For what it's worth

The rise of digital media in all its forms has been unstoppable: online news, magazines and books, streaming and downloadable TV, music and video, user-generated and ‘borrowed’ content shared through peer-to-peer sites and social networking. Once content is in digital form it’s incredibly easy to share, copy, distribute and store.

The big challenge for content creators and distributors – let’s call them providers – is the user’s expectation that all content is becoming cheaper and that it may indeed already be free. But despite the fact that it’s cheaper to distribute, great content is still hard to find, and it still costs money to generate or obtain.

Faced with this contradiction, content providers need to develop new strategies that will help them create and re-create profitable business models. Disruptive changes are happening across many categories, and better insight into how consumers really understand value may be the key to staying one step ahead. We know that consumers will pay for the content they like, but in order to design effective ad hoc and tracking studies, market researchers must identify precisely what that content is and, crucially, how it should be delivered.

Understanding free
Because we would all prefer to pay less or even nothing for the same thing, free content can tend to cause ‘content cannibalisation’, pushing out paid-for content. A similar thing happens when lower-cost content meets higher-cost content, and it’s a trend that goes beyond digital content, influencing almost all categories. Its progress may be uneven and depends on different brand dynamics and the consumer appetite for change, but we know that when cannibalisation happens the results can be quite dramatic for established brands and categories. As Chris Anderson points out in his influential book Free, when the free model takes over in any category, the net value of the category can shrink dramatically. So some brands can have their market share rapidly taken by newcomers at the same time as the overall cake gets smaller, a sort of double whammy.

“Consumers will work out in time whether free is what it seems to be and whether the proposition makes sense for them. So free isn’t inherently a good thing, it depends on the whole proposition”

Paradoxically, free isn’t always better for consumers either. Although it has the ability to grab the attention at first glance, a second or third look may reveal that you need to pay in another way, or that there’s some sort of quid pro quo, like sharing your personal information. Consumers will work out in time whether free is what it seems to be and whether the proposition makes sense for them. So free isn’t inherently a good thing, it depends on the whole proposition. If a cheaper or free alternative is inferior, consumers may pay less but end up with worse value. A broadband service that costs you nothing but is unreliable may be worse value than a dependable service that costs you £10 per month. A mobile handset may come for free, but only if you commit to paying £35 per month for two years.

Research challenges
It’s likely that most categories and markets are affected in some way by content cannibalisation, and brands will need research to help them tackle this issue. Firstly, any measurement and assessment of consumer perceptions of free or low-price models needs to be done within the context of the entire proposition. As Chris Anderson puts it “Free is not a magic bullet” - it all depends on what you’re getting for free, and what strings are attached. It may be cheaper but is it good value?

The second point to remember is that consumers not only know they have a choice, they may also know exactly what a competitor brand can offer them. Your brand’s great deal may suddenly look outdated if a competitor can do the same thing for less - or perhaps more for the same price. In the same way that value for money needs to be assessed with the whole proposition in mind, so a proposition needs to be assessed side by side with any competitor alternatives. The research consequence is that it’s important to include a measurement of the competitive context, awareness and understanding.

The third consideration around the development of new propositions is that consumers – particularly among the digital generation - are aware of free and low-cost propositions, and they like them. The digital generation are becoming more affluent and influential; they are open to innovation and may even expect it. Their taste for convenience has probably been influenced by downloading content and purchasing online. Customer-centric ways of doing things may be regarded as simply better and will surely influence the consumer’s service expectations across categories. This means that even much-loved established brands should try to explore ways to use the lower prices or even free offerings as part of new propositions. But there is a warning note to be sounded: it’s hard to turn the clock back on free content. Consumers may strongly resent being forced back from any lower-priced proposition to a more expensive alternative. We have yet to see how this plays out for News International with its experiment in charging for the previously free online versions of the Times and Sunday Times.

One of the assumptions about free propositions is that choosing something free is a no-brainer. Because it is free it must be good value, according to this reasoning. This has tended to point to the appeal of new digital propositions as lying solely in their ‘freeness’, overlooking the importance of convenience. MP3 players are much more convenient than portable CD players - they can hold your entire music collection rather than just the CD you decided to bring with you this morning. And they don’t simply represent the triumph of free over paid-for - many contain songs bought from iTunes or ripped from CDs. So freeness isn’t the only characteristic that needs to be measured and better understood - convenience is also crucial.

In time, changing digital business models will shake up markets and create further challenges for brands. This disruption could lead to less choice for the consumer or unsettle previous levels of loyalty. There are several forces in operation that tend to reduce attitudinal loyalty to brands involved with digital content. The first of these is the impact of the cost of the transaction - a free transaction implies less commitment than any paid-for transaction, and the same goes for a low-cost transaction compared to a higher-cost one. Brands may have no choice but to respond to competitive pressure and move towards lower-cost or free models, but in doing so they may also weaken the bond they have with consumers.

If disruptive changes lead to less choice in a market, this may also cause some consumers to become more sceptical and to draw back from a successful brand that becomes dominant. Consumers are often well informed and some will perceive a dominant brand as arrogant and less deserving of their loyalty. Consumers often like the choice that comes from competition, so big brands that dominate a category can be resented.
However, a much stronger force than either of these is the consumer’s ability to punish a brand that is seen as not keeping up with competitors. Not only will consumers switch to other brands which appear to offer better value or something more exciting, their perception of the brand they abandon will be damaged, and they may tell their friends about it. On the other hand, people will reward a brand that innovates and offers a better or different experience.

In a world where digital content is getting almost everywhere and the free model is influencing a wide range of consumer expectations, some of the rules for brands are being re-written. No one said it was going to be simple, and we can be sure there is no one-size-fits-all model. Instead consumer insight and imagination need to be used to provide specific guidance for each brand, and research programmes already running or planned may need to be adapted to anticipate the changes to come. The good news is that even in an age of free stuff, value for money has a way of coming out on top.

Three questions to ask when designing ad-hoc and tracking studies that can respond to ‘content cannibalisation’:

• ‘Free’ is no magic bullet. Does the brand offer good value?
• Have customers had enough time to consider the pros and cons of the entire proposition? Do you need to recontact respondents to validate their initial reactions?
• Convenience can end up as a key differentiator - are you doing something to evaluate how it is perceived?

 

Jon Whiteley is a founding director of Volante Research. Formerly a divisional director of GfK, he has worked with international clients in telecoms, IT, new media and professional services