Monday 01 April 2019
Harvard Business Review
C002D5556
MondayMorning
BUSINESS DAY
31
In association with
Putting customer trust at the center of competition ANDREW BURT
I
f you’re selling a product, you’re now selling trust. That’s thanks to two conflicting trends: our increasing reliance on software across nearly every dimension of our lives and the inherent privacy and security vulnerabilities related to software itself. A few years ago, the Norwegian government realized that it bought almost all of its critical technology from outside of Norway. This raised pressing national security questions: How could the government trust the technology it was increasingly reliant upon? What could Norway actually do to verify that it could depend on the software it was using? In 2014, Olav Lysne, a Norwegian security researcher, was tasked with leading a commission to answer these questions, an effort that culminated in a seminal book published last year. Lysne’s answer: Norway’s govern-
ment simply could not verify as trustworthy the software it used. In fact, no one can. The very nature of our current software systems — the complexity underlying them, their supply chains and more — makes it impossible to detect vulnerabilities intentionally inserted into software.
This makes trust both the most important aspect of any commercial interaction and the hardest to measure. And because trustworthiness cannot be proven, it must be signaled — through branding, marketing and more. Tim Cook of Apple is one of the few corporate leaders to
understand the implications of Lysne’s conclusions. He has spent the past few years leading the charge in seeking to make trust the core of his company’s public identity. While Cook cannot fix the problems Lysne identified — indeed, no one can — he can demonstrate that Apple will
do everything in its power to minimize them. So how can other companies put these same lessons into practice? To start with, trust must now be considered a key feature of every product containing software. Second, clear and demonstrable processes must be put in place to illustrate the importance of data protection, both inside and outside every organization. Once these processes are in place, companies can then signal their emphasis on protecting customer data to the outside world, just like Tim Cook. Because software systems are inherently vulnerable and the insights data might yield at scale cannot be predicted, no one should sugarcoat the dangers of digital technologies.
(Andrew Burt is chief privacy officer and legal engineer at Immuta.)
Getting the most out of a freemium business model freemium model, including online media sites, cloud services or digital services, can use this research to drive product revenues and create a more sustainable business.
XIAN GU, P.K. KANNAN AND LIYE MA
I
t’s hard to resist the allure of free. When done right, the freemium business model can help drive massive traffic to companies’ websites, offer a “try before you buy” experience that overcomes user resistance to paying and convert free users to paying customers. So how can companies better position themselves to succeed? Past research demonstrates that adding new, high-quality products as premium offerings can cause customers to elevate their perception of the brand overall and be more willing to pay for premium alternatives. However, freemium products often subvert this strategy. Simply put, when customers anchor on free, it can be hard to dislodge them. In the Software as a Service space, this strategy is called versioning; different versions of the premium product or service can be made available to the market. Does this strategy work in moving customers to let go of the free and move to premium versions?
Our research, published in the Journal of Marketing, assessed the effectiveness of this strategy by analyzing the sales of scholarly content by the National Academies Press, which offers free online PDFs of its book titles, but charges a price for paperback versions. We found that extending the premium product line, either with a hardback or an e-book, led to a positive impact on the sales of the existing premium
option, the paperback. When customers were offered a new premium product that was of higher quality and was higher priced, such as the hardback, they chose the paperback more often. That is, they chose the “compromise” option more often, moving away from the free PDF. When customers were offered the lower-quality, somewhat lower-priced product, such as the e-book, they also moved
away from the free PDF and chose the paperback more often. Adding a similarly priced lower-quality e-book made the paperback more attractive, leading to higher sales. This is the “attraction effect,” and occurred only when the price of the e-book was closer to that of the paperback. When the prices of the e-book were much lower, they cannibalized the paperback sales. Any company that uses the
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(Xian Gu is a doctoral candidate at the Robert H. Smith School of Business, University of Maryland at College Park, where P.K. Kannan is a professor and Liye Ma is an associate professor.)