How Freemium Is Generating Revenue…And Creating Loyalty

Go back twenty years, what did the concept of ‘Free’ mean in the business world? If you’ve been in the business world for long enough, you’d probably reply “everything comes at a price” or “there is no such thing as a free lunch.”
Fast-forward to twenty-seventeen. Does this ideology still have any relevance, can your company hand out “free lunches” and still generate revenue? Is this an opportunity to create loyal customers?

Traditional brick-and-mortar retailers are exempt from this concept as they still get their revenue from face-to-face transactions with customers. However, if you were to ask yourself how does Microsoft, Dropbox, Spotify and BaseCamp make money if they are offering their products for free in some capacity? The answer is in the title of this blog post – Freemium.

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Greater incomes and less visible cash is increasing spontaneous purchases.

These companies, and many more, have understood that providing a great free product for consumers will in-turn create loyal customers who are willing to pay for premium versions of the product. Just check out how Spotify has done this between their ‘Free’ and ‘Premium’ offerings, they ensure that their offering is completely available under their ‘Free’ offering but then for add-ons such as ‘Ad removal’ and ‘Listen offline’ for their ‘Premium’ deal.

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Spotify Premium is booming in sales, even though the main service is available for free.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
If we take a step back and insert ourselves into this concept, imagine a business has came to you and offered you both their ‘Free’ and ‘Premium’ deals to you, it would only make sense to choose the free option. However, if you found yourself using this product daily and became a part of your routine, would you be more willing to invest $10 a month?

This is how these companies are creating revenue. Creating unmatchable loyalty through an excellent service to the point where consumers are willingly choosing to put money towards a premium version of the free product.

The movement is already amongst us, smart phone apps are the biggest groups of retailers who have made the switch to freemium-based revenue generators. The 0.99c for every three lives on ‘Candy Crush’ per user, per year, per product lifetime, it adds up to a $6 billion company. As the feeling of completion and increasing incomes greaten within consumers, we will continue to see more service-retail sectors making the switch to Freemium.

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8 thoughts on “How Freemium Is Generating Revenue…And Creating Loyalty

  1. Interesting trend that is definitely emerging! I know myself playing so many games like Candy Crush that money spent accumulates very quickly. Do you think that this could possibly become something that can happen in the Goods industry? Or is it something that is service-only?

    Liked by 1 person

    1. Well, there are goods subscription services that do first month free, or only one dollar. That is like a freemium plan.

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    2. I think it may be hard to manage for goods (due to damages, use) and finding it hard to re-sell a physical item that someone has already used.

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  2. Good read! I just started using Spotify recently and never thought of the free version building my loyalty over time like that… I guess if I do use it often enough to become part of my day to day life, paying the monthly membership fee enabling me to hear music offline wouldn’t be too bad at all! However, I can’t see myself paying for it just yet, I guess my loyalty needs to build up a bit more !!

    Liked by 1 person

    1. Definitely a point to think about, loyalty must be built before making the decision to purchase for something similar to what you have (for free!)

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  3. Great read! It’s definitely a trend that I’m seeing more and more. The great thing is that you can try the product prior to making the decision if you want to spend the extra in order to get the Premium models. I’m pretty sure I have opted to purchase the premium options for everything you have given examples of.

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    1. Definitely agree! Has helped both the consumer and the servicer as feedback from both parties is crucial for success for brand managers.

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  4. Great post! I think there has been similar concepts to ‘freenium’ in the past, where brands give out free samples of products or give you free tea/coffee etc. to make you feel positively about that brand and hopefully spend more. Yet, there is much more potential in the digital age for brands to generate revenue from this.

    Liked by 1 person

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