The 10 Changes a CEO needs to make to win young consumers - 4 Give First (Free is a viable business model)

Give first - the natural law of relationships

Some wise old owl once said to me - “never visit a friend’s house without bringing a gift - no matter how small an inexpensive that gift may be”.

In my adult life it’s something I’ve tried to practise - it’s not always a bottle of wine but it could be biscuits or a card. Why? Because every relationship requires us to make the first move and “give first”.

Giving first is the natural law of all relationships. And it’s when we enter a relationship expecting the other party to give before we free up our time and services that our dialogue is doomed to failure.

It works in business as much as it does in our private lives. It is now so successful as a marketing tool - from free 12 page PDF downloads to high street giveaways or simply an article you send to a prospective client - that failing to do so raises alarm bells in the consumer’s mind.

Building dialogue with youth also requires an investment first before a return. The investment is giving up something of value to you and your company in return for their trust and long term loyalty. In the context of the bigger financial picture, giving something away “free” can often be a shrewd profitable move.

Profiting from not charging (first)

Recent figures from Nine Inch Nail and Radiohead downloads support the idea that “Free” is a viable business model.

Trent Reznor, lead singer of NIN and recently shot of his overbearing record label contract, reported that while only 20% of consumers actually paid the $5 for the “pay as much as you like” download model, the band racked up $141,000 in royalties - without any cut taken by label or distributor. In fact, the marketing costs of such exposure required through traditional routes (MTV, label, music press, PR, retailer, radio etc) fail to highlight just how profitable the “pay as you’d like” model could be.

Consider Radiohead’s own experience. Not only did they cover pretty much every available column inch available in the music press due to their bold announcement to offer their new album on such a basis, but they also netted substantial profits. 38% of album “buyers” opted to pay the band for the new record, handing over $6 on average. Some sources claim $10m in royalties - figures rarely attributed to a band of their stature in a similar time frame whilst tied to a label.

Not only does FREE provide worthy marketing exposure, it also (in certain industries) makes good economic sense (for everyone apart from those whose goodwill has been irrevocably damaged that is).

So, could such a model work in the mobile industry - say with newcomer Blyk?

For many years free in respect of services has been associated with poor experience, dot.coms run riot, false consumer economies and piracy.

Some critics say that offering transactional one-off items such as music downloads as free will work because the payback is in the immediate monetization of the cross-sale. Following this line of argument - services, therefore, would not bode well because the provision of the free is ongoing and needs to be monetized within the cost of sale.

Back in the days when Altavista, AOL and Netscape ruled the “information superhighway”, ISPs floated the idea that the gap between the internet being an expensive retreat for early adopters and a household utility was to address the pricing issue. By offering “free” connections for dialup customers to freephone numbers customers could effectively surf the web for free.

Great idea, so what happened?

Well, the customer experience thing wouldn’t lie down. Firstly the chances of your phone actually getting anything more than an engaged signal were low. If you did manage to connect you were often forced to browse the web through a locked ISP portal that either bombarded you with popups, banners or a restricted browser interface. If you were oblivious to those intrusions, you would have been online for another 10 minutes before the line disconnected.

Free bad Not Free good…

Free, the critics argued was a bad idea.

And consumers agreed. We agreed to pay $30 (£15) a month to enjoy a relatively trouble free existence online because free, we experienced, was a false economy.

Thanks to the investment made by the fee-charging ISPs, the internet grew eventually enabling consumers to experience download speeds that were conducive to sharing large files - such as music. Needless to say, with the advent of Napster, free was back big time and it was youth that was taking advantage of it.

What the ensued was probably the most damaging PR exercise undertaken by any entertainment sector - suing your own customers. That’s right, if your customers aren’t paying for your property start suing. The record labels may have won the battle on the court room steps by raising the debate over file-sharing to a moral one and drawing a parralel between p2p downloads and theft, but in the long run they lost the war.

Youth only saw affiliation to the artists. Who were these record labels anyway? The artists certainly didn’t speak highly of them.

So, as with all self-evident truths, you reap what you sow. In taking action against their own customers rather than exploring the bigger picture, the majors have written their own long term redundancy slips courtesy of an increasingly fragmented value network, falling revenues and lack of goodwill.

What the CEOs should have told their overzealous lawyers was that for years they had failed to make any money on their key marketing and PR tools - the “single”. With few exceptions, marketing costs factored in, singles were loss leaders for the more lucrative album sales. Yet, with the decline of the single and traditional music “authorities” such as Billboard, Radio 1 etc to inform youth as to what is “in”, labels not only lost the ability to inform, they lost their relationship.

If the majors considered the Free option to market music to young consumers, they could have saved their business.

So can free mobile work?

Yes, if we make realistic assumptions about the cross-selling opportunity and maximize the relationship value offered by a mobile service.

The most significant cost facing companies market to youth today is lack of trust

The biggest challenge facing companies today in reaching youth is TRUST. Not only do youth not trust advertisers, they care very little about you or your product. Let’s face it - they don’t wake up in the morning thinking “I’ve gotta have one of those GPS enabled phones” do they?

The cost of establishing a dialogue and relationship with young consumers is a rapidly increasing one. Not only are traditional media less effective in bridging the communication gap, their methodologies (such as heavy rotation advertising) can also do more harm to the trust between brand and audience.

By providing a solution to the brand trust challenge you are effectively addressing a massive proportion of their marketing costs. Is this not what Blyk promises to brand, agency and advertiser? Pay us to profile your products on our network and we will use that to subsidize the cost of providing the mobile service to young consumers.

What they have got right is the understanding of the natural law of relationships - that one must first engage youth by giving away something traditonally seen as valuable by their competitors. Unless they give something away, youth won’t invite them into their Universe. In that respect Blyk is on track, but the devil necessarily is in the detail. If they fail it will be more likely the result of not getting the costings right on either side - ie the cost of running the network and how that is offset by brands rather than the principle in operation.