Want to make an unpleasant situation even worse? Spring the news on people with no warning.
Chargify, which provides securing billing solutions for small to midsized e-commerce companies, charges its clients flat monthly fees based on the number of customers they have. This tiered pricing plan keeps costs low for e-commerce startups that still have few revenue-generating customers.
Until recently, the lowest tier in Chargify’s pricing plan had an extremely attractive price point—it was free. The idea behind the free tier was to attract e-commerce companies still in their startup phase, and as they grew, they would grow into the higher tiers and become paying clients. However, Chargify discovered that many companies in the free tier grew very slowly, if they grew at all, and Chargify wound up supporting a lot of users that weren’t bringing in any revenue.
In order to pull in enough money to deliver the dependable, sustainable services that its clients needed, Chargify realized it needed to raise prices, and that included charging lowest-tier clients for the first time. The company announced its new pricing structure and immediately came under attack from many of its clients—for the price increases themselves, for the lack of any advance notice, and for Chargify’s refusal to “grandfather” existing customers under their original pricing plans. Some called the company “greedy” or “stupid,” and a few went so far as to accuse it of bait-and-switch tactics.
As bloggers and commenters across the Internet piled on, the technology news site TechCrunch summed up with the situation with an article that began, “It’s been a rough day for Chargify . . .” After spending two long days responding to criticisms on Twitter, industry blogs, and other venues, co-founder David Hauser wrote an unusually frank blog post titled “How to Break the Trust of Your Customers in Just One Day: Lessons Learned from a Major Mistake.” He said the company made “a massive mistake” in the way it handled the changes to its pricing model. By failing to alert customers well in advance of the change, he continued, Chargify “broke a trust that we had developed with our customers over a long period of time, and will take much to repair. We should have communicated our need and desire to remove free plans and provided more information about how this would happen, and over a period of time leading up to the change.”
The services Chargify provides take money to deliver, and the price increases were necessary, but everyone involved agrees that the situation was not handled well. Hauser and his team will continue to learn new lessons as they expand Chargify, but you can bet they won’t ever initiate a price increase without giving their customers plenty of warning. (By the way, if you teach Introduction to Business, this story has a number of interesting angles to discuss in class, including the difficulty of validating a business model before it goes live, the financial imperative to jettison unprofitable customers, and the pluses and minuses of the freemium pricing strategy.)
