Marketing focused on premium products provides the best value

Tucked inside what seemed to be the tenth recent article about people making iPhone (and iPod touch) apps was a gem.

Tucked inside what seemed to be the tenth recent article about people making iPhone (and iPod touch) apps was a gem. A Sun Microsystems programmer who was making an iPhone game app in his spare time sold $2,000 worth of the $4.99 program on the second day of its existence. But then sales plummeted to approximately $50 a day. The New York Times explained how he tackled the sales conundrum:

β€œIn January, he released a free version of the game with fewer features, hoping to spark sales of the paid version. It worked: Ishoot Lite has been downloaded more than 2 million times, and many people have upgraded to the paid version, which now costs $2.99. On its peak day – January 11 – iShoot sold nearly 17,000 copies, which meant a $35,000 day's take for Mr. Nicholas.”

The concept of tiered pricing (i.e., free basic and paid-for premium) is back in vogue. Most dialogue is tailored to the media, where newspapers especially are contemplating charging readers for at least some of their content.

And many iPhone apps follow the same logic the former Sun employee (who subsequently quit to focus on the app full time) employed: get people hooked on a free product and hope they will upgrade to a paid version.

Offering free, stripped-down products as an introduction to an organization's wares is available to anyone whose per-unit cost is negligible or zero (excluding sometimes not insignificant bandwidth and server costs). Kraft Foods' shareholders would revolt if the company gave away Chips Somewhat to induce consumers to eventually upgrade to Chips Ahoy. But Adobe can (and did) create a stripped down, online version of Photoshop to lure more people to purchase the desktop version.

While many employ the basic product as marketing strategy, it is a complicated endeavor. Make a product too compelling, and people will see the upgrade features as mere bells and whistles. Strip the free product too much and people will find it lacking.

Of course, any such strategy requires a great deal of research to find out what core elements are essential to a product. That will inform whatever you put in the basic. But too often marketers focus much of their attention on getting people to try the free product, expecting them to eventually jump to the paid one. If you hooked them on the value of the standard product (with a price of $0), it's a little too much wishful thinking to assume they will go for the paid version. The free version should be left dangling to lure those who pass by; the marketing heft should be focused on promoting the paid product.

Ishoot proved that people will pay for premium, but how you sell that upgrade will determine whether your product or service brings profits. The gaudy numbers of free product adopters are nice, but they won't create a solvent business. In a recession, sometimes people are willing to endure a few less chips to save money.

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