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Adaptively Seeking Win-Win
Customer Relationships for the Digital Era
FairPay
Richard Reisman, Teleshuttle Corporation
fai...
Tomorrow’s Logic
”The greatest danger in times of turbulence is not the turbulence,
it is to act with yesterday's logic.“ ...
Toward the Revolution…
• Extensive conceptual development, details online
• Extensive discussions with businesses
– Vendor...
A Thought Experiment
Imagine an all-knowing Economic “Demon”*
• Read buyers’ & sellers’ minds
to learn value-in-use, –in-c...
5
Accept/buy/use
(before pricing)
(Buyer)
Set “fair” price
(after buy and use)
(Buyer)
Track price
(Seller)
Fair to seller??...
FairPay Value Discovery Engine
Continuous journey of adaptation – Frame/nudge/track
Seller-
gated
Premium
FairPay
Offer
Se...
8
9
Monetizing Digital Offerings in Networked Markets
…A Radical Re-framing
• Dilemma: Pricing for information
– “Information ...
Adaptive, Win-Win Value Propositions
• How?: Build value exchange relationships
– Exploit new power of computer-mediated r...
Set Prices Are So Last Century!
(Taken for granted, but wrong!)
• Historically: Prices personalized
– Personal negotiation...
The Long Tail of Price Sensitivity
Customers are not the same!
Customer experience is not the same!
(increasing price sens...
A digital “product”?
• Near-zero replication cost ( “Free”)
• Access, entitlements, usage
– Valued as an “experience good...
Separate the Sale from the Price!
Post-Pricing
Why not price the experience after it is known?*
• Unlike typical up-front ...
Accept/buy/use
(before pricing)
(Buyer)
Set “fair” price
(after buy and use)
(Buyer)
Track price
(Seller)
Fair to seller??...
FairPay Value Discovery Engine
Continuous journey of adaptation – Frame/nudge/track
Seller-
gated
Premium
FairPay
Offer
Se...
Seller Control and Predictability?
Frame/nudge/track
• Managed dialog – “choice architecture” – fully personalized
– Selle...
A new twist of the Invisible Hand
…Creating Shared Value over relationship – a repeated game
19(see Invisible Hand, Invisi...
Aligning Price with Value
Pricing for the Co-Creation of Value
Intuitive blend of diverse factors, emerging over the relat...
Key Evidence and Enablers
• Behavioral Economics
– People are not heartless profit maximizers (eg: PWYW generosity)
– Trai...
FairPay can be tested, phased in
“Toe-in-the-water” examples for News Subscriptions
Acquisition =“Fuzzy Freemium”
Paywall ...
Platform and Database Opportunities
• Single vendor – internal process solutions
• Cross-vendor – added leverage, informat...
A New Cloud of Value
• Emerging: Implicit signals of value.
– Draw from conventional IoT data
(“E-Books are Reading You” e...
Change the Game with FairPay!
From invisible hand to invisible handshake
25
• From: set prices
 shop for lowest price  c...
Value-Based Pricing
for Consumer Markets!
• Prices based on actual performance/outcomes
• Proven effective in big-ticket B...
Usage/Value Pricing - Buyer-friendly
• Deadweight loss of “all you can eat”
unlimited subscriptions (See deadweight blog p...
Price Discrimination - Buyer-accepted
Economic optimum: price tracks to value
• Buyer “self-discrimination”  Legitimacy
•...
Thank You
Call to Action
• Questions?
• Strategic cooperation?
• Spread the word…
leads to content/service vendors, platfo...
Business Contexts
• Ongoing relationships
– Subscriptions / ongoing services
– Aggregation (iTunes, Amazon, App stores, …)...
Product / Service Category Examples
• Anything with low marginal cost
– Long-tail / low-demand products (expand market / g...
Engage Customers in Real Dialog
Real-time, Real-life “Market Research”
• Dynamic pricing and value discovery
– Real willin...
A Flexible, Extensible Architecture
• Coexist with conventional pricing (segment by fairness)
• Tunable parameters (choice...
Phasing in…
• Can limit to a contained niche offering
• Can build and apply in incremental stages
1. Free survey mode
(fre...
