This document discusses strategies for incumbent companies to compete against free offerings from competitors. It outlines three factors for assessing the seriousness of a threat: 1) growth rate of users of the free offering, 2) ability of the competitor to cover costs quickly, and 3) speed of incumbent's paying customers defecting. It then presents four response strategies incumbents can use: up-sell, cross-sell, charge third parties, and bundle. Various case studies are provided to illustrate how companies have successfully implemented these strategies, such as Netflix introducing a free trial period to habituate users before charging a subscription. The document concludes that incumbents must assess the threat level and react accordingly to either defend their business model or co-exist

1. COMPETING
AGAINST FREE
PGP31269 | Kavya Bhargava
IEP17005 | Tom T'Seyen
PGP31282 | Sharath Kumar
PGP31294 | Somya Singh
BRAND MANAGEMENT
SECTION B
GROUP 2

2. WHAT ARE THE
KEY TAKEAWAYS ?
Case Lessons
Brand Management concepts

3. ASSESSING THE THREAT
Three Factors to assess seriousness of threat
Growth rate of
number of
users of the
free offering
Competitor’s
ability to cover
its costs
quickly
enough
Speed of
incumbent’s
paying
customers
defection

4. Should the Empire strike
back OR NOT?
Immediate Threat
CASE IN POINT
Say you are Yahoo Mail, and Gmail
enter the market offering twice as
much storage as you do, for free as
well. People are defecting quickly
but Gmail does not convinces
non-users.
Business Model
Threat
CASE IN POINT
Say you are… any print newspaper,
and The Huffington Post arrive with a
100% free online newspaper. Your
customers are leaving fast and the HP
drives many new users.
CHANGE YOUR
BUSINESS MODEL
LAUNCH FREE OFFER
IN THESE
CASES
YES YOU SHOULD

5. Moderate
threat
Your customers are defecting
slowly and competitor lures
users slowly
Delayed threat
CASE IN POINT
Say you are Microsoft. People
have learnt to use your
softwares so they are only
switching slowly to Google
Docs but (like us)
Should the Empire strike
back OR NOT?
KEEP CALM AND
MONITOR
CO-EXIST OR DELAY
YOUR FREE PRODUCT
LAUNCH
IN THESE
CASES
YOU SHALL NOT

6. HOW DO
INCUMBENTS
REACT & WHAT
WORKS ?
Examples
Brand Management concepts

7. Up Sell
iPhone Apps
Cross Sell
Ryanair
Charge Third Parties
Google
Bundle
HP Printer
4 Response strategies for offering a better free

8. Incumbents Fail to counter attack
○ Various instances when incumbent
does not react
○ CASE IN POINT
● Most of the newspapers were reluctant to
embrace the free classified model when
Craigslist attacked their business model
● HBO when Netflix entered

9. Why do the incumbents not
retaliate?
Two obstacles prevent managers at
established firms from retaliating :
○ “A good product is a profitable
product”
○ Profit-centered corporate hierarchy
and accounting

10. Solutions
○ Putting costs and revenues responsibilities in
different hands
○ Profit responsibility in Top Management hands
overlooking several activities
COST
RESPONSIBILITY
Product
Manager
REVENUE
RESPONSIBILITY
Revenue
Manager
PROFIT
RESPONSIBILITY
Top Manager
COST
RESPONSIBILITY
Product
Manager
REVENUE
RESPONSIBILITY
Revenue
Manager
Product 1 Product 2

11. The Indian Context
INDIA

12. UP-SELL
Introduce a free basic offering to gain widespread use and then
charge for a premium version
Online Entertainment in India
● Freely available through
organised (Hotstar) &
unorganised (piracy)
avenues
● Convenience
● Lack of regulations and IPR
laws
Entry of Netflix
● Subscription based online
entertainment
● Direct competition with free
content providers
● Steady growth despite stiff
competition and consumer
habits
Netflix’s foray into India
VS

