Subsidy and payment: How do products make the transition from "subsidy" to "payment"?

We found that many newly launched Internet products basically do not consider profitability. Even some products that have been operating for many years and have a huge number of users are still making losses and rely on other ways to make money to support their main business.

Most people can also understand these Internet companies and their products. Why do they have to subsidize users?

Because the money invested in the early stage is expected to be earned back double in the later stage.

1. Four common reasons for paying money

1. Paying money is to cultivate habits

Whether it is the transition from offline shopping to mobile shopping, the adjustment of offline payment to mobile payment, or the transition from in-store purchase to waiting for door-to-door delivery, the adjustment of habits cannot be achieved without the stimulation and motivation of some external factors. For example, in the early days of WeChat Pay, a large number of incentive funds and cashless day activities were used to subsidize users to transition from cash payments to WeChat Pay.

2. Subsidizing money is to seize the market

The market capacity of the same industry is limited. When competitors are targeting the same market and the blue ocean turns into a red ocean, the only way to survive or even break through is to rely on competition. “The world is bustling with people, all for the sake of profit.” The most direct and effective way to grab users is to spend money, turn someone else’s market share into your own, and hope that it will always be yours. For example: the “crazy” coupons that were a huge hit when Meituan Taxi was launched.

3. The purpose of paying is to increase data volume and raise funds

For some startups that originally relied on capital to join in "artificial blood-making", all they do is to attract the attention of capital and satisfy investors . Undoubtedly, for these companies, the initial investment is just like the saying "using shrimp to catch carp". The number of users and transaction data earned by investing are just tokens of allegiance to investors . Once they attract the attention of investors, there is no harm in creating a "blood-generating system".

4. The purpose of paying is to create an atmosphere and build a herd effect

Some people are willing to spend money to hire internet trolls, and the 50-cent party is very useful in creating an atmosphere and guiding public opinion. This is because Chinese people have a certain herd mentality. Everyone says this, so maybe it’s right. Everyone holds this opinion. If I stand out from the crowd, I might be attacked.

The same is true for products. Money is spent to create a temporary sense of popularity. Combined with some public relations soft articles and the guidance of opinion leaders, users' curiosity is aroused and users are attracted.

2. Bad news about paying money

From letting users spend money to use products, to providing products to users for free, and then to trying to pay for users, the trend in the Internet circle in recent years has been moving increasingly in a direction that is completely contrary to tradition.

So now people who are working on Internet products often say: Without some background and financing, can you afford it? Can the product be successful without spending some money?

Although it hurts, in an era when many products are spending a lot of money to grab users, this statement often hits the tragic points of many products on their growth path. However, there are also problems with spending money, just like a rich second-generation man who wants to attract girls' attention by spending money, it is not a long-term solution.

Products that are developed by subsidizing others often encounter the following situations:

1. Users choose whoever pays more

The world is bustling with people, all for the sake of profit. The world is bustling with people, all for the sake of profit. Since users are driven by the trend of profit, they lack loyalty. Among homogeneous products, users tend to compare which product has the longest subsidy. After all, how can users not feel reasonable when they use less money to buy the same or similar services?

2. No need to pay

Users are used to buying a serving of fried rice for five yuan. Suddenly, you raise the price to ten yuan. Most users will inevitably feel disappointed. Once they feel the disappointment, they will think, do they really have to eat this fried rice?

The result of thinking about it is probably that you might as well just spend one dollar to buy two eggs and fry them yourself. Therefore, we often find that some products that are used to subsidized marketing will see a sharp drop in the number of users after the subsidies are stopped. This also makes many product operators dare not easily make the decision to stop subsidies.

3. Subsidy leads to market chaos

Things like losing money will always attract many profit-sensitive people who will try every possible means to gain more benefits. Because of this, if the subsidy is not properly controlled, it will easily cause chaos in the entire market, making the subsidy itself increasingly meaningless.

4. It is difficult to monopolize by paying money, unless there is support from a powerful giant

As mentioned earlier, most of the products that burn money are hoping to seize the market and become unicorns in the industry. However, the fact is: the Internet's hot spots have changed one after another, group buying, video, food delivery, shared bicycles , balance management ... but in the end, they all became the battlefield of the two giants, Tencent and Alibaba .

Once the two fathers start fighting, the fate of the product is either to be suppressed and become silent, or to be acquired by a big boss and become a "godson" or "a follower of the biological son." It is not easy to seize the market, as users have too many choices. And it is becoming increasingly difficult to build barriers that prevent competitors from entering these days.

5. Once the capital chain cannot keep up, you will lose money.

For startups, the biggest tragedy of investing money is probably this: they will burn out all their capital. If they don’t invest, it feels like they are just getting a suspended death sentence, and if they start investing, there is no end in sight. It would be fine if there is someone to take over, but if there is no one, or if there is a problem with the capital chain, death will be the only thing that awaits you. Every year, many products die on this road of burning money one after another, and it is no exaggeration to say that there are corpses everywhere.

