SurveyGizmo- Free Version Done Right. No Freemium is not Back.

TLDR – The title says it all. This is not scattershot approach of freemium.

My all time popular article – most read, tweeted, commented –  is the one on Freemium I wrote for Gigaom. That article begins with a quote from Christian Vanek, CEO of Boulder based SurveyGizmo. I will always have a soft corner for SurveryGizmo because it is from my adopted hometown of Boulder. And it is an amazing survey tool with great UX.

Three years ago, in my telephone interview Christian shared this with me (I encourage you to read the full interview as it shows how transparent and forward is Christian in his thinking)

“We are now seeing the end of the freemium model — signing up users for free and trying to upsell,” 

SurveyGizmo knows pricing is not static and it needs to constantly iterate to align with changing customer mix and needs. Yesterday they announced a free version that has no limits on questions and responses. What does this mean to its stated segmentation strategy? Is freemium back? I did not get to talk to Christian on this but I posit this is not fall back to scattershot approach of freemium but a carefully chosen pricing strategy to account for change in customer mix.

Here is a view of what its current pricing looks like.

plans-pricing_

In addition to a free version there are now 3 versions. Contrast that to their single pricing option they had in the past.

And prior to that the choice of three versions.

sgizmo

Now it may appear they are not only back to where they started but also introduced a free version which could be seen as adoption of freemium.

Here is why I believe they did it and why it makes sense

  1. There is abundance of general purpose survey tools for casual users – hobbyists, bloggers and the rest. You cannot compete for this category nor can you expect them to pay.
  2. Casual users  are not conducting a rigorous marketing research but are simply collecting some data and writing it up.
  3. Most surveys by casual users have less than 3 to 12 questions. So offering unlimited questions is a no brainer choice.
  4. Most surveys get fewer than 500 responses. For a carefully designed survey that does random sampling of its target population that is more than enough.
  5. Will these casual users ever become paying customers? Highly unlikely but the cost to serve them is almost nothing and there is value in using them as test subjects for many new experiments and product features.
  6. Serious users start with a decision problem, conduct exploratory step to build hypothesis to test then conduct a meticulous survey. These users need more sophistication from the tool.
  7. All the feature that serious users value – input error checking, adding logic and control to the flow,  rules etc. – are available only in the next tier.
  8. Of these serious users who is willing to pay for a superior survey design, there is a certain class that is satisfied with basic support while another that is willing to pay for faster and better support experience. For the second class there is a premium priced version at $85.

Overall I believe this is pricing done right based on customer segmentation. The goal is not to get bunch of free customers and hope they will upgrade but to keep SurveyGizmo in the consideration set for many serious users by increasing its awareness among all users.

 

Where do you start when you build a product?

bb810ea3c1ce83c2b7168e62c21476c1.jpgPeople ask me this question in different contexts – from casual acquaintances who are not into business, those changing careers from engineering to product management, to someone in product marketing wanting to write a series of blog posts for marketing, to those who want to hire me to build and scale their business.  I share with them my simple, testable, repeatable model to build products.

I find there is no single unified coursework in MBA programs to cover this. I find the methods described in books on product management dive too quickly and too deeply into day in the life of a product manager. I find most enterprises and startups get into hustle of doing things first or attending many meetings about it than put some rigor around this most important aspect. I find the blog posts and advice from pundits are based on myths, fables and selective anecdotes.

I want to share with you my model or framework for great product management. I use this method with every new product, pivots or feature additions. I coach the teams I hire on this method to help them become amazing product managers.  Here I present an infographic of this framework I call, CAMP.

Ask me how I can help you, your business and  your team put this into practice to build products.  Remember, it is not a product until you have identified customers whose problems it solves and who are willing to pay for it.

Pm Framework

Product Searching for a Customer Job To Be Done

keep-calm-and-sell-just-one-moreGrowth and market share seem the holy grail of most businesses. A McKinsey report titled, “Grow Fast or Die Slow”, says, only businesses that grow survive (tautology?).

Sometimes, in a mature market, product and brand managers tasked with meeting growth targets,   build products with the single minded goal of selling just one more to the customer. They build the product first then search for a customer job to be done.

Active product positioning starts with customer needs (jobs to be done) and informing the customer

  1. Which specific job you want them to hire the product for
  2. Which jobs you do not want them to hire the product for
  3. Why your product is the most suited candidate to do the job better than any other alternatives out there

Passive positioning is letting the customers decide which job they want to consider the product for. Active positioning is choosing the specific customer job to be done. In either case customer needs must be identified first. Growth driven positioning takes active to the extreme and becomes annoying.

