Author: Martin Kelly, CEO INNOVO
One of the most remarkable trends in B2C industries in the last 10 years is the increasing offer of more services for free. Why is this? How are these services financed? Why do B2B industries stick to traditional ‘paid for’ pricing models.
The Rise of Free B2C Services
The internet sparked an explosion of B2C services with internet access and even website hosting services being offered for free. Social networks like Facebook and Twitter are free. YouTube offers video content on demand for free. More and more news content is offered free. There are millions of apps for mobile phones which are free. Many B2C start-ups have business plans which offer a free service to consumers.
Even with the purchase of consumer goods, free services are often bundled with the product. There is no charge for ‘click and collect’. Another offer, ‘Buy one, get one free’ is regularly used to generate increased sales.
One of the great driving forces for offering something free, is to remove the barrier to a customer trying out a new service. If a new service is free, an app for example, what has the consumer to lose in trying it? Consumers now expect more and more services to be free, especially if the service is new or it is from a new service provider.
How are Free Services Financed?
By far the most common way of financing free services is from advertising revenues from the large audiences that free services attract. However, the sustainability of this model is being eroded as more consumers use ad blockers.
Another way is using a ‘freemium’ model where a basic service is offered for free and then a ‘pay for’ premium service is offered with additional attractive functionality.
Why Are B2B Services Rarely Free?
It is surprising in the light of this pervasive B2C trend that B2B industries have not followed. Why is this? B2B service providers also bring out new products and would benefit from the lower barrier to adoption that free presents. B2B buyers are certainly more sophisticated buyers than B2C consumers, so why have they not pushed more for free service provision? More limited audience sizes make ad revenue generation from free B2B services more challenging.
Surprisingly, service provision and payment terms are much more inflexible for B2B services. An order is usually an irreversible commitment to buy relying on trust in the supplier’s quality. There has to be a clear quality problem to trigger a return. Conversely in consumer markets, the majority of garment retailers offer a ‘buy-try-return’ option with no need to give a reason for the return.
Advertising, consultancy, and a vast range of B2B services are all on a ‘buy-pay-end of transaction options’ basis. Sometimes, there is a payment by results, e.g. in advertising or in ‘gain-share’ consultancy where buyer and supplier share in outcomes. However, ‘pay per click’ advertising is subject to abuse and gain-share consultancy work can often lead to contentious outcomes which are difficult to resolve.
New Free B2B Services
A revolutionary economic model offering completely free services for buyers and suppliers has been launched. The value created arises from the wasted costs in bombarding new customers with advertising and mis-timed approaches, helping them sell wasted spare capacity which is otherwise too expensive to sell. Unlike conventional paid for advertising, this model offers suppliers free access to decision makers at buyers with a budget, ready to buy. The model is also completely free to buyers. Consultancies work with buyers and suppliers and share in the economic value created by cooperation. Unlike conventional, gain-share work, the economic value is crystal clear – a cash flow arising from the new transaction. This cash flow is audited and shared fairly between all of the parties that helped to create it.
A revolutionary economic model is needed if B2B industries are to catch up with their more customer focused B2C counterparts. These new B2B services are of course, being offered completely free to all parties, buyers, suppliers consultancies, etc. to remove adoption obstacles.
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