The Curve: How Smart Companies Find High-Value Customers
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It’s the ultimate business question of our time: How do real companies make money when customers expect (and often get) products for free?
There are millions of potential customers in the world. Most of them won’t pay anything for your product. But some will pay almost anything. The
challenge is to find the latter without wasting time and money on the former.
In The Curve, Nicholas Lovell weaves together stories from disparate industries to show how smart companies are solving this puzzle. From video games to pop music to model trains, the Internet helps businesses forge direct relationships with a vast global audience by building communities and offering bespoke products and experiences.
In many cases, businesses can win by sharing their product (or a version of their product) for free, allowing it to spread as widely as possible. Eventually, a huge number of freeloaders spread the word to the superfans who value that product the most. And a small number of superfans will love a product so much that they will spend substantial sums of money on it—given the chance. These high-value customers are enough to fuel a profitable business. For example:
- Nine Inch Nails front man Trent Reznor gave away his album for free to find the 2,500 hardcore fans who wanted the $300 limited ultradeluxe edition.
- Bigpoint, an independent game developer, released three adventure games to 130 million users—and made 80 percent of its $80 million revenue from just 23,000 users, who spent money to upgrade their game-playing arsenal.
- King Arthur Flour shares useful recipes and tips on its Web site, enchanting a cult of devoted bakers, many of whom happily travel to its Vermont headquarters for expensive specialty baking classes.
This approach doesn’t apply just to digital products anymore. With the advent of 3D printing, customization of physical goods is easier and cheap, and companies can truly tailor their offerings to their customers. A doll company can personalize everything from hair color to eye shape, and automakers
and technicians can create laser-scanned replacement parts for classic cars. Although the potential for piracy will spread to industries that believed they were immune to such disruption, businesses have an opportunity to make money in this new paradigm by offering variety, complexity, and flexibility at little to no extra cost.
What Lovell calls the Curve is a ranking of your company’s potential customers from those most likely to least likely to pay for your product or service. It charts their interest against the amount they are prepared to spend—be it nothing at all or thousands of dollars. The curve itself separates your revenue
opportunity (willing big spenders, your superfans) on the left from your marketing opportunity (freeloaders, whose only acceptable price point is $0) on the right. The area under the curve is the total amount of money you might be able to get from your customers or fans.
Lovell offers a strategy to draw more people into your orbit than was possible when physical costs limited your ability to expand. The Curve heralds a new era of creativity and business freedom.
take a while to catch up. In the 1960s plastic became cheap and accessible. The disposable culture of plastic bags, polystyrene cups and shrink-wrapped, pre-packaged food took hold, because plastic was so cheap to produce. It took two decades before we realized that the abundance of cheap plastic had created a new problem in the form of waste and landfill and rubbish. For example, bottled water consumption in the US has risen from 5.7 litres per capita in 1976 to 132 litres in 2011.12 An
in its cleanest form. Many of the assumptions that are flaws of the theoretical model – that there are no capacity constraints, that distribution costs are negligible – turn out to be true in practice when the product is digital bits and bytes that can be replicated perfectly and where the costs of the replication and subsequent distribution are fully borne by the late Uncle Steve and his team in Cupertino, California. So what happened? I’m going to focus on games. We can expect that smart
physical means that they seek to minimize operational risks because the financial risk of commissioning, publishing and distributing content is so high. The biggest marketing investments of the big publishers are generally for celebrity autobiographies and sequels from some of the brand names of fiction – Grisham, Patterson, E. L. James – because they will sell. The BBC, the British, publicly funded broadcaster with a remit, established by its first general manager Lord Reith, to inform, educate
spent over €10,000 on a single game. Simon Read is the developer of New Star Soccer, a game that took the iPhone charts by storm in 2012. Read released the game as a free title in March 2012. In June it was the top-grossing game in the App Store. The game was sufficiently compelling that an unusually high number of customers converted to paying users, around 39 per cent. Read sells packs of in-game currency that players can use to accelerate their progress through the game. At one point, the
misleading, as indeed they are in this case. Figure 3 shows the breakdown of the tiers, with the number of people who pledged against each tier.7 Figure 3: Double Fine Adventure funding chart: number of pledges per tier Unsurprisingly, the vast majority of pledges were at the cheapest price point of $15. There was a spike at $100 because that tier was great value to serious fans, but even so, only about a quarter of the number of people who pledged at $15 pledged at $100. The remaining