How can some free businesses be thriving while others are haemorrhaging revenue? Nicholas Lovell thinks the answer lies in your approach the web
It used to be so easy. You made something; you created a marketing plan using established channels like television, print or outdoor; your sales team met with a buyer at a retailer and sold your product line into hundreds of retail outlets in a single meeting. Job done.
Of course it was never that easy, but things are getting even harder as the web changes the relationship that our consumers have with our products, and the relationship that we have with our consumers. Many businesses who consider the impact that the web will have on their business fear the downward pressure on prices that seems so common.
The recorded music industry was a $14.6bn (£9.16bn) business in 1999. By 2009, it was a $6.3bn business – a loss of $8.3bn in annual revenue. But the trend towards a price point of zero does not have to mean a trend to revenues of zero. The most successful games in the AppStore are free, yet free games like Candy Crush Saga have been tipped for great financial reward. How can some free businesses be thriving while others are haemorrhaging revenue?
The answer lies in the approach to the web. It's true that the web encourages the price of products downwards, but it also allows one-to-one communication with your customers on an unprecedented scale. This heralds the end of the mass market and a new era of personalised products, services and experiences with a wide range of price points.
The future of business comes in three parts: find an audience, probably using a free strategy; use technology to be able to talk to them again and to find out what they value; and finally, let those who love what you do spend lots of money on things they truly value.
Let's start with free. If your product is digital, like music, games, books and television, you already know what your free product is: it's your product, shared freely in digital form either with your permission or without.
But if you make something that can't be digitised, what is your free strategy? The answer is content marketing, although it is often done poorly. The purpose of content marketing is to earn the right to speak to your customers again and to start them on the journey from freeloader to super-fan. If your content marketing strategy is not focused on getting an email address, or a Twitter follower, or a subscriber to Youtube, there is little point in wasting your money on making content.
So now you've acquired a customer and can talk them to again, now what? Well, in a world where everything is going to free, you need to start creating something expensive. If only 10% of customers will spend money with you, that means you need for each of them, on average, to spend 10 times as much to make the same revenue.
This means getting inventive with value. We often think of the value by starting with how much something costs us to make and adding a margin of profit on top. That is not how customers think. They value how something makes them feel, or how it makes them appear to others, or how it shows status, good taste, great judgement or a sense of belonging. They value things that are intangible, and that is what we need to start selling.
Like the miller who sells flour and also sells $400 masterclasses in gluten-free baking – or the swimming pool manufacturer that installs expensive, bespoke, fibreglass swimming pools but runs a website that lists out all the problems with a fibreglass swimming pool. Or the musician who gives her music away for free but sells limited-edition signed versions to her biggest fans or allows them to spend money to be part of the creative process.
Business is undergoing transformation. Instead of selling the same thing to everyone for the same price, we have to work out what stuff we are going to give away for free, how we are going to build direct relationships with our customers and fans, and how we are going to enable our supporters to give us lots of money for things they really value.
It's a challenging, creative, chaotic time. I'm looking forward to it.
Nicholas Lovell is the author of The Curve – find out more about Nicholas on his website and follow him on Twitter @nicholaslovell
Get more articles like this sent direct to your inbox by signing up for free membership to the Guardian Media Network – this content is brought to you by Guardian Professional.
Technology in retail
Retail industry
Music industry
theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds