February 25, 2009

When to Employ a Loss Leader Strategy

by Praveen Rajan

Can you use a “Lowest Price Guarantee” for your Internet business? Here’s a must read tip

In our last post we talked about how Rob Walling’s copywriting tweak on JustBeachTowels.com boosted sales by 1000%.

But Why Did The “Low Price Guarantee” Work for JustBeachTowels.com?

Is this loss leader strategy something that can work for any Internet business?

Rob summarizes why this works for his Internet business in his post:

The underlying lesson is to make your customers feel at ease with what they are buying. And to do this you have to know your customer.

People buying beach towels from a website are doing it because they want to save time. They want to find a towel and make the purchase as quickly as possible. They want to feel good that they are making the right decision about their purchase, which is what “Low Price Guarantee” offers.

It gives them permission to buy here and stop surfing around looking for the best deal because they’ve found it.

It offers the promise that they don’t have to continue down the list of Google results. If they can find a towel they like, they can check this task off their list. No one goes online to window shop for beach towels; people want to get in and get out while still feeling good about their purchase.

Evaluate Your Customers First

So you see — before you can start using this loss leader strategy, it’s important that you understand your customers better. In any business with competition, your best bet is to stay away from just being the cheapest provider - it’s NOT a guaranteed way to multiply your sales profitably.

Post a Comment or read more about Smart Pricing

February 4, 2009

Here is a Method That is Helping FT.com Make Millions of Dollars

by Praveen Rajan

FT.com Earns Up to $28 million US Dollars Every Month From 10% of Their Registered Users

How does a publishing business like the Financial Times (FT.com) make millions of dollars online?

financial-times-homepage

Simple: they give away free content.

The Silicon Alley Insider recently published excerpts of an interview with FT.com managing director Rob Grimshaw.

Here’s how it works:

  • Everyone gets access to 3 articles per month
  • Register with the site for free and you can read 10 articles per month
  • Pay $3.44 per week and you get access to everything online, except for the FT’s famed LEX column
  • Pay $5.75 per week and you get EVERYTHING, plus access to the FT from your mobile

financial-times-pricing

People Will Pay for Specialized Content

Here’s how FT.com makes money online:

  • 62 million individuals visited FT.com in 2008, about 5 million every month
  • 20,000 new users register for the FREE service every week, and provide their personal details (opportunity to upsell). In the last 18 months, 1 million readers registered with FT.com
  • 100,000 paying subscribers — implying that FT.com makes between $16 million to $28 million a year from subscriptions

And the clincher?

Because registering requires readers share lots of personal information, Rob says the FT.com can charge advertisers $40 to $60 CPMs.

Remember the 80/20 rule?

About 10% of FT.com’s registered users are paying customers. The $28 million that they contribute, is funding the cost to give the service away for free to the remaining 900,000 users.

What Does This Mean To You?

If you’re in a business that specializes in a specific field, then think about how you can “bait” potential subscribers.

Giving away free content is just one way to get customers to sign up and provide some basic details. This gives you the opportunity to upsell premium pricing plans over a course of time.

But FT.com also employed the use of smart pricing variables, exploiting human psychological weaknesses:

  • The jump from 3 articles to 10 articles is significant - why wouldn’t you sign up for the FREE account?
  • Paying $3.44 per week is “cheaper” than paying $13.76 per month ($3.44 x 4)
  • The difference between $3.44 and $5.75 is very small - why wouldn’t you pay a little bit more to access everything?

By the way, FT.com specializes in financial news, not “just” content. So stop telling yourself that this tactic would only work for FT.com or content-driven businesses. It can work for any business that is focused on a specific niche.

Remember: the trick is to “milk” money from a smaller segment of customers that are willing to pay for access to your extended range of premium services. Contrary to popular belief, people are willing to pay for good content.

Post a Comment or read more about Smart Pricing