Online traders must split market into bands serviced by free up to deluxe

Hard rocker Trent Reznor of the band Nine Inch Nails may not be on the bill for management conferences but businesses struggling to cope with 21st century challenges could learn a lot from him.

According to author Nicholas Lovell, Reznor is a classic exponent of the curve, a strategy that suggests that variable pricing from free to premium is the way to exploit the possibilities unleashed by the web.

Having fallen out with his label, Reznor released his album Ghosts via the web. Fans could download part of the album for free or a full single digital album for $5. For $10 they could buy the physical CD, $75 got a "deluxe" version.

If they had a conscience they could pay into an “honesty box” if they took advantage of a pirated version. The “ultra deluxe” version at $300 consisted of a four-set CD and three fabric-bound hardcover books in a special case. Only 2,500 copies were produced, signed and numbered by the artists and they sold out in just over 24 hours.

"The lesson for business is that you need to find an audience, using free as part of that strategy. You need to understand your audience and be able to speak to them directly, and finally you need to be able to find and enable superfans to spend lots of money on things they really value," Lovell tells The Irish Times.

“Reznor is a really good example of a trailblazer who has shown us how the transition from analogue to digital has destroyed our preconceptions about the mass market, pricing and the dangers of free.”

Broken models
The web has fundamentally changed the nature of relationships, giving power to consumers. Traditional players like record labels and newspapers now find themselves struggling with broken models, he says.

The curve strategy offers hope and this needs to start with free. In the case of newspapers, for example, he argues that hard paywalls are dangerous, because news is part of the conversation, the social fabric of a nation.

The more closed you get behind a paywall, the less you are part of that conversation.

“Consumers won’t pay lots of money for news. What you’ve got to do is to figure out what you can charge them for that’s related to news.

"The Snowden leaks would have got far less awareness from behind the Times paywall than it would behind the Guardian's open platform," he says.

Paywall flaws
"It's like mining out a drying-up oilwell and saying, 'We built this over a long period of time. I don't want any new customers. If people like what we do they will pay for it.' The problem with that is that a 20-year-old student won't discover the Times because they will click on a link and will get to a paywall that they will never go beyond."

Concern about freeloading activity in leaky paywalls is the equivalent of worrying about someone browsing the headlines of a paper in a newsagent without buying a copy, he notes.

His point is well-made but he is on shakier ground when he suggests that newspapers’ curve strategy might include a modest basic subscription to access content rising to a deluxe version that would enable subscribers to attend editorial conferences and suggest areas worthy of investigative journalism, for example.

“Editors would absolutely hate the idea,” he acknowledges but says that traditional newspapers shouldn’t dismiss this type of thinking out of hand, given the crisis in which they now find themselves.

Turning to the broader field of publishing, in the old model, record labels and book publishers, for example, acted as moderators and gatekeepers. There is a view that these old media gatekeepers have been replaced by new digital ones such as Google and Amazon and Facebook, he says. In other words, if you can't get your book visible on Amazon or your search engine optimisation to work with Google, you might as well not exist.

“That’s true but it misses the point. Your work will exist but it may not become mass market. In the old days, as a content producer, you had to build the relationship with the gatekeeper. Now you can get it into the public domain at least.

“Publishers say that they filter for quality. That’s rubbish. They filter for risk. They filter for whether they will get a return on the investment that they make in it.”

Businesses need to focus on relationships and they also need to change their views on what constitutes value. Value is not related to production costs, he notes, it's related to consumer needs, many of which are emotional rather than practical. What value, he asks, do you put on the value of an FA Cup Final ticket? The answer could anywhere between zero and £10,000, he suggests.

Starbucks, he notes, advertises in its outlets that you can add an espresso shot to your coffee for just 15p – doubling the amount of coffee in a £3 drink.

“Starbucks is so confident in its value – in the brand, the environment, in the habits and expectations of its customers that it is prepared to showcase the disconnect between the price of the commodity it is selling and the cost of experience it is offering.”

Lovell is both a proponent and practitioner of the curve. His gaming industry blog, Gamesbrief, claims a 20,000 audience and is used to sell books, educational posters, masterclasses and consultancy – as well as offering free stuff, naturally.

The Curve: from Freeloaders into Superfans by Nicholas Lovell is published by Penguin