In my recent blog posts, How to Compete with Free (Part 1 and Part 2), I spoke about how to compete with free in terms of differentiation. Differentiation sounds great in a text book, but how does it apply to the small/medium software business that is swamped with development, customer support, and the day-to-day of running their business… You don’t have time for theory; you want practical and actionable suggestions, right? Fair enough. I have some advice for you too…

Before discussing my suggestions, let’s take a quick look at the psychology of free.

The psychology of free – price creates barriers, free doesn’t

I’ve just finished reading Chris Anderson’s “Free: The future of a radical price”, so much of what I am about to explain comes directly from Anderson’s book – not me.

In his book, Anderson asserts that people naturally overvalue loss, so when price is involved – whatever the price may be – we are inherently forced to decide whether we will lose or gain in the transaction.

Think about it this way, all transactions will produce either an upside or a downside. We give something we value (usually money but can be information, time, or something else that we value) to obtain another type of value (product or service). The potential upside is that we are satisfied with our purchase – we win. The potential downside is that we are dissatisfied – we lose. We are forced to weigh the choice because of the possible outcomes. According to Anderson, the mental process of actually weighing the costs and benefits creates a barrier during the decision-making process – which is bad.

On the other hand… When something is free, we forget the downside because we perceive that there isn’t a possibility for loss. According to Anderson, free gives us an emotional charge such that we perceive that what is being offered is immensely more valuable than it really is. So therein lay the allure of free; we do not perceive the possibility of loss. In other words, when we choose a free item (it’s free), but when it’s not free we perceive the risk of loss.

How can you use this to your advantage?

First, let me summarize, here are some of the advantages of free:

• Free (zero) lowers mental barriers in your decision-making process
• No perception of loss: Decreases potential downside; hence decreases perception of risk
• Free can install confidence, ie: try it without cost/risk.

Some of the disadvantages of Price:

• Price, any price, increases mental barriers during decision-making.
• Possibility of loss: Increases potential downside; hence increases perception of risk
• Decreases willingness to try something because it costs you something.

In looking at the advantages of free vs the disadvantage of price, the clear strength is that it decreases risk – or the perception of risk anyways.

So, in a practical way, your goal is to eliminate the perception of risk when a (potential) customer is making his/her choice – ie: Try to remove the “will I lose in this transaction” barrier.

Therefore, I would suggest 2 simple and practical tactics:

1. Offer a Free Trial

The “free” in free trial increases people’s willingness to try something, so use this aspect of free to your advantage. Most software publishers use the free trial model today because of its low-risk appeal to consumers. We all understand this principle – it makes sense.

I would however caution you to be careful how you implement it. You can inadvertently create a “transaction cost” by requiring personal information ” – ie: Your potential customer may not want to give you his/her personal information because they don’t want to be bothered, or they are overly-concerned about privacy, etc.

Note: There may be a valid reason that you are asking for personal information – such as a lead gen process, etc – but please understand it is a barrier in the “trial” process.

In the war against free, make your free trial process as easy as possible. Don’t ask the user to jump through hoops to try your product when the free alternative is just a click and download away.

On the other hand, if you want the best of both world’s (easy trial and lead gen), make the personal information aspect optional.

While this is not a free trial for a paid product, I think Sun Microsystems does an excellent job of balancing a no transaction cost download and the collection of personal information in their SDK download process:

As you can see in the screenshot, they offer an added incentive (Guide to optimizing GlassFish performance) to submit your personal information, but they also make it easy to bypass this step and go straight to the download (Continue to Download).

2. Money Back Guarantee

This particular tactic goes against conventional wisdom with electronically delivered goods because (most times) there is not a way to prevent someone from using the product after it has been delivered. True, but…

In the fight against free, a money back guarantee decreases the potential downside in the transaction. Think about it in terms of your customer. Your customer may be thinking, “What if I make a bad choice and [product] doesn’t meet my needs? Well, I suppose I can always return it if I’m not satisfied”. Remember, there is no perceivable downside with the free product, so your want to counter that advantage.

The money back guarantee also instills confidence; it says to the customer “we believe so strongly that our product is the best for your needs that we will give you your money back if it doesn’t”. That’s a bold claim, wouldn’t you agree?

Closing Thoughts…

In conclusion, free trials and money back guarantees are not by any means a silver bullet against “free” – not even close. They are simple tactics that can help in your war against free.

Remember, as I said in parts 1 and 2, the best weapon against “free” is a better product – ie: a product that is better suited to solving the customer’s problem, or that offers greater value than the free alternative.

Ultimately, the starting point always comes back to the customer – what are their needs, what problems are they solving with your software, and what is important to them. Competing with free means you must act strategically and not with gimmicks; it requires that you improve, innovate, and add value in the ways that matter most to your customers.

Tags: linkedin, Marketing, Strategy

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