Genetically Altered

There’s an interesting blog post on MSDN blogs about the following of Christopher Walken impersonators: There’s something about Christopher Walken.

What causes one company to develop an intense loyalty of customers? The entry titled ‘Differentiation the Virgin way’ on iContract makes some good points:

The strategy is to stay flexible to customer needs by giving them choices. If customers have choices, then they feel as if they can own the experience, which builds satisfaction and loyalty. This culture of choice has netted Virgin Atlantic some impressive results. Ninety-five percent of upper class customers say they have received good or excellent service, and 96 percent would fly Virgin Atlantic again. Additionally, 95 percent would recommend the service to others. Helping Virgin achieve cult status in customer delight is its highly engaged workforce. Eighty-six percent of the staff is “very proud” to work for Virgin,” Dickinson said “and the other 14 percent is “quite proud.”

Southwest Airlines also does a good job of creating customer loyalty.

One key reason both have such high levels of customer loyalty is because they’ve created something unique that their customers found valuable. Specifically, both have unparalled customer service, satisfying customer experience, and going above and beyond no matter what the effort involved is not uncommon. Seven Golden Rules of Cult Branding provides some good suggestions of developing that same type loyalty.

Back to the Christopher Walken impersonators, this audio clip is from the All About Walken play done every Monday in Hollywood, California: Being Christopher Walken. It goes to show that after the first, everyone else is just imitators.

Does starting with free users mean you can never charge?  Is it necessary to have for profit in mind from the beginning?  With careful planning, going from free users to paying users is a workable transition.  The big question is: How do I know if they will pay?

Ryan Carson’s article on vitamin provides some nice detailed metrics in answering the question Will Your Web App Make Money?

If you’re offering a free plan to your customers (for example DropSend offers a free plan that enables users to send 5 free sends a month before they start paying) then expect to get around 98% or 99% of your customers on that plan. That means that you can only really bank on 1% or 2% of your total customers on the paying plan. In our experience this is true and other major players in the web app industry have agreed. This is about the industry average.

TechCrunch also has a great article titled Web apps 101 along the same line with lots of interesting comments. Free users help get the momentum going.  They pose three questions:

The three vital questions

If you want your app to stay out of the Dead Pool, you need to know the answer the following questions:

1. Who is it aimed at?
2. Why will they use it?
3. Will they pay for it?

  At some point, user count reaches critical mass and your idea is validated.  The pay for use plan kicks in.  To early and you can drive away users, which drives away momentum.  But how do you know when the time is right?

Users constantly come and go creating free accounts at your site.  It’s the ones that don’t go who need your attention.  Users that are coming back everyday have found your app useful.  Congradulations, you’ve created value.  This is the group that is more likely to hand over their hard earned cash to keep that value.  At this point, you’re 3/4 of the way home in covering the four P’s of marketing.  You have an in demand “P”roduct.  You have a “P”lace to sell your product.  If you’re continually getting new sign ups, you get a decent grade for “P”romotion.   Lastly is “P”rice.

Now that you’r charging for service, everything has to get reliable.  That’s an implied value for your customers.  Perhaps they were putting up with outages, bugs, slow email responses on the free version but now that money is changing hands, there is more expectation of what you’re providing.  On your side, expenses are going to increase.  That increase will depend on the number of customers your going to take on and how much work your web app has to do.  You’ll need to cover all expenses and have enough left over to pay yourself, any others involved and keep building a financial cushion.  If you want to see a formal process laid out, James Governor has a good article on RedMonk outlining the cost for getting DropSend going: DropSend: how to build a web app business for less than 30k.  Once you get an idea of the minimum price that’s needed, is this within the expectations of your customers?

The settled on price has to match the perceived value.  Perceived value is relevant to each customer.  This doesn’t mean you can’t reign in a price acceptable to the majority of customers.  Somewhere in all of those perceptions is an average price.  Starting with the competition’s pricing models will give you an idea of what they’ve found to be the best price.  From here, you begin forecasting how many units at what frequency is required to become self-sustaining in some predetermined amount of time.   Seeing these goals and working toward them will keep you focused and your strategy from derailing.

In a likely scenario, a web app you like is not only very useful but also free.  You’ve found a bargain…or have you?  If you’re a consumer, perhaps.  If you’re a business, keep in mind you get what you pay for.

In his excellent article, ‘Free services come with strings attached‘, Don Dodge points out why there is still no such thing as a free lunch.

Free services always come with strings attached, limitations, service outages, advertising, and rules that can change at any time without notice.
Consumers sometimes forget the bargain they made in exchange for the free services.