At the end of the day, most successful businesses do one simple thing: they sell a product or service at a profit.
But building a successful business is anything but simple. There are many challenges, and one of the biggest is acquiring customers.
There are many approaches a business can take to acquire customers, from advertising to free trials. Almost all have some cost, but the hope is the same: the revenue obtained from the acquired customer will exceed the cost of acquisition.
Customer acquisition isn’t always so simple, of course. Take Microsoft, for instance. In an effort to garner interest in its cloud-based productivity solution, Office 365, the software behemoth is reportedly paying the University of Nebraska $250,000 in ‘incentives‘.
According to BetaNews, “The funds will be used to subsidize the cost of migration, as well as fund support and the purchase of Microsoft software across the entire university.” The total anticipated savings to the university: a cool $500,000.
Microsoft’s move raises an interesting question for many companies trying to enter a competitive market: should you ever effectively pay a customer to choose your product or service?
It’s not an easy question to answer. Beyond the fact that most companies can’t afford to do this Microsoft-style, ‘bribing‘ prospective customers may elicit all sorts of negative feelings. That said, there are situations where such a move may be justified. Here are a few.
Situation #1: You need early adopters
Finding customers for a new product or service can be challenging. Many times, prospective customers don’t want to be ‘first‘.
When all else fails, providing financial incentives to get to ‘yes‘ may be appropriate if the rest of the terms are financially tolerable and/or you believe there are other hot prospects waiting in the wings for your first customer to sign on the dotted line.
Situation #2: You’re guaranteed a profit
Many potential sales don’t close because customers balk at the up-front costs. Naturally, hefty up-front investments are harder for many companies to pull the trigger on, even if they’re willing to accept a similar total cost over a period of time.
This is where a Microsoft-like approach can be valuable. If a deal is stuck in neutral because the client is concerned about incurring up-front costs, eating those costs may make sense if you have the cash and the terms of the deal guarantee you a profit over the life of the relationship.
Situation #3: Market share is your metric
While most smaller businesses can’t afford to acquire market share at any cost, some companies that are cash-rich do employ a market share-at-all-costs strategy.
Notwithstanding the risks, if market share is your metric, paying for it directly may be far more efficient than trying to earn it indirectly.