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Reisman FairPay Overview -- Adaptive Win-Win Relationships / Revenue Strategy - Latest Version

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Presentation on new revenue strategy for digital and other experience goods/services. As presented on HBR Blog, at MIT Enterprise Forum of NYC, Zuora Accelerate, Naples Forum on Service, ISSIP, and elsewhere. This is maintained as the most current version.

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Reisman FairPay Overview -- Adaptive Win-Win Relationships / Revenue Strategy - Latest Version

  1. 1. Adaptively Seeking Win-Win Customer Relationships for the Digital Era FairPay Richard Reisman, Teleshuttle Corporation fairpay [at] teleshuttle [dot] com 1Copyright 2015, Teleshuttle Corp, all rights reserved Salesforce Briefing 2/11/16
  2. 2. Tomorrow’s Logic ”The greatest danger in times of turbulence is not the turbulence, it is to act with yesterday's logic.“ --Peter Drucker • FairPay -- a logic for tomorrow (…not a product) • Reisman Background – Pioneering digital services for people since 1960’s • Diverse businesses and roles – B2B and B2C • ~50 patents, licensed to >200 companies – Steeped in disruption – business model crisis in content industries – Saw a new way forward – simple concept – deep implications – A whole new logic – centered on value propositions – Changes the entire focus of customer relationships from price to value • Mission – Change the world – Save news, music, video, e-books, other industries – Create new value – Work on a pro-bono basis with business and academic partners on research, trials, and applications – seeking collaborators, evangelists …and offer free consultation. – Help: spread the word, test the concepts (More information at FairPayZone.com) 2
  3. 3. Toward the Revolution… • Extensive conceptual development, details online • Extensive discussions with businesses – Vendors (such as NYTimes, News Corp, Rhapsody, IBM, Verizon, and a leading market research firm working with major newspapers) and industry experts – Platform providers (such as Zuora) • Key elements widely validated by behavioral economics and emerging marketing theory • Eminent academic collaborators to assist in trials – Marco Bertini, Associate Professor and Department Chair, Marketing, at ESADE (via Dan Ariely and Ayelet Gneezy) – HBR Blog, SSRN paper pending publication – Adrian Payne, Professor of Marketing, University of New South Wales Pennie Frow, Associate Professor, University of Sydney Business School – Naples Forum on Service, Paper in preparation – Heather Caruso, Director, Center for Decision Research, Booth School of Business, University of Chicago (via Richard Thaler) • Initial trials? – Marketing research company with major newspaper, 1H16? – Others? 3
  4. 4. A Thought Experiment Imagine an all-knowing Economic “Demon”* • Read buyers’ & sellers’ minds to learn value-in-use, –in-context • Know how used, liked, value obtained, willingness/ability to pay • Know economic “value surplus” • Arbitrate fair sharing of surplus Set personalized and fair prices --- • Practice: Better strategies** • Theory: Better insights (*Like Maxwell’s Demon and Laplace’s Demon in physics) (**Like B2B value/performance/outcomes-based pricing – need lightweight analog for B2C) 4
  5. 5. 5
  6. 6. Accept/buy/use (before pricing) (Buyer) Set “fair” price (after buy and use) (Buyer) Track price (Seller) Fair to seller??? (Seller) Gated FP Offer (Seller ) FairPay Dialog Cycle Continuous journey of adaptation – a new balance of powers – a “repeated game” Price it BackwardExtend it Forward (after trial)(limit FairPay credit) 6
  7. 7. FairPay Value Discovery Engine Continuous journey of adaptation – Frame/nudge/track Seller- gated Premium FairPay Offer Seller- gated Basic FairPay Offer Buyer Accepts FairPay Offer ? Buyer Tries Product /Service Buyer Sets FairPay Price Seller Tracks Fairness of Price High -Fair Low- Fair Un- Fair Buyer Seller Sets Price (take or leave it) Buyer Accepts Set-Price Offer ? Buyer Uses Product /Service FairPay Zone (revocable privilege) Conventional Set-Price Zone 7 Value/FairnessOffers
