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What Once Was Free: A Guide to Implementing Fees on Freebies

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Photo by Caden Crawford / BY CC

Don’t Be a Qwikster
Price increases are hard. They’re even harder when you need to start charging for something that was previously free or bundled.

Remember what happened at Netflix a few years ago?

In the spring of 2011, [Reed] Hastings, Netflix’s widely admired chief executive, held a meeting with his management team and outlined his blueprint to jettison Netflix’s DVD operations. Netflix managers would tell subscribers on July 12 that they planned to do away with a popular subscription that offered access to DVD rentals as well as unlimited on-demand streaming video for $10 per month. DVDs and streaming would be separated and each would cost subscribers $7.99 a month, or $15.98 for both, about a 60 percent hike. The changes would take place in September.

Jonathan Friedland, the new vice president of global corporate communications who had joined Netflix just a few months earlier, asked whether customers on tight incomes might object to the price hike, according to people at Hastings’ meeting. Hastings argued that Netflix was a great bargain. He said he knew that some customers would complain but that the number would be small and the anger would quickly fade.

Hastings was wrong. The price hike and the later, aborted attempt to spin off the company’s DVD operations enraged Netflix customers. The company lost 800,000 subscribers, its stock price dropped 77 percent in four months, and management’s reputation was battered. Hastings went from Fortune magazine’s Businessperson of the Year to the target of Saturday Night Live satire. Continue reading CNET’s detailed description of this dramatic chapter in Netflix’s history.

 

Smooth the Move in Six Steps
I’m working with two clients whose viability is dependent on their capacity to demonstrate their value and persuade their customers to pay for services that today are no charge. Neither of them are excited about this change, but their economic circumstances, in fact their very survival, depend on making this transition.

Managing the change means getting a real handle on the way customers and employees perceive you, while also adding up the true costs of “free”. There’s plenty of room for error in this process (ahem, Netflix), so be sure to:

1. Understand What Customers Value
It’s a given that you’ll need thick skin to absorb the inevitable negative feedback, but you can head-off the skeptics by aligning your value proposition with the pricing strategy. The intent of the freebie was likely to endear you to new clients, reward existing customers, or distinguish yourself in the marketplace. Over time, the effect has eroded, and so your new pricing strategy must highlight what the customer actually wants. Otherwise, you risk cannibalizing your value proposition by sending mixed messages.

2. Understand What Your Employees Value
Anticipate that the us-versus-them mentality might come from an expected source: inside your organization. If your sales force and customers become allies in revolt, your pricing initiative is doomed from the start.  However, when your sales force is comfortable with the new pricing, customers will happily pay what your products and services are worth. Uncover the benefits employees received from the freebie and find a suitable replacement. If the give-away made it easier for the sales force to call on new clients, then your marketing approaches and sales training need to be re-engineered.

3. Track the Value
Our priorities are revealed by what we measure. To change your outward-facing pricing, first examine your internal procedures. Start by instituting a method for tracking what was previously taken for granted. Whether it’s a physical asset, a service, or time, unbundle it and account for it. This process alone can be eye-opening in an organization. Don’t be surprised if you hear, “I didn’t realize how much of my effort was actually going this.” Handled correctly, the experience can accelerate acceptance of the change by employees.

4. Separate the Value
By unbundling your offering, you’ll open  the door for customers to select options, while also giving them the power to remove those they don’t need. It’s a win-win. Customers are relieved of unnecessary costs and unrealized benefits, while you have a chance to add revenue streams in the form of service or product enhancements. Be forewarned that this works best with the extras and not your fundamental promise to customers. As long as they are not core to your value proposition, then institute charges for speed or personalization, or perhaps reward loyalty with a tiered system that charges new customers higher prices.

5. Demonstrate the Value
What’s “free” doesn’t get counted by customers either. To set the stage for the price increase, communicate all the value you deliver – both what is currently free and what is charged. For instance, one client is going to monetize the free services they have provided over the last year and send it to customers in the form of an account statement along with an explanation of the changes afoot. As a result, customers will see that they are receiving so much for so little. And when the fee is enacted, customers will have a basis of deeper appreciation for the value they have derive in the past and a better understanding of what they will receive in the future.

6. Redefine the Value
Price adjustments are an opportunity to fundamentally change the way you and your customers define your value. Setting prices is the same as defining value, so don’t miss the chance to direct customers’ attention to what makes your products and services different – and better – than the competition.

 

Cleveland Roadshow

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Photo by Rebecca Olarte / BY CC

There’s lots more to consider when changing prices, so later this month I’ll be joining a couple of smart strategists with expertise in business strategy, pricing, solution selling, and talent management to dig into this topic as part of the Strategic Leaders Wake-Up Call.