14. How did Netflix win the battle?
Threat
Assessment
○ High market share
of competitors
○ Low brand equity &
cost conscious
consumers means
low brand loyalty
○ Lack of abundant
financial resources
Netflix
Assessment
○ High brand
awareness & equity
○ Have deep pockets
& can sustain
against the free
model
The Battle
○ Up-sell strategy:
Free 1 month
subscription
○ Habituated
consumers to high
quality content &
attached services
to induce
continued
subscription and
payment

15. CROSS-SELL
Sell other products that are not directly tied to the free products
The Gaming Industry in India
● Free online games and pirated
copies popular
● Market leaders: Counterstrike,
League of Legends, Heroes of
Newearth & DOTA
● Large, loyal user base due to
network effect
Entry of DOTA 2
● New market entrant in India
● Consumer reluctance towards
payment (model initially tested
& failed)
● Now, one of the most played
games online with a strong &
loyal user base
The world of online gaming

16. How did DOTA2 win the battle?
Threat Assessment
○ High market
share of
competitors
○ High brand equity
& network effect
○ Some
competitors have
deep pockets
DOTA Assessment
○ High brand
awareness (for
older versions)
○ Lack financial
strength
○ Low number of
players in India
The Battle
○ DOTA 2 launched for
free with high quality
content
○ High awareness induced
users to switch
○ Revenue generated
through other products
sold on the platform -
mostly customizations

17. CHARGE THIRD PARTIES
Provide a free product to users & charge third party for access to user base
The story of Saavn
Saavn
Highly successful music
app available on android
and IOS platforms.
Costs
Completely free content for
consumers
Up-sell
Premium version of app
with additional features &
no ads exists. A form of
up-selling; not its primary
strategy.
Competition
Strong & widespread
competition similar to the
one that Netflix faced.
Brand
Low awareness on launch;
heavy promotions to build
recall
Pockets
Lack of high financial
strength but can afford to
spend on promotions in
India.

18. What did Saavn do?
○ Strategy similar to that of Google followed
○ Free content for the user side but advertisers
charged to reach users
○ Heavy cross sided network effects ensure that
advertisers come to Saavn
Why did Saavn
not use a
strategy
similar to
Netflix?
Answer: Brand
Strength

19. BUNDLE
Offer a free product or service with a paid offering
An age old bank tradition
Commodity or not?
Bundling?
○ Group of products/services
where value derived from
the whole bundle is more
than the value derived from
individual offerings
○ Not strictly free as
consumers still have to pay
for the rest of the products
The Problem
○ Consumers find it hard to
recognise value in
products/services that
banks offer
○ Fierce competition from
other banks due to the
commodity nature of their
offerings - intense price
wars are common

20. So What Do
Banks Do?
Customer Side
Pay for one product &
get benefits of owning
multiple complementary
products.
Differentiating factor:
Incremental value
derived from each
product
ICICI known for providing
insurance deals &
personalized service with
its accounts
Bank Side
Offer one product/service
for free but make it
mandatory to purchase
other products or service
to attain them.
Appropriate for banking
industry since no players
follow the purely free
model
Eg. Offer netbanking +
mobile banking free if you
open a savings account

21. Let’s quickly look at some more
Phone Apps
Up-Selling: Free apps lead to in app
purchases for premium content or
ad free content.
Airlines
Cross-selling: Complimentary
products get their free product. Be
it a free seat or a meal.
Softwares
Google’s answer to Microsoft Office
is completely free & its primary
revenue model is advertisements.
WoW
A popular pay2play online game
faced problems when competitors
came up with similar games for
free. The game went the
freemium route & has the highest
market share after 4 years.
Ecommerce
Ecommerce firms in India
compete fiercely & use strategies
like bundling to get a competitive
advantage. Brand plays a very
small role here.
Uber vs Ola
They offer free first rides & the
like to induce product trials. This is
a form of Up-Selling.

22. To Sum up
Incumbent need to assess the threat according to:
1- Speed of challenger new customers
2- Speed of incumbent customers defection
3- Sustainability of the challenger’s strategy
According to these, reacting fast is either necessary
or harming
Free models are challenging the corporate
organizational chart for profits accountability and
companies should be flexible and sensible about it

23. ANY QUESTIONS ?
(We won’t charge you for that,
so feel free to ask)