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How Do You Compete Against Free?

June 12, 2013 | By Lisa Singer

Companies have been managing the issue of competing against free products for years. Free offerings are part of the competitive landscape, so take this as a challenge to validate and accentuate the value you provide to customers.

Several weeks ago, I attended Boston ProductCamp and discussed pricing with a group of product managers. One of the main points of our conversation was how best to compete against products offered for free.

Companies have been managing this issue for years. Linux is free, yet Windows and Mac operating systems still exist. GIMP and Photoshop coexist today as well. Free offerings are part of the competitive landscape, so take this as a challenge to validate and accentuate the value you provide to customers.

Here are some ways to compete with free:

  • Take it seriously. Don’t scoff at a new free entrant. Make sure you understand the company that’s offering the free product. Does it have solid financial backing? Does it have an alternative source of revenue it can rely on while stealing your customers?
  • What is the offering? Take time to understand the offering, including features, usability, installation, thoroughness of documentation, support levels (e.g. is it 24x7?), offering of timely upgrades and integration with other platforms. How does it fit your buyers’ needs? Estimate how much business it might draw away from your offering.
  • Conduct a win/loss analysis to determine why you’ve lost business to the free offering. Ask customers whether they value the benefits you offer vs. those of the free product. Through win/loss interviews, find out whether customers are aware of the features you offer (e.g. round-the-clock support, upgrades) vs. the free product. Validate the value of your offering.
  • Offer your own free product. After careful analysis, you may decide you need to offer your own free product to compete in the new landscape. While this can hurt your revenue model, it can also help you gain new customers who will eventually upgrade to the paid version.
  • Calculate the true cost of “free” for your customers. What is the potential ROI of 24x7 support? If customers need to spend time doing things other than their job (e.g. installation, troubleshooting, online research, data manipulation) in order to use the free service, quantify the amount of productivity they lose.
  • Create a campaign to differentiate your offering. Using the data from the previous step, educate customers about the value of your offering vs. the “free” one; it might not be apparent. Customers must recognize value before they are willing to pay for it.
  • Train your salespeople to address the objections they’re bound to hear. Ask sales how objection handling is going. Listen to feedback, and have the successful reps help other reps.
  • Stay on top of buyer needs. Respond to buyer needs in areas where you can differentiate yourself. If saving time is important to customers, focus on your fast processing time and immediate response time for support.

Even if your current revenue model is optimal, don’t underestimate the power of a free offering, even in b-to-b. If you do not respond, customers, potential customers and channel partners might believe that you are overserving or gouging customers.

Lisa Singer

Lisa Singer is a Senior Research Director of Product Management Strategies at SiriusDecisions. Lisa has more than 20 years of international experience with global marketing and product management, with an emphasis on strategic alliance and business development. Follow Lisa on Twitter @lisagsinger.

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