If you’re in Cleveland, RSVP and join us.  If you can’t attend, but want more insights and resources on change management and employee engagement, connect with us.

 

 

 

 

 

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Story + Strategy Workshop in Cleveland on June 24

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The Picture Tells the Story of the Story

Over on Anecdote’s blog, I shared the story of one of my meetings with Bono from U2. I’m told that the picture that accompanies the story “speaks a thousand words,” so rather than say anything else, head over there and see for yourself.

Strategy Dies in the Forgotten Middle Layer of Management

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photo by Kumar Appaiah / CC BY

Middle management is where well-intentioned business strategy goes to die.

Harvard Business Review took a thoughtful look at the strong connection between communicating management intent and achieving business success. It seems the why often gets lost in communications. It makes no sense, until you consider that mid-level managers play an important (yet under-appreciated role) translating corporate strategy, goals, and policies into specific tasks for their teams.

Remember that these people weren’t in the board room when the decisions were made and the strategy was set, but they are ultimately responsible for making or breaking a corporate initiative. They will either take the big idea and make it reality, or the grand plans will wither and die a slow death at their hands.

Their power lies in their position as the translator of concrete ideas to actionable tasks. Dictating from above doesn’t work because employees respond to and have a deeper connection with the person to whom they directly report.

When I was with SAP in Europe, Middle East and Africa, we asked a sample of the 11,000 employees how they received most of their information. They said: their manager. We asked how they preferred to get corporate information. They said: their manager. We asked how they wanted to receive information in the future. They said: their manager.

The direct manager of every employee is the preferred communications method. Fancy intranets, newsletters, or bulletin boards will never replace this human interaction with the single person who holds the key to determining an employee’s level of job satisfaction, performance and accomplishment, and level of compensation and career advancement.

Managers are wise to acknowledge this and determine how to leverage their influence. Too many managers remove emotion from their interactions with employees, which dulls their ability to be influential. Instead of thinking of business strategy as a fact-driven directive, managers have the power to bring it to life by creating an emotional connection to the future state the strategy will reveal.

Only robots perform tasks without comprehending why they’re necessary, what came before, and what will come next in the process. Employees are not robots and they are unable to operationalize a strategy unless they are armed with a fundamental understanding of their role in its execution.

Good managers know exactly what speaks louder than words. Observed actions are not only modeled by the team, but they also trigger stories that move rapidly through the organization. Whether the story is a retelling of bad or good behavior, the decision-making and actions of  employees will be influenced.

Stories are sort of like implanting a programmable chip in employees’ minds. Annette Simmons noted, “Story is like mental software that [managers] supply so that [employees] can run it later using new input specific to the situation…..Once installed, a good story replays itself and continues to process new experience through a filter, channeling future experiences toward the perceptions and choices you desire.” Stories turn employees into independent thinkers and eliminate the need to micromanage.

Managers who step up to their role in strategy execution will likely find themselves elevated to a position where they are in the room next time big decisions are made. So forget implanting a microchip in employees’ heads or replacing them with robots. Instead, tell a story or do something remarkable that triggers a story and watch an abstract strategy come to life before your eyes.

 

The Dotted Line: Organizational Narrative

3c8ecc7f049746d8c70bbd42_306x306The January 2014 issue of The Dotted Line features news + resources for creating your organization’s narrative. A full version is available online. Subscribe to receive future issues in your inbox.

A Story to Tell
Stories spread fast. At lunch tables and cocktail parties, your organizational narrative is being told. Ideally, it’s comprised of inspiring and heartwarming tales of teamwork and innovation that demonstrate how your company is contributing to the greater good of humanity. But if the stories your stakeholders tell are gripe sessions full of vivid examples of redtape and poor leadership, it shouldn’t be a surprise that sales, recruiting and change initiatives are a challenge.

The benefits of creating an organizational narrative extends beyond merely defining your company’s culture (which is very important on its own). The stories also convey the corporate strategy (and make it stick).

Narrative is so powerful that it doesn’t just reflect an organization’s success, it actually dictates it. To revamp your culture or rewrite your destiny, your stories must change.

On the external side, consider replacing spin with a cohesive narrative. Then, watch as audience engagement, brand identity, knowledge sharing and leadership trust skyrocket.

Tips from the Makers of Toy Story
Inject fun and purpose into your stories by following Pixar’s 22 rules of storytelling, complete with familiar images from their most beloved films.

Creating “Liquid Content”
Coca-Cola has set out to make its corporate story fluid and linked so that it flows together to create a comprehensive narrative. Their illustrated strategy shows (and tells) how the company will capture and disseminate the stories that touch lives and propel their brands.

