Know the Value of Your Product

by Ash Kumra

This chapter is a free excerpt from Confessions from an Entrepreneur (Volume 1).

Sanjay Dalal: Serial Entrepreneur & Author

My advice to entrepreneurs is that you must demonstrate the real value of your product from the get go. You must show to your customers why your product is the best thing to happen since sliced bread. What is the big customer pain point your product is addressing? Share stories about how your best customers are using your product and their testimonials. Value creation is not easy, and it does take some time. But once you have nailed down the key benefits that your product provides to your target customer, it’s smooth sailing from there on. The higher the value your product establishes, the better the price you will garner from your customer.

Don’t Fall in the Trap of Selling Your Product or Service for Free!

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Sanjay Dalal: Serial Entrepreneur & Author

My advice to entrepreneurs is that you must demonstrate the real value of your product from the get go. You must show to your customers why your product is the best thing to happen since sliced bread. What is the big customer pain point your product is addressing? Share stories about how your best customers are using your product and their testimonials. Value creation is not easy, and it does take some time. But once you have nailed down the key benefits that your product provides to your target customer, it’s smooth sailing from there on. The higher the value your product establishes, the better the price you will garner from your customer.

Don’t Fall in the Trap of Selling Your Product or Service for Free!

Does McDonald’s provide free burgers? Does Safeway provide free groceries? Does Starbucks provide free coffee? None of these companies have provided their products for free, nor will they provide them for free in the future! What McDonald’s has done though is create great tasting burgers for which customers go back again and again and enjoy; What Safeway provides are great grocery stores and relaxing shopping experience for which customers gladly spend money; What Starbucks has created is a great place to hangout, have meetings, and have that freshly brewed, highly personalized cup of coffee. In essence, these companies have created real value for their products, and their customers are quite happy to go back and spend.

When a company gives away a product or service for free, it may create a very low perception in the minds of the customers of the associated value of both the company and the product! Most importantly, customers don’t have high stickiness or loyalty to free products. They would replace a free product with another free product. A free product or service may attract customers who are neither loyal nor ideal for your business in the long term. In the case of Digg, a very popular news review service, customers replaced it with another free service Reddit. Would they eventually replace Reddit for another free service in the future? Perhaps. In the case of Myspace, one of the best social networks, customers replaced it with a better social network Facebook. Why do people love Facebook today? Facebook offers a very easy and useful way to connect with friends and family, share what’s happening with updates, photos, and videos, and keep up with what your friends are doing all the time. Facebook has created a strong value for its free service wherein people get hooked from the moment they join and go back frequently to see and share.

Some companies have adopted a new model called Freemium. They provide a free trial of their product for say 30 or 60 days, allow the customer to cancel any time, and begin charging the customer after the trial period ends. This is a great way to get many customers in the door and get them hooked. Once customers start using the product daily, it becomes hard for them to give up after the trial period is over. Companies such as Intuit offer their QuickBooks online products for free for 30 days, and have found very good success with this model. Some companies provide a basic product for free perpetually. This basic product has minimal but useful features. The assumption here is that a lot of customers will sign up for the basic product, use the basic product, exhaust the initial use, look to upgrade to the pro or plus version, and will eventually pay the extra money. Companies such as Box.com have done extremely well with this model. A basic product, in essence, acts as a funnel for getting prospects, and converting these prospects to leads and clients.

Bottom line: Instead of giving away the product for free, entrepreneurs must work hard and create strong value for their product from the beginning. If you must offer a free version, offer it for only 30 or 60 days, or create the free version with minimal features and provide an easy upgrade path to a paid version.

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Sanjay Dalal is a serial entrepreneur, working on his latest start-up oGoing, USA’s leading social network for small business. Sanjay has designed and launched products that are used by over 50 million professionals worldwide. Connect with Sanjay here: http://ogoing.com/sanjaydalal.
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