Avoiding Common Monetization Mistakes

Monetization strategies are at the heart of any successful B2C business. Yet, even the most innovative companies can stumble, often falling into the same traps. Understanding these common mistakes is crucial to building a sustainable and profitable business model.?

David Warren , Sr. Director, Subscribed Institute, and Michael Mansard , EMEA Chair, Subscribed Institute, recently wrote an article about common missteps in B2C monetization. Their insights reveal two critical areas where businesses frequently falter: misunderstanding market needs and charging for features that should be free.?

In this newsletter, we’ll explore those key areas and discuss how companies can create more effective monetization strategies.

Misunderstanding market needs

Launching a product or service without a profound understanding of the target market is a recipe for disaster. For instance, introducing a premium-priced offering aimed at a niche audience without assessing the actual market size can backfire. If the niche is too small, the revenue generated might not justify the costs involved. Moreover, if competitors offer similar services at a lower price point, customers may gravitate towards them, leaving the premium offering struggling to find its footing.?

Tidal, a music streaming service launched in 2014, provides a textbook case of this. Positioning itself as a premium offering, Tidal aimed to differentiate from competitors by providing high-fidelity sound quality and exclusive content. The company set an ambitious price point of $19.99 per month, significantly higher than established players like Spotify and Apple Music.

Tidal's strategy was based on two key assumptions:

1. There was a substantial market of audiophiles willing to pay a premium for higher quality streaming.
2. Exclusive content would be a strong enough draw to justify the higher price point.

Unfortunately, both assumptions proved problematic. The niche market of audiophiles wasn't large enough to sustain Tidal's business model, especially when competing services offered similar content at a fraction of the cost. Moreover, the value proposition of exclusive content wasn't compelling enough for most consumers to justify the price difference.

As a result, Tidal struggled to gain traction in the market. While it has since adjusted its strategy and continues to operate, its initial launch serves as a cautionary tale about the dangers of misunderstanding market dynamics.

This is why before setting your price or defining your value proposition, it’s essential to invest time and resources in comprehensive market research. Understand not just the size of your potential market, but also their preferences, pain points, and willingness to pay.?

To confirm your findings and test assumptions, consider launching with a minimum viable product (MVP) first. This approach allows you to gather real-world data on customer behavior and preferences before committing to a full-scale launch.

Additionally, keep a close eye on what your competitors are offering and at what price points. While you don't need to match them exactly, be prepared to justify any significant price differences with clear, tangible benefits.

Charging for what should be free

Charging extra for features that customers expect to be included can damage your brand's reputation. If you're considering monetizing add-on features, ensure that they offer clear, differentiated value that customers are willing to pay for. New and innovative features, rather than those that have historically been standard, are more likely to be successfully monetized.?

Many brands seem to forget that customers have a very good perception of what a fair value exchange is. When fair value isn’t present, all brand affinity and trust can go out of the window in a matter of moments.

Warren and Mansard highlighted how Audi and BMW faced significant backlash when they introduced subscription fees for features traditionally included in the purchase price of their vehicles, such as adaptive cruise control, heated seats, and high-beam assist. Consumers were outraged, and the strategy backfired for several reasons:

1. Luxury car buyers expect premium features to be included in the high purchase price of the vehicle.
2. Customers felt they were being charged twice for the same features - once in the purchase price and again through subscriptions.
3. The move was seen as nickel-and-diming customers, which clashed with the premium brand image of these manufacturers.

In the end, the negative press and customer dissatisfaction forced both companies to retract these charges.

When considering monetizing additional features, don’t underestimate the fragility of trust and satisfaction among customers. Ensure your new features offer enhanced value that justifies the extra cost. Customers are more likely to accept charges for features that enhance their experience in novel ways.

Finally, with any new change to pricing, communicate clearly with your customers about the reasons and benefits so there’s no ambiguity.

What does it all boil down to?

These examples underscore a critical point: the success of any monetization strategy hinges on a deep understanding of your customer base. Knowing your customers isn't just about demographics—it's about understanding their product desires, expectations, and perceptions of value.?

The cases discussed illustrate what happens when businesses fail to align their offerings with customer expectations. Whether it’s overpricing a niche product or charging for features traditionally included in a purchase, misjudgments in understanding your audience can lead to backlash and lost trust.

To avoid these pitfalls, businesses must prioritize ongoing customer data collection, continually gathering insights and feedback, analyzing customer behavior, and staying attuned to shifts in the competitive landscape.?

A critical element of this customer-centric approach is the ability to run tests and iterate on your strategies. Testing allows you to experiment with different pricing models, feature sets, and promotional offers on a small scale before committing to a full launch. By piloting new ideas on a small scale, you can gather invaluable data on customer reactions and make informed adjustments.

Finally, remember that monetization is not a one-time decision but an ongoing process that requires continuous iteration, flexibility, and a commitment to delivering genuine value.?

To see the full article where David Warren and Michael Mansard discuss real world examples of B2C business pitfalls in depth, click here.