In an attempt to get more wallet share from customers they resort to,

  1. Telling customers why a specific need is so acute that they better fill it or risk disaster
  2. Make yet another product variation  to apply for specific instances of a particular job – one for night time and another for day time
  3. Use emotional messaging to appeal to our System-1

That is what we see happening with Febreze Sleep Serenity. We have seen this before with Downy Simple Pleasures. When 99% of households already buy at least one P&G products the only option for growth seems to be get them to buy one more. So P&G wants us to buy different version of Febreeze just so we can sleep better.

You could try misting Febreze® Sleep Serenity™ Bedding Refresher on your sheets to help create a calming and relaxing environment as you wind down from the day.

Sure you could but it is highly likely it would have any effect on your sleep. (Their claim is not based on a double blind controlled test and they do not need to conduct one when they keep the messaging emotional.)

When you chase revenue you start at the wrong place. Instead of starting with customer job-to-be-done you start with your internal needs. If your growth strategy do not start with customer needs and products don’t evolve from which prioritized needs you want to address you will become irrelevant.

Customer Jobs To Be Done Growth Matrix

Does your growth strategy align with customer job to be done?

 

How to price premium and standard versions of your product?

It is time to repeat the old statement that I believe Pigou said but adopted by me

If one price is good, two are better.

In general, when customers’ needs are different, how they value the product are different and most importantly how they value  certain benefits of a product are different,  two prices are indeed more profitable than single price.

There is a performing arts theater in the Bay Area that rents outs its venue. For those segments wanting to hire the venue for events there are two options. Both are rented in three hour chunks. Read the brief product features below and think about the price difference between the two.

Version 1: Main Theater

Features:

  1. Ideal for live performances
  2. Steinway  (Model D, 9 ‘) concert piano on stage
  3. Stage: 40 X 20 X 12
  4. Outstanding acoustics
  5. Seats 338 people
  6. Dressing room with private bathroom
  7. Portable P/A system with three microphones

The Steinway piano you see on stage has a usage fee of $150.

Version 2:

Features:

  1. Perfect for small recitals, meetings and presentations
  2. Steinway (Model B 7′) grand piano
  3. Stage: 23.5 X 17.5 X 12.5
  4. Intimate and ideal acoustics

The piano has a usage fee of $100.

Model B grand piano costs about one fourth the price of Model D concert piano.

Go ahead and compare these options as a product manager would and give an estimate of the price difference between the two.

Now think about these options as customers would and  give another estimate.

Since thinking in relative pricing is difficult let me give you the price for Recital Hall – it is $300 for three hours.

Do I have your answer?

My answer was 50% – 100% difference (I do not give single number estimate.)

The real answer it turns out is just $50. That is the Main Theater with all its benefits costs only $50 more than the $300 price for the Recital Hall. This is the same difference you saw between a $100,000 piano usage fee and $25,000 piano usage fee.

This is not so right pricing. While two prices are likely better than one price it is highly likely both prices are wrong – wrong in the sense of profit maximization.

Before I point out why it is wrong let me point out things that are done right

  1. The two different versions differ nicely on many key customer dimensions – number of people, ambience, image, piano option and end use (customer job to be done)
  2. The piano usage fee is additional – perfect unbundling since some may want it just for the scene while others may really want to use it.
  3. The concert piano option is available only with Main Theater – if you value it more you cannot choose the Recital Hall.

(Note: Think of these three pricing levers for your freemium webapp – can you unbundle the right feature? can you think of a feature that will not be available in lower priced version? …)

All these are great but the price difference is wrong for these reasons

  1. If the goal is to make it affordable to most then the lower priced version should be even lower. At just $50 difference it is not a huge discount compared to $350 version. Those who can afford $300, will most  likely upgrade to the Main Theater. This would leave to poor resource utilization and dismal monetization.
  2. If the goal is to maximize profit the Main Theater is priced too low compared to the Recital Hall. Just  by the sheer number of audience it can accommodate,  stage and other benefits this offers lot more value to customers hiring it for performances. The theater is leaving money on the table.

The way to fix this is not just take my 50-100% number but study the customer segments – find out the jobs they are hiring the two auditoriums for, how they value the different features and come up with a price. (Can you say conjoint analysis? Or lean startup conjoint using weight allocation method.)

It is highly likely we are seeing a case of cost based pricing – the venue amortizing its mortgage and other costs over the two options rather than pricing these based on customers and value.

In that case, if one price is not good, two are not going to fix it.

 

For marketing and de-marketing the first step is?

