Offering consumers a free service and then converting them to paid customers has long been a retail marketing tactic -- whether through a free issue of a magazine, a short-term fee waiver on a credit card or a shampoo sample handed out in a drugstore.
But online, that strategy has been a much tougher sell. More often than not, Internet companies that have tried to shift their users from freeloaders to paying customers have found that Web users are more likely to switch to a competitor -- or shut down their browsers -- than offer up a credit card number.
Lessons emerging
Although that tendency may not change soon, the imperative for Internet companies to diversify their revenue streams has led to more attempts to get consumers to foot some portion of the bill. And from those experiments, a few lessons are starting to emerge. Namely, to get consumers to pay after being conditioned that there really is such a thing as a free lunch, companies need a strong brand, a reasonable pricing plan, a thoughtful transition strategy -- and perhaps most important, a product or service that is not available free elsewhere.
One site that may have successfully made the transition is AOL-Time Warner's Moviefone.com. Between May last year and May this year, Moviefone did not charge a fee to buy movie tickets online -- although the company continued to charge US$1 to US$1.50 for tickets purchased over the phone, depending on the city where the tickets were ordered.
In mid-May, Moviefone.com reinstated an online service of US$1 a ticket. And so far, customers have not balked at the charge.
"We're selling more tickets despite the reinstatement of a small service fee," said Tommy McGloin, general manager of Moviefone. Although the company does not disclose overall ticket sales, he said Moviefone.com's ticket sales were up 41 percent in May from April.
Although sales declined about 10 percent between May and June, the company attributed the fall to higher demand for advance tickets in May because of the Memorial Day weekend and several blockbuster openings that month, including Shrek and Pearl Harbor. Moviefone said sales in the first half of July were up 10 percent over the first half of June. Comparing June last year with this June, the company said, ticket sales were 27 percent higher.
Underscoring those figures are traffic data from Nielsen/NetRatings, which show that Movie-fone.com's combined home and work audience has increased steadily since February, and rose from 3.3 million unique users in May, when the charge was reinstated, to 3.6 million in June.
What was the key to getting customers to accept the change?
"The absolute key to making anyone pay for a service is convenience, and then utility," McGloin said. "We raised awareness of the convenience of online ticketing. We assumed that consumers love the service." Another factor was the fact that a dollar was a small price to pay to avoid long lines at the theater or the disappointment of a sold-out show.
The competitive landscape also helped. The other online movie ticketing sites, Fandango and Movietickets.com, both charge fees in the same range as Moviefone, so consumers do not have a free alternative for advance ticket purchases.
These factors explain Movie-fone's successful transition to a paid service even as many content sites have no luck trying to switch to a subscription model.
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