How to Compete against Free

Software entrepreneurs frequently ask me, “I have a competitor who gives this away.  How much can I charge?”

The answer:  “Nothing”.

If you have the exact same offering, you can’t charge anything.  These entrepreneurs don’t want to hear this, but they need to.  However, that’s not the complete answer.

Entrepreneurs who want to charge for something similar to what others give away need to answer 3 important questions:

  1. How are you different from your competitors?
  2. Who cares?
  3. How much do they care?

First, how are you different?  You can’t charge for something when someone else is giving it away free.  That’s like putting up a corner stand and selling air to breathe.  Nobody will buy from you because they breathe air for free.  However … have you ever walked around Vegas and seen all of the breathing stations?  They are called Oxygen Bars and they charge about $1 per minute, just for air to breathe.  How can they get away with this?  Because what they sell is not just air.  They sell air that has a higher proportion of oxygen (and a scent).  It is different from just air.  If you want to get paid, your product has to be different from what your potential buyers can acquire free.

The next question is who cares?  Back to the oxygen bar.  I’ve never tried one, so I’m not their target market.  Free air is fine with me.  A little research finds the target market is 28-38 year olds who also like energy drinks and herbal drinks.  They found a group of people who care a lot more than most.  Then they target this group.  Your job is to figure out who would rather have your product than the free one.  These people (or a subset) become your target market.

Finally, how much do they care?  This question is really asking, how much is your target market willing to pay?  You can answer this question through market research or possibly by testing different price points.  Remember, stay focused on your target market.   It doesn’t matter what others are willing to pay, just your target market.

How can you compete against free?  You can’t … if you’re not different.  You cannot offer the same thing and expect to get paid.  You must offer something different that somebody cares about.  Then you can get paid.

 

Mark Stiving, Ph.D. – Pricing Expert, Speaker, Author

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Photo courtesy of ‘PT Money’ ptmoney.com.