Navigating the Dilemma of Developing Two Apps with the Same Target Segment but Different Revenue Models

Many developers face the conundrum of creating two apps with the same target segment but different revenue models. While this approach may seem promising at first, it often leads to significant challenges, especially concerning adverse selection and user confusion.

The Adverse Selection Dilemma

When attempting to create two apps targeting the same segment with different revenue models, it's crucial to consider the risk of adverse selection. This phenomenon occurs when customers with a higher risk of low revenue take the cheaper option, while those with a higher potential for high revenue opt for the premium model.

Casestudy: Ride-Sharing Model

Let's use a ride-sharing app scenario as an example. If one app charges a flat fee of $50 per month, while the other charges a per-ride fee of $10, users who take fewer than five rides per month are incentivized to choose the cheaper per-ride option. This results in an average revenue of approximately $25 per user, with a few heavy users consuming significantly more rides and leaving a high risk of revenue loss for the company.

Understanding User Segmentation

A more effective approach involves careful user segmentation to offer services tailored to specific user types. Instead of simply pricing the services differently, you can provide value-added services within the higher-priced model to entice users to choose it.

Niche Add-ons and Upsells

For instance, for a ride-sharing app with a flat fee model, you could offer perks such as priority pick-up, a bottle of water, a logo tote bag, trip expense reporting, corporate accounts, 24/7 human support, and a fee for left-in-car laptop retrieval. These additional features can differentiate the higher-priced model and make it more appealing to active users.

Addressing Confusion and Help Calls

Developing two apps with the same audience often leads to confusion, increasing customer service calls, and plan switching. A fragmented user experience can negatively impact your brand perception and user satisfaction.

Instead of trying to cater to both models, consider streamlining your strategy. Identify the core value proposition and objectives, and then determine the essential features and services that address distinct user needs. This approach allows you to focus on providing a clear and compelling value proposition for each segment.

Strategic Recommendations for App Development

1. **Segment Users Carefully:** Understand your target audience's needs and behaviors to develop a segmented pricing model that offers distinct values to each segment.

2. **Add Value to High-Value Model:** Enhance the high-value model with additional services or features to make it more attractive to premium users, reducing the risk of revenue loss.

3. **Prevent Cross-App Confusion:** Ensure that your marketing and user experience strategies clearly differentiate your models, avoiding any overlap that may confuse your audience.

4. **Sunset Unnecessary Models:** If one model is underperforming or does not align with your overall business strategy, consider retiring it to focus on more effective user engagement.

By approaching app development with a clear understanding of user segmentation and strategic planning, you can successfully navigate the complexities of offering two apps with different revenue models within the same target segment.

Further Reading

For more insights on pricing strategies, check out my posts on:

Four Laws of Software Economics Part 2 Free Sells: The Business Model Required Pricing Posts Category

Understanding and implementing these strategies can help you create a more successful and sustainable app development plan.