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  10. 10. Monetizing Digital Offerings in Networked Markets …A Radical Re-framing • Dilemma: Pricing for information – “Information wants to be free” (infinite replication) – “Information also wants to be expensive” (creation) • Answer: Re-think our value exchange process – Not allocating scarce resources (no invisible hand) – Still need to sustain producers Balance value, ability to pay, cost, profit …How?... 10
  11. 11. Adaptive, Win-Win Value Propositions • How?: Build value exchange relationships – Exploit new power of computer-mediated relationships • Co-operatively build relationships on perceived value • Ongoing customer journeys with post-sale interaction • Learn the right price for each customer …each time – An invisible handshake …with each consumer (a “repeated game” – win over multiple cycles)  Emergent approximation of economically ideal pricing Share more value, with more customers - sustainably Better business – profit, market reach, lifetime value More value for society 11
  12. 12. Set Prices Are So Last Century! (Taken for granted, but wrong!) • Historically: Prices personalized – Personal negotiation – human buyer and seller – Personal contexts – needs, bargaining powers, relationships – Communal norms – caring, fairness, …even generosity • Mid-1800s: Price tags / institutions (department stores) – Institutional sellers to mass market consumers – Scalable – simple, operationally efficient – Buyer take it or leave it  exchange norms, bargain hunting • E-commerce: Mass-personalization? 1:1? – Why not price? – End race to the bottom, commoditization – personalize a fair price for value – How to do it effectively, efficiently??? (See Set-Price blog post) 12
  13. 13. The Long Tail of Price Sensitivity Customers are not the same! Customer experience is not the same! (increasing price sensitivity) • Green revenue: capped at set price • Red head: lost surplus • Amber tail: lost sales …Dynamic and context-dependent (see Long Tail blog post) 13
  14. 14. A digital “product”? • Near-zero replication cost ( “Free”) • Access, entitlements, usage – Valued as an “experience good” – a service – Not discrete, scarce “product” – Personalized variations (items, time, intensity, volume, …) – …all measurable – rich instrumentation in use – IoT Cloud  New data on value for each consumer (see data blog post) • “Free” as a selling tool – freemium, pay what you want, tipjars, trials …  Better: Embrace dynamic variability, control risk 14
  15. 15. Separate the Sale from the Price! Post-Pricing Why not price the experience after it is known?* • Unlike typical up-front offers (Pay What You Want, etc.) • Remove the consumer’s risk discount (or rejection) • Signal supplier’s value and trust _________ *= post-pricing = ex-post pricing = price in arrears = price as you exit = price it backwards 15 –Thanks to John Blossom, Shore Communications (ContentBlogger) “Pay as You Exit: FairPay Explores New Content Pricing Discovery Regimes” – Watch the episode
  16. 16. Accept/buy/use (before pricing) (Buyer) Set “fair” price (after buy and use) (Buyer) Track price (Seller) Fair to seller??? (Seller) Gated FP Offer (Seller ) FairPay Dialog Cycle Continuous journey of adaptation – a new balance of powers – a “repeated game” Price it BackwardExtend it Forward (after trial)(limit FairPay credit) 16
  17. 17. FairPay Value Discovery Engine Continuous journey of adaptation – Frame/nudge/track Seller- gated Premium FairPay Offer Seller- gated Basic FairPay Offer Buyer Accepts FairPay Offer ? Buyer Tries Product /Service Buyer Sets FairPay Price Seller Tracks Fairness of Price High -Fair Low- Fair Un- Fair Buyer Seller Sets Price (take or leave it) Buyer Accepts Set-Price Offer ? Buyer Uses Product /Service FairPay Zone (revocable privilege) Conventional Set-Price Zone 17 Value/FairnessOffers
  18. 18. Seller Control and Predictability? Frame/nudge/track • Managed dialog – “choice architecture” – fully personalized – Seller • reports usage • provides a suggested price personalized to that buyer’s usage • frames the pricing rationale, and nudges with incentives (+, -) – Buyer • sets FairPay prices (as a differential from suggested price) • states reasons for their differential (multiple choice) – Seller • evaluates fairness of reasons – reciprocal value proposition • frames new offers – manages FairPay credit and incentives • Nudge buyers toward suggested prices – as fair exchange • Test/review value propositions, offers, framing, incentives 18
