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In tough times, companies hunt for new sources of profitability and growth, frequently ranging far beyond their traditional offerings. Yet in doing so, many of them overlook opportunities for generating sales from services they’re already giving customers for free. Though it sometimes makes sense to stick with a free model, companies too often make that the default option. That’s a costly mistake.
The solution is easy to articulate but, naturally, much harder to implement. Simply put, managers must determine which services they can stop giving away and then start charging for them. We call this the free-to-fee, or F2F, transition. When evaluating any particular service, the challenge can be boiled down to this question: Should you bill it, kill it, or keep it free?
Drawing on insights from our research and consulting with companies across industries, we’ve developed a framework, explained below, for companies that aim to transition services from free to fee. For the past eight years, we’ve studied a variety of manufacturers and professional services companies and conducted workshops with hundreds of managers (see “About the Research.”), and we’ve seen ample opportunities for moving services from free to fee. Our research has focused on B2B companies, but its takeaways also apply to B2C companies seeking to monetize their free services. The challenge is especially acute for B2B companies, though, because their corporate culture is often rooted in selling products, which means that services tend to be treated as afterthoughts.
1. On bundling goods and services, see S. Stremersch and G.J. Tellis, “Strategic Bundling of Products and Prices: A New Synthesis for Marketing,” Journal of Marketing 66, no. 1 (2002): 55-72. Additionally, “breaking down an expense can potentially stimulate demand by highlighting dimensions of differentiation that might otherwise go unnoticed. If, on the other hand, a supplier’s strength lies with a focal attribute or the product offering is mediocre in terms of secondary attributes, then an all-inclusive price might be well-advised”; see M. Bertini and L. Wathieu, “Research Note — Attention Arousal Through Price Partitioning,” Marketing Science 27, no. 2 (2008): 238.
2. A. Hinterhuber and S. Liozu, “Is It Time to Rethink Your Pricing Strategy?” MIT Sloan Management Review 53, no. 4 (summer 2012): 69-77.