Feature

Close-Up: How zero pricing has changed brands

'Free' no longer means 'cheap' as consumers go for reputation and quality. But can this model be sustained, Noel Bussey asks.

As any Yorkshireman will attest, you don't get anything better than when you get it for free.

However, historically, what people have usually seen as free is mostly just what economists would call a cross-subsidy - getting something free if you pay for the service. For example, giving away a free mobile phone to sell the monthly talk plan.

But Chris Anderson, the editor-in-chief of Wired magazine and author of The Long Tail, believes that in recent times, this has changed and that a new type of "free", where consumers are actually getting content and products completely gratis, has emerged based on the fact that production costs have fallen and free information on the internet has risen.

He outlines all of this in a new book called Free: The Future Of A Radical Price: The Economics Of Abundance And Why Zero Pricing Is Changing The Face Of Business.

The book, which is published on 2 July, highlights a number of examples of how "free" has changed from a marketing gimmick to a fully fledged economy. It also states that as an increasing number of things become available for free, our decisions to use them will be determined by two factors more valuable than money: reputation and time.

Writing in Wired, the author covers some of the points in the book and uses examples of bands such as Radiohead, which is giving away music, and the rise of Google, which gives everything away.

However, not everyone is happy with "freebies". Subscription-based service providers such as BSkyB and BT have spoken out. The latter has called for an end to the "free ride" offered by video websites and announced that it hopes to begin charging content owners for the delivery of its programmes over its broadband network.

And this is where the new type of "free" could see its biggest impact.

It would be unrealistic to assume that everything can be given away free, because it has to be paid for somewhere and it is likely that the next stage of its evolution will be made by companies finding innovative, targeted and sustainable ways to charge for this free content without scaring off the consumer.

Anderson points to the example of Rupert Murdoch making much of The Wall Street Journal free, because that's what consumers expect these days, but charging more for the remaining paid-for bits because they are "really special".

Campaign asked a number of industry top dogs for their opinions on the themes and ideas put forward in the book.

WORKING IN THE 'FREE' MARKET - VIEWS FROM THE INSIDE

- Mike Soutar, chief executive, ShortList

"Chris Anderson is right when he says that 'free' changes everything. It has certainly changed consumer attitudes in ways that are still only dawning to the orthodox print media. This is not just about ShortList. Free no longer equals cheap. The name of the game is to deliver 'freemium' services - free content which they would otherwise expect to pay a premium for, in a beautifully, well-considered package, which they can access with little effort on their part. In this 'freemium' world, the quality of what you deliver is critical. Without that, consumers will go elsewhere.

"Anderson says that the two new scarcities in the world are attention and time. I think he's talking about engagement. Consumers are engaged in content that is relevant to them and is presented well. There is no link between engagement and the price that they did or didn't pay. As sophisticated consumers, they realise that the cost to them of engaging in free content is that it is advertiser-funded and, so long as the advertising is well-targeted, they welcome it."

- Jean-Paul Edwards, executive director of futures, Manning Gottlieb OMD

"The 'free' concept and its associated business models are a natural consequence of an ever more networked economy, but they are a double-edged sword.

"On one hand, they can be fantastic for opening up new markets, proving value where it is little understood. This is the case with the growing at-home printing market virtually giving away printers and then making up the margin on the ink. It is the case for any number of new 'web 2.0' services; it is doubtful that a paid-for Facebook would have 200 million members.

"It does, however, have a value-destroying dark side. New entrants can disrupt value chains in more mature markets, giving away products where there was a margin. If this starts happening in many places at the same time, then we are liable to systemic collapse."

- Robert Tansey, director of brand marketing, BSkyB

"Everyone likes something for free. But media owners need to consider how to maintain investment in content over the long term. It costs money to produce quality, whether in journalism, drama, sport or any other genre.

"The potential consumer reach of free may be attractive, but the economics are very challenging. With audiences fragmenting and ad budgets under pressure, it takes an optimist to believe that advertising alone is always going to fund the content we want to see on our screens and in our newspapers. So you have to back your belief that if you offer a quality product which people value, they're going to be willing to pay.

"Of course, consumers demand value. But that judgment isn't based on price alone and free does not automatically mean value.

"That's why more people - around 50 per cent of all UK households - are opting in to pay-TV, even in a downturn and when there are more 'free' alternatives. Choice and quality are worth paying for."

- Giles Hedger, executive planning director, Leo Burnett Group

"Marketing has been doing this for decades. What makes the free phenomenon appear striking is the fact that gratis products are now commonly offered where previously the only speculative gifts routinely on offer were acts of creative engagement.

"The question is not 'how is it possible for DVRs or flights to be retailed at zero cost?', it is 'what assumptions about the future value - measured in any human currency - are being made about the recipient of the free product?'

"This is less the story of new technology enabling the production and distribution of free products; and more the story of new business models enabling the widespread suspension of coverprice. It is tempting to think that the story has been accelerated by the low cost of goods, new economies of scale and reduced distribution costs.

"The real accelerant is a consumer who, aware of their value to brands, thinks nothing of their attention being paid for."

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