First-year student Rohan Rajiv is blogging once a week about important lessons he is learning at Kellogg. Read more of his posts here.
If I had to summarize my learning on pricing from my Microeconomics classes, it would be: avoid price competition like the plague. And to do that – differentiate, differentiate, differentiate.
We discussed Dropbox’s move last year to lower prices to compete with Google, Apple, Microsoft and Amazon. The big question was whether this was going to be a race to the bottom in a future where storage would inevitably be free.
Now, Dropbox is one of my favorite products. I have been a user since the early days when they used to be hosted on “getdropbox.com” and their brand had nothing but positive associations. All my working files sit on Dropbox, and ever since I did that three years ago, I’ve never had to fret about whether my working files will ever be lost.
So I thought I’d put together two recommendations for Dropbox based on what I’ve learned in Marketing and Microeconomics in the past few months. These recommendations are based on the principal that differentiation matters.
If we make the argument (and we can) that most storage providers inherently offer a similar product, the game-changer will be Dropbox’s ability to horizontally differentiate, i.e., inspire great brand loyalty among its users. That then leads us to a marketing question: how can they do that?
My line of thinking is to think around the traditional four P’s – product, price, promotion and place. My two recommendations are going to be based on promotion and price:
1. TARGET THE PEACE-OF-MIND BUSINESS.
What can Dropbox do to differentiate? That leads me to ask this question: what is the market? The first answer seems to be storage. But is it really storage? Or, put differently, do we want it to be storage?
When I look at why customers use Dropbox, collaboration is obviously a massive reason and is at the core of why they do what they do. Dropbox has understandably worked really hard at making collaboration easy. My recommendation would be to also target the peace-of-mind business. Every user who collaborates via Dropbox likely has many important files on it. Why not just move them all onto Dropbox and make it a full set?
I pay Crashplan a yearly fee to back up my photos. That could easily be Dropbox. I think Crashplan works fine but I don’t love Crashplan the same way and would be more than happy to pay a bit of a premium for that love and trust of Dropbox.
In short, I think the customer problem that Dropbox could look to solve is to remove the worry about files not being backed up. This needs an investment into customer education and a few tweaks into the way it is marketed. But, if done well, I think this could be a huge win.
2. GET CREATIVE WITH PRICING.
The current “band” approach to pricing from the storage providers is staid. The problem with bands is that it only feels like a good deal if you are near the edge of the next band. Why pay $10 for 1 terabyte if all you have is a 100 GB worth of content to store?
An approach that could be really impactful is Amazon Web Service’s “you-pay-for-what-you-use” style. This could work well for two reasons:
Even if I’ve not fully made up my mind, I could put in 10 extra GB into my Dropbox folder and try it out for a month. Once I’m in and experience the peace of mind, it’ll be hard to get out.
- CUSTOMER’S USE WILL EXPAND WITH TIME.
It is much easier to get a customer paying $6 to pay $10 vs. one paying $0. This use expansion is part of the reason Dropbox and Netflix still use AWS for storage.
Dropbox has a strong edge when it comes to differentiation because its brand associations are all linked to storage. Amazon, for example, has begun offering photo back up for free for Amazon Prime members, but I still haven’t checked it out because I don’t associate Amazon with photo storage (yet).
It’ll be interesting to see how the storage wars play out. Good luck, Dropbox!
Rohan Rajiv is a first-year student in Kellogg’s Full-Time Two-Year Program. Prior to Kellogg he worked at a-connect serving clients on consulting projects across 14 countries in Europe, Asia, Australia and South America. He blogs a learning every day, including his MBA Learnings series, on www.ALearningaDay.com.