You likely have heard the refrain many times. Be it from app developers, startup founders, guru bloggers, or even sales folks and product managers from large enterprises.
How can we compete against free? Customers have so many free options. If we don’t give it away for free they are happy to go with so many others who are willing to do so.
And the free argument is bolstered by pointless justification about market size. If no one is paying, there is no market size (as it is measured in $).
So what is the answer to competing against free? Let me point you to a story about how some skateparks are making money.
There is practically no dearth of public and free skateparks – every city, however small seem to have one. I was surprised to see one in the town of Lahaina in Maui. There are enough public skateparks to the extent that I feel resources are being diverted to one kind of outdoor entertainment. According to SkatePark.org, in 2011 alone cities across Unites States added 845,205 sq. ft of skatepark. (That is decent sized homes for 845 people.)
Is there a market for private skatepark that charges (gasp) for skating? It turns out yes and many different parks are doing so. And they do that by starting with — wait for it — customer segmentation.
They are targeting customers who are turned off by public skateparks – those who feel the public skateparks are too crowded and infested with “snot-nosed punks”.
“It’s guys getting away from their wives and kids.”
And by offering this segment a differentiated product the private skateparks are able to charge for it.
They charge dues and maintenance fees that allow members—most of whom are over 30—to ride in a controlled environment free of the nonpaying skaters, scooters and Rollerbladers who clog up public skateparks.
Members pay a $500 initiation fee in addition to $80 a month in dues
It is true that presence of free options takes away large portion of user base but it does not mean you will only succeed by also giving away your product for free or lowering your prices as close to free as possible. Competing against free starts with customer segmentation and not by seeing the entire market as your target segment.
Every skater in the park is not your customer. Stop doing market size estimates based on billions of users. Nor should a marketer resort to simply getting skaters to skate in ones skatepark for free with the hope of monetizing them later.
Rings a bell?
Find those segments whose needs are not served well by the free options, find what they value and willing to pay for and offer them a product with compelling value proposition.
Saying we can’t compete against free shows you have not done your segmentation right.
Starting with free to get everyone’s attention with the hope for monetizing later is just that, hope, not marketing strategy.