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What is freemium pricing?
Freemium pricing is a link between works free and premium. It is a pricing strategy offering a basic set of services for free for the sake of charging further for some advanced features. The method is used for a new pool of customers by giving something away with no cost. However, later, when the customer pool is established, a business sets a premium price of additional features. In eCommerce, freemium pricing proved to have a major advantage. The entire concept allows a company to use scaling without any incremental cost.
A core element of freemium pricing is about using a marketing element of “free” price for some basic features. It is expected that a zero price point spreads quickly among consumers and is presented as one of the most notable word-of-mouth marketing methods. Keeping that in mind, freemium pricing can be applied in particular conditions.
- First and foremost, consumers can use the service for a particular time for free, and later they will be charged for any continuing provision of services. It shows consumers why they need the assistance.
- Second, consumers should have direct access to a free version of a product with a limited number of features. The key issue in such a condition is that key functionality need to be paid for. Essentially, a customer should be able to pay for additional services.
- Third, it is crucial to properly determine the period upon which a limited number of free features is offered. If the period is properly determined, the customer will be more willing to pay for premium services. If the period is incorrect, consumers won’t be willing to pay extra.
Essentially, freemium pricing needs to be adopted when a company determines the types of services it will offer for free and the period upon which such services will be presented. Besides, it is important to provide services for clients who can potentially pay for premium features. Freemium pricing is a great marketing strategy allowing building a customer base and avoiding paying an incremental amount for that. However, as the abovementioned factors show, it should be adopted in particular conditions.
Examples of freemium model pricing
When it comes to different examples of freemium pricing, it is crucial to correlate the examples to various types of the strategy.
- Traditional freemium model. This model entails the basic concept of a freemium package with particular clients paying extra to have free access to them forever for a special price. Yet, such a model offers a limited functionality of specific features. An example can be some software platforms offering different price packages. You can use basic features for free for a particular period, and later you are provided to upgrade the features for a certain cost.
- Land and expand the model. This model predominantly works for Business-to-Business companies. In such a context, a company offers a free version of its product to employees of a particular company. When users sign up for the product, which is often a software service, the company appeals to the higher prices for an upgraded version. Slack is the application using such a model.
- Freeware 2.0 model. This model entails urging a user to pay for services that improve the functionality of a product. For example, imagine a mobile game. Often, when playing, users will be bombarded with many advertisements. Essentially, if a customer wants to enhance their experience and play without ads, they need to pay an extra fee to get an upgraded version.
- Ecosystem model. This model entails charging third-party developers or applications. Google Play Store or App Store are examples of the ecosystem freemium pricing model. Within such a model, users can download apps with full functionality without losing any functionality. Yet, the money is made through advertising the brand and the percentage Google or Apple takes for posing other products of the same business.
- Alternative product strategy. Companies with multiple high-value products often use this model. For example, in the approach, a company offers a free product to its users. The products build a customer base. Later, a company introduces an alternative package for a particular fee. In such a case, users see how the product function and can have an idea of what an alternative premium package entails.
These are key freemium pricing models, all including specific examples. One can see that is a broad range of functionality within the phenomenon.
Advantages of free version pricing
Regarding the benefits of freemium pricing, there are several key aspects to mention. Freemium pricing brings the following advantage:
- Low marketing cost. Price is the key marketing tool. Something is offered for free and presents the best marketing vs. cost approach. Essentially, freemium pricing is a low-cost marketing strategy almost any company can use.
- Potential paying customer base. The massive benefit of freemium pricing is about extending the pool of customers. They represent the sales funnel for additional paid users.
Within the scope of such benefits, it is also crucial to consider the challenges. These should be taken into account, namely because they can thwart the quality of freemium pricing.
- Fixed cost coverage. Any company with a certain fixed cost uses freemium pricing that does not generate sufficient revenue. Such a business will experience losses.
- Value perception. When customers use a free package of basic features, they can create a particular perception of other alternative premium packages. In such a case, it is important to create a specific positive perception of a brand when offering freemium pricing.
- Competition. In a condition of fierce competition, many companies can use freemium pricing. As a result, it will increase price competition for the premium version of the service offered.
The elements mentioned above show what particular benefits freemium pricing can bring. However, to get the most out of the strategy, it is also crucial to consider the potential challenges as well.
Freemium pricing is the marketing approach that offers customers basic features within a product without cost. Later, the same customer pool is provided a premium package of features for a particular fee. Freemium pricing should be applied in specific conditions as well as it can bring special benefits to companies willing to use it.
Find answers to some of the most common questions people have regarding the use of Competera.
Why would a company use freemium pricing?
A company would use a freemium pricing strategy to lower barriers to entry for new users. Essentially, the business allows consumers to test a limited version of a product without a need to pay any fee for that.
Is freemium free?
Freemium is free for customers because it is a strategy directed at offering consumers a taste of some advanced features at no cost. Yet, further, a company charges a premium for these advanced features.