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The Gap-Old Navy Breakup
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Omnichannel Retailing and its Benefits
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Regulatory Role Performed By the Central Bank
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What are Common Size Statements ?
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In the modern world, more and more start-ups are selling products and services related to information technology. These companies either bring about a digital revolution in existing businesses or create a totally new product category. Most of these new businesses sell something intangible. Hence, the traditional distribution models are no longer effective.
Web-based companies cannot appoint wholesalers and distributers that push their products into the market. However, at the same time, these companies do need a distribution channel i.e. a way to get their product to the mass market.
The freemium model has come as an alternative solution to web-based companies that want to expand their user base. Top-notch companies such as Spotify, Dropbox, and even YouTube have used the freemium model as a part of their growth strategy. It is important for modern-day investors to understand the freemium model as well as its pros and cons. In this article, we will have a closer look at the working of a freemium model.
In order to understand the freemium model, one needs to understand the mindset of the digital consumer. The digital consumer is spoilt for choice. They can choose between multiple apps that perform the same function. As a result, digital consumer does not want to commit their money to any app before they have actually tried it. Over time, start-up founders realized that customers are a lot more likely to buy any products or services from their app if they were given a chance to try at least the basic features for free.
As a result, the freemium model came into existence. The freemium model is based on the start-up company having a differentiated offering for two separate types of consumers.
For instance, YouTube offers its services to everyone. However, if users want an ad-free experience, they need to buy an inexpensive subscription. Similarly, companies like Dropbox offer their services to everyone. However, the more premium version of the service with more features comes at a higher cost.
Hence, it can be said that the freemium model is a combination of two words viz. free and premium. Businesses that offer a combination of free as well as paid services to their customers are said to be following a freemium model.
The freemium model is not a recent creation. Over the years, many companies have focused on the freemium model and as a result, several variations of this model have already come into existence. Some of the commonly used variations of the freemium model are as follows:
There are several studies that have shown that not giving users access to premium features is better than first giving them access and then taking it away. This is because when customer resentment towards the brand increases when features are taken away. This ultimately leads to negative brand perception and brand value.
Hence, it can be said that the freemium model is a very important part of the start-up ecosystem. There are many start-up companies that have been able to gain a large number of users thanks to the freemium model.
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