception to such a bold statement – if you have more of a B2C go to market strategy, which means that your solution will never, ever target an entire department, a complex, large company and the features between Freemium and the paying version are so clear and so valuable that people would end up paying for it.
“I appreciate this whole seduction thing you’ve got going on here, but let me give you a tip: I’m a sure thing.” – Vivian
Nevertheless, at the very early stage many startups believe that a Freemium offer is the way to go for growth and adoption. The main issue with thinking growth in your pricing strategy is that free volume will always equate to… zero pounds in the bank. And as we know, Zero multiplied by one million is still zero, and that is not good for your revenue growth. One million users paying nothing can leave you bankrupting your business in infrastructure, R&D and energy costs! Spotify, a B2C company lost €340M in 2019 with 265 Millions users and 127 Million paid users.
“You people work on commission, right?” – Vivian
“Yeah.” – Shop assistant
“Big mistake. Big. Huge. I have to go shopping now.” – Vivian
Before moving forward with any pricing strategy you must do a little bit of homework:
Analyse your growth target audience
- Who are you targeting: type of population… and are they price sensitive?
- What difference will you make in their day to day: stickiness
- How can you become viral: adoption
Refine your product positioning
- Is your software providing a solution that does not exist to a common problem?
- Is your platform based on features that no one else does?
- Is the product going to blow the users mind from the first few hours of usage?
With this in mind it is easier to define your go-to market route and associate the appropriate sales and marketing efforts (growth hacking) with the value based pricing strategy, one that will sustain your expansion.
“I never joke about money.” – Vivian
“Neither do I.” – Edward
The common truth with Freemium is that no matter how good your solution is, no matter how attractive the additional features might be, the person who is using your solution for free will do everything they can to keep it that way, especially if it is good enough as it is. Come on, except for maybe Vivian and Cinderella, how many people really have the opportunity to leave the streets of Hollywood Boulevard and end up shopping on Rodeo Drive?
“I just wanna know who it works out for. You give me one example of somebody that we know that it happened for.” – Vivian
“Name someone? You want me to name someone? Oh, God, the pressure of a name… Cinde-fucking-rella!” – Kit