Could You Benefit From Transforming from a Freemium to a Cause Business Model?

Are you operating a freemium business model? If so, have you considered transforming your business to a cause focused business model? If not, you may be missing out on an opportunity to improve your product positioning and/or scale your business.
The whole purpose of a freemium business model is to introduce potential customers to a starter version of its product(s), so that they will see its value and hopefully decide to purchase the premium version of the product. This type of business model works great for newer products that do not have established brands, as it gives users the opportunity to try out the product without purchasing it. This allows the product to sell itself and hopefully convince the user that they should purchase the premium version of the product. The key to success with the freemium business model is that the seller is able to differentiate the starter and premium products in a way that encourages users to purchase the premium product.
To move to a cause business model, a company simply increases its freemium product price to a minimal fee and gives all proceeds away to a selected charity or cause. The idea is that aligning your company name with a social cause generates positive press and enhances the overall value of your company’s brand, while at the same time still acquiring new customers through the low overall starter product cost. For most established products and/or brands, the cost-benefit comparison will be positive because the number of customers lost due to the increased price will be small relative to the number of new customers acquired through the cause generated publicity. The reasons why this works are:

1. Customers love deals and equate more value to goods they pay for than free products
2. Consumers like to help others, as it produces a feel good sensation, and they are willing to pay a premium on products in return for this feeling.

One company that has benefited greatly from its move to the cause business model is Atlassian. In 2009, Atlassian decided to test the charity business model waters by temporarily converting its JIRA starter software to a cause business model in an attempt to get more traction in the small business segment. They did so by running a 5-day campaign where they charged $10 for 10 licenses and donated all their proceeds to a literacy charity called Room to Read. After 5 days they more than quadrupled the forecasted sales and decided to test the model over a longer period of time. Realizing that the cause model was generating more interest in their products in the small business segment and overall, they decided to extend the test to see if the increased consumption behavior was sustainable. The trends continued and Atlassian decided to fully adopt the cause business model. Atlassian credits the business model for its significant increase in customer acquisitions and upsell percentage.
However, this is not a one strategy fits all scenario. The cause business model works best with companies that:

1. Sell high volume products
2. Have established brands
3. Have consumer focused products

Even if the cause business model doesn’t work for your company, it still is a good idea to use charity as part of your marketing strategy. There are many ways that you can do this and all of them have the potential of generating a huge buzz about your company and products. For example, Starbucks sells its Ethos Water for $1.80 per bottle and donates $0.05 to a potable water charity for each bottle purchased. This has generated a huge buzz for its products and to date Starbucks has already raised $151.2 million in funds for the charity. Similarly, Tom’s Shoe Company has a One for One marketing strategy whereby they donate a pair of new shoes to a child in need every time they sell a pair of shoes. This business model has helped Tom’s quickly establish itself as a premier player in the shoe manufacturing market.
Don’t underestimate what charity can do for your business! In many instances it is a very affordable marketing medium and it can also help garner a positive brand reputation.