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We're developing an idea for a product that we can give to retailers at no cost by subsidizing the cost through advertising. Retailers don't pay much for it, but it is still an expense to them. The margin we'll make on advertising is much greater then the cost of the product to the retailers.

Should we give the retailers the products for free as a token of appreciation for letting us advertise through their store?

Or should we not leave money on the table and charge something?

And if we say free, how should we market that? The old thinking anything free is too good to be true, worries us.

I appreciate your help

Cameron

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4 Answers

up vote 3 down vote

While free may be tempting, I would argue for charging for your product for a few reasons, but I would list the top three as:

  1. Charging tends to give you better quality customers.
  2. People link price to perceived value. "If it's free it can't be that good" mentality.
  3. When you charge for something, you tend to work harder at making it worth charging for in the first place, and hence you create a better product.

In the end though it all depends on your goals. Is it more important to have lots of customers (where you are earning peanuts from each) rather than a few (who you earn a fair amount from each)?

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up vote 1 down vote

If you're selling to a business, I would say no free.

  1. If your product/service creates value / saves time, the ROI will drive the decision to pay. If there is no clear value prop, then most likely they won't use it - even if it is for free

  2. I highly doubt anyone would let you deliver ads through their store (use of their space, control over content, liability, etc)

Initially you can be in "Beta" for an extended period of time to drive adoption (= "free"), but set expectations that you will charge. You could use your beta customers to validate your pricing model, once they realized the value of your product

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up vote 1 down vote

I think there are a range of issues and it will come down to your offering, and your clients needs ...

  • A question of volume, by making it free are you going to increase your volume higher then the income from the charge?
  • If your prospective and addressable markets are small then you will probably need to charge something, unless advertisers really want to be in contact with them
  • If your revenue sharing the advertising then free would just be a good long term insurance policy, otherwise someone else will do the same thing and make it free.
  • Freemium Model. Possibly there are some higher volume features for larger companies which they would pay for, you can have a freemium model which allows the small guys on (thus increasing the value to advertisers) and where there are larger needs you can still gain the direct revenue stream ... this is the model I usually favour as its a low barrier to entry "no risk" option which people sign on to far easier.

Also, free is not free if someone is paying for it. If people can see where your getting your money from then they are just benefiting from it not being them.

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up vote 0 down vote

I appreciate your answers. Moving forward we will offer free as a beta then will see how things go and if need to charge a bit we will.

Cameron

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