Make the Connection
With the right combination of narrative, messaging and engagement, you can have a Connected Strategy.

A Connect the DOTs Review will jumpstart the process. Inquire today.

The Dotted Line: Strategic Planning and Purpose

206210de6355a3eb04e463b2_280x186The October 2013 issue of The Dotted Line features news + resources for planning your strategy and communicating your purpose. A full version is available online. Subscribe to receive future issues in your inbox.

Linking Plans to Purpose
It’s strategic planning season and you’re up to your eyeballs in forecasts, trend reports and competitive analyses. Once the planning is done, the 2014 kick-offs come in quick succession, then it’s time to execute.

Looping employees into strategic planning will help make their wishes come true and will keep you on the nice list.

But plans, vision and strategy aren’t enough. Clarity is essential because “if the intent of these plans isn’t aligned with the communication, people may be impressed, but deep down inside, they will not believe in those plans or act on them.”

If you’re sick of working on your 2014 plans, Mental Floss is always good for a break. Relax by taking a moment to consider your Halloween giveaway strategy. (Kids who hike up my steep driveway will be rewarded with glow sticks and full-sized chocolate bars.)

Personal Purpose
You don’t have to wait until your next life to find purpose and meaning for your career and business. Just listen to the Trappist monks and this successful entrepreneur.

No Purpose? That’s a Problem.
An organization without a defined purpose is funny, but only if it’s the fictional Dunder Mifflin.

A Deloitte study demonstrates that companies with a strong sense of purpose find more success, while those without purpose are directionless and apathetic.

Putting it Together
During planning season, a Connected Strategy:

– inspires, motivates and guides behavior all year
– fulfills the brand promise
– reminds everyone of the higher purpose

We can help you Connect the DOTs.

The Dotted Line: Communicating Strategy

248c015219d72dfe8bb22672_299x169The July 2013 issue of The Dotted Line features news + resources for creating a culture of innovation. A full version is available online. Subscribe to receive future issues in your inbox.

Communicating Strategy
When everyone knows and understands their role in your strategy, it’s easier to unite every stakeholder behind a common cause. The knowing is achieved when leaders consistently communicate. The understanding is achieved when managers listen to direct reports and appeal to their personal interests.
Although strategy usually comes from the top, it’s possible to create a shared vision with your team.
Regardless of where the strategy originates, the best leaders genuinely care about employees’ individuals goals. Corporate magic happens when everyone’s hopes and wishes are aligned. Fast Company says it pays to help your employees dream big.Throw a Theme Party

Think of your strategy as a theme party. Whether applying it to your supply chain or any other business area, the strategy helps you prioritize and organize seemingly disparate initiatives.Strategy During Crisis
To rally the troops during tough times, DuPont CEO Ellen Kullman patiently repeated the business strategy. She admitted this was her least favorite part of the job, but also the most effective way to drive performance.

Consistent messaging was key, she explains in this short video from Fortune.

Putting it Together
For your stakeholders, a Connected Strategy:
– is the theme for your most important initiatives
– provides a solid foundation amidst uncertainty
– points everyone in the same direction

We can help you Connect the DOTs.

The Dotted Line: Leading Change

64903e1e3c57356e63a26491_306x229The June 2013 issue of The Dotted Line features news + resources for leading change. A full version is available online. Subscribe to receive future issues in your inbox.

Change
Want real change? The first thing to shift is the way you lead and manage it.
The CEO of Samsung kicked off a major change initiative by taking hammers and a bonfire to $50 million worth of products. The employees cried, but then they helped transform the company from a maker of cheap electronics to that of an innovation powerhouse that develops curved TVs and cuts “genius” deals with Jay-Z.

You might not need to be as dramatic as the Samsung executives, but recognize how the change is viewed from different perspectives and realize that we’ve been complaining about how fast everything moves for at least 140 years.

Leading Change
Change occurs when many individuals  regularly act in a new way.

As this excerpt from Leading Successful Change: 8 Keys to Making Change Work, by Gregory P. Shea and Cassie A. Solomon explains, focus on behaviors and the environment.

Change Avoidance
Change is always optional. Ask the company that produced the first color movies in 1922 (if you’ve never seen this footage, it’s a must-watch).

Ninety years later, Kodak filed for bankruptcy. Going from innovative leader to complacent follower was ultimately a failure to change when the company needed it most.

Strategy
When initiating change, a Connected Strategy:
– unites actions with purpose
– provides a solid foundation amidst uncertainty
– reassures stakeholders

and more…

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