I've been thinking about a possible business strategy for a while now and I'd be interested in some feedback from you people in the know, the ones running existing web hosting businesses.

I have a strong retail background, and have developed several businesses by offering strong 'loss leader' type items (in other words, products we would sell below cost to get a) increased sales and b)better buying power by purchasing in bulk.)

Is this the same in the web hosting sector? Would it be good business sense for a new hosting company to start out offering an unbeatable deal (say for example $1.95 for 100MB, 2GB p.m transfer, no setup) to get a sizeable client base before slowly easing prices up for newly joining members?

I wonder how many 'units' rachshack move each day, and if, by doing so, they are then able to make more profit due to lower costs 'per unit sale'.

I'd be interested to hear from anyone who has used this type of marketing strategy, and what examples I can take a look at of companies using this type of strategy for a hosting company.

Well, the way you want to set it up sounds bad to me. I do appreciate the way Rackshack does it though.

1. Rent out Raqs with 128 MB ram for $ 99.-
2. Charge a high(er) monthly fee for 512 MB ram.

People (me) start out renting a raq at 99 per month and after a while end up paying 136 a month (me). Good strategy :D

A better way for you to do it might be along the same lines.

1. Offer a very low priced plan @ 1.95 but also with low specs
2. When people get more serious with their site they soon realize they need more (cgi-bin, more then 100 MB datatransfer, SSI, email etc) and you can upgrade them to a normal priced plan.

It's "a" way. I'm not saying it's "the" way. Everybody has their own strategy. It is the most important thing to decide on when you start your company.

Some people charge high prices and give huge discounts (50% holiday offers etc)
Others charge rediculous low prices and hope to attract a lot of low paying customers
And others charge high prices and hope to attract a few customers that pay that.

It's your battleplan. Make it a good one and make sure you win the war in the end ;)

Thanks Pilgrim. Your idea of a 'low feature' package is a good one I think. Get the customer first, then sell them something once they are an existing cutomer and want to upgrade - it makes sense.

Anybody else out there have anything to add to this? What have you tried which has been a huge 'customer grabber'?