Why You Need to Launch with Premium Features


My last post talked about Rene Girard and the concept of mimetic desire. I want to continue with some additional thoughts…

Premium products are often marketed via some aesthetic base, often using visual cues (logos, design, premium materials, etc) to make others consumers ‘envious’ to the point that they feel they must have it too. The value is obvious to all who see it.

It seems most web services forget that making other users ‘envious’ of the premium features they could have is a necessary step to monetization. For example, the reason that car models change design ever year or two is not for reasons having to do with being environmentally friendly, or even it being a better product. No. Car companies are actually trying to entice consumers to ‘visually’ see the difference and associate older models with being bad and/or outdated. Other drivers see the ‘updated version’ of the car they are driving and feel they too should have the updated version. The same strategy holds true for iPods, iPhones, laptops, or virtually any consumer product.

Envy, however, doesn’t always need to be monetized in order to provide the marketer with a great return. For example, envy is often used to entice retention and engagement on the web. Let’s look at two contrasting examples: Basecamp and LinkedIn.

Both services use the “freemiumâ€� business model, ever so popular among Internet startups. For Basecamp, you sign up for a free account and then pay when you need to add more projects or more people. There is a clear inflection point where you are forced to upgrade. However, if someone signs up to simply ‘test out’ the system or check it out they have access to everything everyone else does – just not as much of it. Free users receive no exposure to premium users or features because there is no obvious differentiation. It’s essentially a traditional software subscription model. Even Basecamp itself says it does not monetize.

I think this is a relatively weak incentive for conversion from free to paying.

Let’s contrast Basecamp’s approach with that of LinkedIn. LinkedIn does monetize, doing so using a mechanism for creating what I would call “user envy.â€� What’s more is that LinkedIn has two outcomes for its user-envy strategy: one targets converting free customers to paying ones and the other drives engagement. First, as you explore LinkedIn you will notice certain users who are “Inâ€� indicated by a label showing they have premium accounts. A LinkedIn premium account means that a user can contact with anyone they like on LinkedIn, even without knowing them beforehand. In terms of driving engagement, LinkedIn also makes it strikingly obvious how many connections each user has. This creates a sense of competition among friends, colleagues and rivals to see who is more connected and thus more popular – the whole “mine is bigger than yoursâ€� syndrome. And it naturally feeds into the desire to add more contacts offered by being “In.â€�

Conclusion? While the markets that the two businesses are going after are slightly different, one company is preparing for an IPO and the other — well they are not.

On a related note, I believe that the power of creating envy spans three of Dave McClure’s marketing metrics: Retention, Referral and Revenue.

Make users envious and you can make bank.


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