We have discussed enough about Greek yogurts, Coffee , Dry bar and Software. We even talked about Cronut. All those were cases of marketing. Now take a look at the following cases,

  1. A public school principal trying to keep a right “customer” mix in his school
  2. Public health officials trying to protect teen girls from skin cancer
  3. Conservationists trying to protect poor rhinos from being slaughtered for their horns

These cases are not that different from selling software or $40 blow dry. Instead of demand generation you are trying demand reduction.

The school principal does not want customers with expectations the curriculum cannot meet or those who won’t play a role in school’s growth.

The health officials are trying to teach the teen girls about detrimental side effects.

The conservationists are trying to eliminate the black market for rhino horns.

These three are doing de-marketing, trying demand reduction. And where does one start for de-marketing? The same place where one starts for marketing – customer segments and the job they are hiring the product for.

As The Economist writes about Rhino horn de-marketing,

The first step in “un-marketing” rhino horn is simple: find out who your buyers are and why they like the product. TRAFFIC, an organisation that monitors the illegal wildlife trade, has just conducted a survey to identify the most important buyers of rhino horn.

And the customer job  turns out to be,

It turns out that it is a luxury purchase by rich men in Vietnam: professional businessmen, celebrities and government officials.

In Vietnam horn is often bought for the sole purpose of being gifted to family, colleagues or people in authority. Buyers think that it affirms their social status—and that it is good for their health. They believe it possesses properties that detoxify the body and can therefore cure anything from a hangover to serious illness.

In business meetings, and other gatherings, rhino horn is sometimes ground to a powder, mixed with water and drunk. Rhino horn is made of keratin, like fingernails. Yummy!

How do they effectively do de-marketing?  In marketing one makes product pivots and positioning to make it the most suitable candidate for the customer job to be done. In de-marketing one does product pivots and positioning to make it the most unsuited product for the customer job to be done.

In case of rhino horns,

So how do you turn successful, well-educated men against a luxury good that conveys wealth and well-being?

Yet a better strategy may be to spread fear, uncertainty and doubt about the product. One idea being suggested is to inject rhino horn with poison that could make those that consume it seriously ill.

Anyone want to grind up and drink poisoned rhino horn?

Now if we can take this to saving sharks from connoisseurs or shark fin soup.

Freemium has not disrupted Segmentation

Is that enough buzzwords packed into single title? I bet I do not have to explain what is freemium or what is disruption, two of most overused words these days. Segmentation however is not new, in fact a very old concept, and yet it is not as popular and needs explanation.

Segmentation: I am not talking demographics based indirect segmentationhere but the right way of segmenting based on customer needs (or needs based segmentation). You are grouping together customers based on the similar jobs they are trying to get done. (see here and here for more details)

When you identify customer segment and the common job to be done, understand the alternatives, surface their willingness to pay for the job, and map the budget from which those customers will pay for that job, you have marketing and product strategy.

Four years ago, when Om Malik of GigaOm wrote, “How freemium can work for your business”, I called out the cognitives biases in looking only at successful businesses.

Two years ago I wrote Freemium has run its course in GigaOm (I am surprised he let me write after my Biases articles).

Fast forward to present day and let us look at one of the poster boys for the freemium model, Dropbox. We have seen numbers on how Dropbox can be profitable with just  3% of the user base converting to paying customers. Small percentage of a very large number is still a large number is the thinking.

Om Malik recently did a fantastic research report on their business and growth. In his report he found,

(Dropbox), according to sources close to the company, is rumored to be valued at more than $4 billion and is on its way to a billion dollars in revenue. It has about 200 million accounts and about 4 million of those are businesses.

The numbers speak loud and clear where their success is coming from -segmentation. While both consumers and businesses may have the same job to be done (easily sharing information in a safe and secure way) one segment values it more and has almost no alternatives compared to the other segment. And it also has a budge to pay for it.

dropbox-pricing

If we assumed businesses chose only the Pro edition at $99 a  year with just two users (over the business edition at minimum of $795/year) that comes to 5 million business customers. If we take 4 million number from Om Malik’s report that would imply businesses with average number of users of 2.5 (generating $250 a year).

In other words, we can explain almost all of Dropbox’s $1 billion a year revenue from its business customers – those with a job to be done that is hard to be filled by alternatives and have a budget to pay for the job.  You and I, consumers, do not have a budget we set aside for such services.

If they were to increase the average number of users per business to 4,  even with no change in 4 million number, their run rate will jump to, $1.6 billion. If they were to target businesses with more than 5 users (and there are many if you look at US Census site), their revenue rate will rise very quickly to $5 and $8 billion.

That is Dropbox’s $1 billion run rate and its valuation are supported not by its freemium but by its segmentation strategy. Freemium may have captured everyone’s attention but it is segmentation strategy that is driving Dropbox’s success.