Microsoft Windows 10 upgrades are being adopted quickly by private and professional users because of the new pricing model. Introduced July 2015, the latest iteration of the operating system is described as a “service.” Until recently, it was not clear why the software giant uses such a term. It’s now known there will not be future versions (e.g. Windows 11, Windows 12) but rather, periodic updates. This model raises an interesting question about charging for a product or service businesses previously gave away free. It also begs the question of how to make a transition and still be able to attract new customers.
Is the Windows 10 Model Feasible?
Let’s start with an example. A company prints a coupon book which is offered at local grocery stores and retail shops throughout town. The coupon book is free to consumers but local businesses pay to place their ads in the publication. The business model is the same as local broadcast media. Consumers don’t pay to watch local broadcast networks but businesses buy commercial air time to promote their products and services.
One of the secrets to business success is pricing your products properly. Price your products correctly and that can enhance how much you sell, creating the foundation for a business that will prosper. Get your pricing strategy wrong and you may create problems that your business may never be able to overcome. – Inc.com
It’s a win-win scenario where local businesses are able to geographically target consumers and consumers receive news and entertainment at no charge. Getting back to our coupon book example, the publication owners want to increase their revenue but know advertising rates are at a premium. The only other means of increasing revenue is to charge consumers for the coupon book. Now, the coupon book publisher must learn how to set a product price without losing circulation. Here are some suggestions for how to introduce a charge for something your business gives away free:
- Target the right customers. The first step is to know where to start charging. Continuing with the coupon book example, it would be in an upscale section of town. Here, affluent consumers are more likely to see the value in a small return on investment. They know paying a little to receive big discounts is worthwhile. After all, it saves them precious time otherwise spent trying to track down all these neatly packaged deals.
- Introduce a small charge. The next step is to set a small charge. It must be nominal since the product (or service) is usually free. One suggestion is to look at competitors’ prices and then set a price well below theirs. While you’ll be tempted to go a little higher to raise your business’ revenue, incremental increases are wiser because this approach allows you to measure consumer reception.
- Measure sales over a trial period. Speaking of measuring consumer sentiment, set a trial period to monitor how many customers are willing to pay a little and how many are not willing to pay for your previously free product or service. Of course, you’ll know in very short order the initial reaction but over time, this might change. It’s important to give the trial a true run; otherwise you’ll act too soon on incomplete data.
- Encourage customer feedback. During the trial period, be sure to solicit feedback from your customers. Give them every opportunity to communicate their thoughts and feelings about the new charge. This insight will be very helpful in knowing how to proceed. It will establish the need for a price increase, reduction, or return to the free model. Price adjustments are part of the process and provide the best evidence for what to do next.
Have you enacted a charge for something your company previously offered for free? What lessons did you learn as a result? Do you have any other suggestions about how to adopt this type of model? Please share your thoughts and join the conversation.