Loss Leaders Risky Gamble for Small Web Hosts - Web Hosting as Loss Leader
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Some web hosting companies use web hosting itself as a loss leader. They will offer inexpensive web hosting in the hope that the customer will appreciate their service enough to sign up for another year at the full price. Or they will offer an inexpensive web hosting account and try at a later time to move the customer into one of their more feature-rich (and expensive) packages.
To give you some examples, DreamHost has offered coupons for deep discounts on hosting service, far more than 50 percent in many cases. For example, when the user enters one code for a particular monthly plan that ordinarily costs $59.90, he or she will pay only $9.90. The same code entered for a yearly plan that ordinarily costs $119.40 will let the user receive the plan for only $22.40. Recalling what I said about large hosting companies, DreamHost recently doubled the number of domain names they hosted in the past year, to 400,000. So using a loss leader may be working for them.
Another company that has used loss leaders effectively is 1&1 Internet. Back in 2004, when the company launched its U.S. division, it started selling domains at a loss, for $5.99 each. It also began offering a $29 a month hosting plan to customers for free for three years – in short, it was giving away a $1,000 value to those who were willing to try its service. Many customers who tried out the plan were so happy with the service that they purchased other services from 1&1 Internet. The web hosting company hopes that those trying the plan will be willing to pay to stay beyond the original three years. Needless to say, 1&1 Internet is also a large company; at the time it started the promotion, it was Europe’s largest web host.
It makes sense for a larger company to run a loss leader campaign, but it may not make sense for a smaller company. Large companies don’t undertake such a campaign unless they have the cash flow to support it and can absorb the loss. They also have specific goals in mind when running a loss leader campaign, and while smaller companies may have similar goals, loss leaders may not be an appropriate way for a smaller web hosting company to achieve those goals.
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