What is a *FREE* customer worth?

I always wonder if companies should pursue community building with lots of users, or a few paid users. While both have their advantage, it is a question that can be better answered on a case-to-case basis. Many factors might affect the strategy a company might want to employ – funding levels (do you have money to invest through a franchise building phase?), maturity of the market (how many other players are there?), state of the product (is your product extremely well-defined, or are you tuning it still?), but I found this feature story by Sunil Gupta and Carl Mela that brings to the fore a new dimension and one I had not been able to quantify — indirect network effects — when you acquire a free customer, over time they might start buying from you, or attract other customers.

Gupta and Mela point out these free customers are extremely important for many businesses — from a shopping mall where they build up aspirational value and buy products later, or gaming consoles where it drives more developers and a wider eco-system leading to a higher monetization. They explain these in light of an online auctions house — where more buyers lead to more sellers and higher lifetime earnings even though the buyers don’t actually pay a fee. What’s really interesting about the report is that they have quantified these indirect network effects, explain how a penetrative pricing (low initially, and higher later) leads to higher lifetime earnings since it broadens the base.

Also reminds me of when I was talking to a manager in Shoppers Stop sometime back, and he told me that everybody walking into his store is a potential customer — they might not buy anything now, but the fact that they walked in shows that they are interested in buying something, and will come back and buy. Which is also true of brands targeting youth — they don’t have a lot of immediate spending power, but very high lifetime earnings, and so you are better off getting them hooked onto your products.

There is also a more detailed research report that I wish to delve into, and if you want to read the full feature, just search intelligently]

[Via OCC Bangalore mailing list]

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Mall’spitol

I recently spent a couple of days at a hospital in Bangalore. While the drab green/grey/white walls can be a bore, there is a lot of humour especially because a hospital is probably the most far removed from the rest of our lives. Once, you enter into the confines of one, you get completely transformed — your priorities change, the way you interact with people changes etc.

But what would happen if we become as aggressive in a hospital as elsewhere? As in a mall? We all search for deals, try to get bargains … how would that pan out in a hospital?

  • Special offer on hospitals meals — get double the quantity for half the price! (and still have food left since nobody wants to eat it)
  • Replace one kidney, and we replace the second one for 50% off!
  • Flat 25% off on CAT Scans every Thursday — avail of the offer now!
  • Make one baby, and we give you two for the same price!
  • New Arrivals: Injections that hurt 25% more at the same price — try them now!
  • Tooth Fairy Special: Replace all 32 teeth for only Rs. 2000 — offer valid only for the next 2 days
  • Visit a Neurologist and we let you consult a Psychiatrist absolutely free!
  • Holiday offer: Stay 2 nights and 3 days in our special resort with a spa and nurse on call — get your brain replaced for as little as Rs. 15,000.

Better still, the following conversation:

Patient: Doctor, heart kya bhav diya?

Doctor: Bouji, yeh wala drunkard hai Rs. 5000, yeh wala cigarette peeta tha – Rs. 4000, Yeh bilkul normal tha – Rs. 10000

Patient: Theek daam batao bhaiya. Aajkal bahut daam badhane lage ho. Woh Reliance fresh mein toh 3000 ka mil raha hai.

Doctor: Bouji, ab woh le lo aap. Woh toh Tutankhamen ka nikaal ke bhech denge aapko.

And what about the advertisements? Will there be an ad-supported heart transplant? Will they put banner ads or text ads? How will they measure CPMs? How many times does the consumer want to buy everytime she looks at a saree or jewellery? They might even sell prepaid cards: After sometime, you would have to recharge if you wanted to continue breathing or your heart beating.

The way things are going — this day is not far. In my own hospital stay, they didn’t expedite the discharge process until somebody else had ‘checked into’ the other bed in the room (I was in twin-sharing).

Ghor Kalyug.

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