Forgive the long post, but I haven't written in a while and quite a bit came out once I started.
Most people don’t make independent choices about which product to buy. More often, they prefer to mimic someone else’s selection. Unless you're a lemming, following the crowd is safe and simple. This is why popular products tend to remain popular. Once enough people independently choose some new gizmo on its merits, the rest of the market chooses the popular choice. Success becomes self-fulfilling.
The question is: How do you achieve that initial success?
Most businesses try to earn the widest margins on the backs of their best customers by charging full retail price for newly released products. If the product is somewhat scarce then they may even charge a premium. Only later, as its sales wane, will the business offer discounts to persuade more reluctant buyers. This approach produces a sales curve with a small initial spike, followed by a steady decline that levels off for a time as discounts break its fall. It’s not exactly the recipe for success.
If a product’s ultimate accomplishment depends on its initial adoption then what can you do at launch to achieve the popularity the market will perpetuate? What about giving your product away?
“Crazy!,” you say. “Absurd! We’re in business here and need to make a profit. Why would we give our product to the very people who desire it most?”
It’s true you need to make a profit, but must you make a profit on every unit of every product you sell? Must you make the largest profits first and accept discounts only later? Grocery stores offer loss leaders, sacrificing the profit on an item or two in exchange for the margins they’ll make on the full shopping cart.
Try changing your perspective. Instead of measuring your profits on each unit, look at the profitability of the product’s entire life cycle. Flip the current model on its head by introducing your product at its lowest price to maximize its popularity, and then ride that popularity, and the wider margins it supports, to profitability.
The cover story of the Life Section in USA Today (Friday April 21, 2006) titled Money in the Mixtape offers a fascinating case study supporting this approach. It describes mix tapes produced by urban DJ’s that feature songs by popular rap artists. The CD’s are often sold at very low cost or given as free downloads to rap’s most rabid fans. The practice creates buzz that lifts the artist’s commercial CD to the top of the charts.
When rap musician 50 Cent what shot nine times in 2001 his label dropped him. Rather than beg other labels for a new deal, he flooded the streets with mix tapes. Instead of satisfying market demand for his music the practice started a fire among the faithful that increased demand for his work. Soon labels were fighting over him and his 2003 release, Get Rich or Die Tryin’ sold 872,000 copies in its first week!
The book The Purpose Driven Life offers another example. The author, Rick Warren, and his publisher, Zondervan, sold 400,000 copies of the book at no profit just as it released. That act created the perception of popularity that soon became reality. Within two months the book had sold 2 million copies. Propelled by that initial success it sold 1 million copies per month for the next 18 months and 26 million copies in three years.
I am beginning to do this at my company too by offering Launch Rebates that increase a book’s discount during its first 30-60 days in the market.
Will you try this? That depends on your attitude. You will if you have an attitude of abundance and believe there are plenty of prospects for your product and that you’ve got everything to gain by trying. You won’t if you have an attitude of scarcity and believe instead that you must desperately grab for every penny of profit on every sale you make. The choice is yours, but I must warn you, like success, both are self-fulfilling. Spread the fire. GS