  19. 19. A new twist of the Invisible Hand …Creating Shared Value over relationship – a repeated game 19(see Invisible Hand, Invisible Handshake, and Customer Journeys posts)
  20. 20. Aligning Price with Value Pricing for the Co-Creation of Value Intuitive blend of diverse factors, emerging over the relationship  From provider to consumer – Value-in-use / experience / outcomes – Other “soft” value • Service / support • Participation / listening / responsiveness • Social values / “triple bottom line”  From consumer to provider – Monetary payments – Other currency -- “Consumer” as provider of value to “provider” • Attention to ads / Personal data to exploit • User-Generated Content • Promotion / virality / leads Can extend through the ecosystem value chain – Designations of value share to creators/suppliers (vs. intermediaries) 20
  21. 21. Key Evidence and Enablers • Behavioral Economics – People are not heartless profit maximizers (eg: PWYW generosity) – Traits: Fairness, reciprocity, altruism, self-image, acceptance, … – Situations: Social/communal norms vs. economic/exchange norms – Treat me as a patron, make me want to be a patron • Computer-mediated dialog – Customer journeys – Facilitate automated dialog about what I value, on what basis …and act on it – Engage me as a patron, show you hear/understand me • Big Data + IoT + Predictive analytics – Use data to validate customer dialogs on value, incentivize honesty – Customize offerings and how they are framed – Show that you recognize and respect my desires as a patron  Adaptive, cooperative relationships 1. Nudge buyers toward fairness, perception of value, sharing value surplus 2. Foster social/communal norms (participation and dialog) 3. Segment based on fairness traits (social values) and value propositions 4. Motivate a repeated game that is win-win 21
  22. 22. FairPay can be tested, phased in “Toe-in-the-water” examples for News Subscriptions Acquisition =“Fuzzy Freemium” Paywall balkers? – special limited usage “trial” versions, tie-ins, gamification, membership ”club” Retention (Saves) low usage, low price Premium “club”/“patron” segments curated, early access/new releases, quality, downloads/offline use, added features Usage /style segments Limited usage? low/high usage, low/high cost, song frequency, … Content segments: Long-tail / genre indies, back-list, genres Device segments phones, embedded systems Family Plans “seats,” concurrent use “Deserving” sellers compensation to artist/creator Trials, sampling, coupons, specials limited offers Special branding distinct from conventional Acquisition =“Fuzzy Freemium” (Revenue from day one) versions, tie-ins, gamification, membership ”club” Retention (Saves) (Revenue recapture) low usage, low price Premium “club”/“patron” segments (Eg: NY Times “Premier”/”Insider”) curation, early access, journalist access, archives, downloads/offline, extra features Usage /style segments low/high usage, low/high cost, alerts acted on… Content segments: Long-tail / genre investigative journalism, analysis, financial insight, sports insight, crosswords Device segments phones, embedded systems Family Plans “seats,” concurrent use “Deserving” sellers compensation to journalists, field reporting Trials, sampling, coupons, specials limited offers Distinct branding separate from conventional offering 22
  23. 23. Platform and Database Opportunities • Single vendor – internal process solutions • Cross-vendor – added leverage, information – Shared infrastructure and processes = “Pricing as a Service” (PaaS) – New: FairPay Fairness Reputation Database • Across vendors and contexts (fairness ratings + details) • Use like credit rating database (FairPay credit line) • Detailed value perception and willingness to pay data Database asset, first mover advantage • Interest by potential platform vendors (Zuora) – Plug-ins / SaaS 23
  24. 24. A New Cloud of Value • Emerging: Implicit signals of value. – Draw from conventional IoT data (“E-Books are Reading You” example) • New: Explicit expressions of value. – New, generate from FairPay dialogs about value – Validate consistency with implicit signals  Adaptively win-win customer journeys 24
