Deciding on the best fee structure for a digital business in China is critical to your success. We explore 2 different models you can adopt whilst addressing cultural implications.
BAIT & HOOK – first made famous by the Gillette company with the reusable razorblades, this one is a worthy consideration.
It is centered on offering an expensive item at almost no cost (and sometimes free) which then encourages continuous purchase. Often used by telco companies in the ‘West’ this model of fees is now widely used throughout China. It’s obviously popular as it hides the more profitable return generated from long term customers and it attracts a wide audience.
In China this can be especially useful with a younger demographic whom are more short sighted and looking for immediate product gratification.
FREEMIUM – you get the basics for FREE, and pay for extras. The beautiful thing about this is that it can radically improve any interest. The term FREE brakes the barriers to purchase by an average of 5-10x against a low entry cost (by all reports).
So you’re really asking yourself, by having 10x the customers use our service are we better off creating a FREEMIUM service even if we establish loss leading clients?
The key metrics to watch are: a) the average cost of servicing the free user b) the conversion rate to premium services (paid customers)
For any sort of digital service offering, whether it be content or other you would be hard pressed to go against the FREEMIUM model. In China the concept of paying for any type of digital offering is still new and not yet established any worth. However by engaging in this fashion, you can create a dialogue that can evolve to a paid service.
Adobe, iPhone apps, Verisign and others have all failed to make a significant return from China’s booming digital economy. The reality is they just don’t like paying for things ‘intangible’ when so much content is available. Accessibility is high, copycats are everywhere, and the consumer is in no position to pay unless you create a fee structure that welcomes customers in – rather than deters them. More so in China than anywhere else in the world. Although a successful model may work in the West, the reality is it has almost no bearing on the local China market.
Consider wisely.
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