Therefore, when a product is in a market environment, it must follow the rules of the market. After making certain initial losses, the ultimate goal is to make a profit. Although those with sentimental feelings may think that they are doing charity at their own expense, only by surviving can real charity continue for a longer period of time. Whether it is investors or product operators, they ultimately hope that users will pay. Free or subsidized services are just means to achieve this goal.

So the next two questions I want to talk about are:

1. How to make users accept the breakup with the “pay-for-money model”?
2. Why would users pay?

These two issues are the key points that need to be considered during the bottleneck period of losing money.

3. How to let users say goodbye to “subsidies” elegantly?

1. From fixed to random, increase the fun

The longer the fixed amount of subsidy lasts, the more likely users will develop dependence and inertia, and the more likely it is that any adjustments will cause significant damage. Therefore, after a period of fixed subsidy methods and amounts, they must be adjusted to random methods. Different subsidy activities and random subsidy amounts can make subsidies more interesting while also making the budget more controllable.

Spending less subsidies to achieve the same effect can gradually reduce subsidies without users noticing.

2. From universal benefits to special benefits, improving targeting

• From the user's perspective: naturally everyone hopes to receive subsidies.
• But for core users: they expect their loyalty and efforts to be rewarded accordingly, and core users hope to have different rights and interests.
• As for products: Just as the famous 8020 rule reveals the truth - in fact, the contribution rate of 20% of core users to the product is often much higher than 80%.

Therefore, at a certain stage, distinguishing the general policy of sunshine subsidies from the special preferential policies of targeted subsidies can not only provide certain incentives for ordinary users and avoid unnecessary loss, but also retain more core users.

3. From real price to mark-up, enhancing selectivity

Most e-commerce companies use this method. Discounts and subsidies are based on price increases. Although the subsidies do not seem to have disappeared, in terms of the product's operating costs, the subsidies have actually been recovered in the payment for the goods. In order to confuse users, most products will give users more choices.

If you want subsidies, you can only choose products with increased prices; if you choose discounted products, you may not be able to enjoy subsidies, because the autonomy is in the hands of the users, which makes users feel that everything is their own choice, not the product's fault. In fact, it is just a game between products and users about price calculation.

Of course, most of the companies that eventually choose to end subsidies have done so because they have finally successfully suppressed other competitors with subsidies and have become the only choice for users. Instead of cutting subsidies after achieving the goal, it is better to adopt some of the above strategies so that users and subsidies can say "goodbye" elegantly.

After saying goodbye to subsidies, the next step for the product is to make a profit. Compared to no longer subsidizing users, getting users to pay is obviously a more difficult proposition.

It is easier said than done. I can only give you some common ideas.

4. Why should users pay?

1. From flattery to seduction, what is purchased is privilege, what is achieved is glory

As mentioned earlier, subsidies need to provide differentiated treatment to users with different levels of contribution. In fact, in order to get users to spend money, they also need to be given privileges that give them a sense of honor.

Paid members of video products can remove advertisements and watch VIP movies , which is a privilege; paid members of download tools can speed up downloads, which is a privilege; paid members of recruitment software can send resumes in batches and pin them to the top, which is also a privilege. The key is that this privilege can make users feel needed and satisfied, while also enhancing individual sense of accomplishment.

2. From reality to emotion, what you buy is the sentiment, what you achieve is the believers

Human emotions are the most special things in this world. In addition to paying for their own interests, there are also many "believers" who are willing to "pay for their feelings."

• This sentiment may be charity, for example: paying 1 yuan can give love to autistic children;
• This sentiment may also be a dream, for example: paying to crowdfund a dream;
• This sentiment may also be a common belief and preference, such as paying for autographed items of heroes or stars, etc.

What is important is to find the emotional sensitivity points of target users so that they can share a certain common emotion, which will easily motivate them to become paying believers.

3. From the present to the future, what you buy is the future, what you achieve is hope

Sometimes, users will pay for some beautiful future that they expect, so "bosses who draw pie in the sky" and "leaders who create carrots that can never be eaten" always exist.

The same goes for products, drawing a beautiful blueprint for users.

• For example: If you purchase a certain membership, you can save XXX yuan in the future;
• For example: if you pay one yuan, you may share the box office returns of a certain movie in the future;
• For example: pay a fee, and with the help of the product you can become a great person in the future, with a monthly salary of 50,000.

As such, the more beautiful the pie is and the closer it is to users' expectations, the faster and more consciously users will pay.

In short, a product that has no profit model and the ability to "get users to pay" is absolutely a hooligan, unless it has a good "father" or wants to do charity. If the ability to make money cannot keep up with the speed of losing money, then it is nothing more than being a hooligan while trying to be cool. If it fails to attract suckers, it will only accelerate its demise.

The author of this article is @跑跑大橘子 and it is compiled and published by (青瓜传媒). Please indicate the author information and source when reprinting!

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