  25. 25. Change the Game with FairPay! From invisible hand to invisible handshake 25 • From: set prices  shop for lowest price  commoditization • To: FairPay participative value exchange  shop for value, relationship  engagement, loyalty • Analogous to tipping – Easy, intuitive, with rich multi-dimensional nuance – Happily pay more than you “need,” often generously – Free is an option, not a price • Delight your customers, give them pricing freedom, focus on value, gain their loyalty – Treat me as a patron; make me want to be a patron – Engage me as a patron; show that you understand what I care about  Emergent strategy  Pricing “legitimacy”  Higher profits + deeper market penetration (+ad $) (See Handshake post)
  26. 26. Value-Based Pricing for Consumer Markets! • Prices based on actual performance/outcomes • Proven effective in big-ticket B2B markets* – Win-win: Buyer and seller agree to share in the actual “value surplus” – High economic efficiency – But: high pricing cost for custom analysis • FairPay: a simplified, intuitive, automated analog for mass consumer markets *See this 2014 HBR article, and this 2002 HBS article. 26 Advanced Economics:
  27. 27. Usage/Value Pricing - Buyer-friendly • Deadweight loss of “all you can eat” unlimited subscriptions (See deadweight blog post) • Soften the “ticking meter” / no shocking usage bill • Price considering usage, but… – Buyer decides, factors in: • Usage history • Volume discounts (…with seller guidance) – Soften the extremes – average out Price tracks to value (with affordability) Warm and fuzzy, good feelings 27 Advanced Economics:
  28. 28. Price Discrimination - Buyer-accepted Economic optimum: price tracks to value • Buyer “self-discrimination”  Legitimacy • Engages buyers – a rewarding process, centered on personalized value propositions • Infinite segmentation, in all dimensions – Context, ability-to-pay, usage, time, devices, users, … …Price discrimination can be good! 28 Advanced Economics:
  29. 29. Thank You Call to Action • Questions? • Strategic cooperation? • Spread the word… leads to content/service vendors, platforms • FairPayZone.com – Extensive information • E-mail Reisman: fairpay [at] teleshuttle [dot] com ---------- Additional Commentary Follows… 29
  30. 30. Business Contexts • Ongoing relationships – Subscriptions / ongoing services – Aggregation (iTunes, Amazon, App stores, …) • Experience goods • Low marginal cost, perishable, promotions (Also, costly goods, using a minimum price floor) • “Deserving” sellers/producers 30
  31. 31. Product / Service Category Examples • Anything with low marginal cost – Long-tail / low-demand products (expand market / gain revenue) – Short-head / high-demand products (expand market / gain revenue) • Digital content / products /services (by item or by subscription) – News / information / magazines – Music – Video – Games – E-Books – Apps / Software – Other Digital Services • Real products /services (especially experience goods) – Low marginal cost (primary product or extras/support) – Sampling / trials /coupons (eg: Groupon) – Perishable excess (eg: hotels, transport, performances) – Costly goods with a minimum price floor + FairPay bonus 31
  32. 32. Engage Customers in Real Dialog Real-time, Real-life “Market Research” • Dynamic pricing and value discovery – Real willingness to pay – Specific to actual product/buyer/context/usage – New kinds of Big Data on value, at a micro level • Ongoing “trials” of mutual value discovery • Focused, flexible value propositions – Match to customer perceptions, specific contexts, times – Sell value: a positive experience (not focus on price) – Build a relationship - get not just customers, but patrons 32
  33. 33. A Flexible, Extensible Architecture • Coexist with conventional pricing (segment by fairness) • Tunable parameters (choice architectures) – Gating, nudging, warning, dispute-resolution – Up-selling, down-grading – Liberal or tight control • Analogs of conventional methods, plus new ones, in any combination – Freemium, Paywalls (metered/soft) – Tiers, segments, dynamic/usage pricing – Custom mix of customer revenue and advertising – Phasing: Survey mode, Simple Pay What You Want – … 33
  34. 34. Phasing in… • Can limit to a contained niche offering • Can build and apply in incremental stages 1. Free survey mode (free, for value feedback only – no fairness gating process) 2. Simple Pay What You Want + Post-Pricing (pricing unrestricted by fairness – no fairness gating process) (post-pricing “as you exit” makes PWYW more meaningful) 3. Full FairPay (“gated” by fairness, by seller – most of the cost/complexity) 34

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