Digital publishers can implement individualized product strategies like customization, versioning, and modularization for digital goods. They must also consider pricing models like freemium, tiered, and consumption-based approaches. Key metrics for subscription businesses include monthly recurring revenue, churn, customer lifetime value, and customer acquisition cost. Publishers should analyze customer value, awareness, segmentation, demand variability, and important value metrics to determine the optimal pricing strategy.

1. Digital Businessmodells
for Publishers
Günther Haslbeck 1/2014
Digital Goods, eCommerce, Productstrategy Ideas

2. Produkt
A Product is a Bundle of Properties a Customer wants to have/use to
help them in a specific problem

3. Produktstrategie
Individualisierung von digitalen Produkten
Konfiguration
• individuelles Zusammenstellen eines Produkts aus verschiedenen
Bausteinen
• Häufig mit Preiskalkulation verknüpft
• Expertensystem kann auf Konfigurationsprobleme hinweisen
Versionierung
• individuelle Auswahl der Version eines Produktes
• entsprechend der maximalen Zahlungsbereitschaft
• Selbstselektion der Kunden
Partitionierung
• individuelle Auswahl von Teilen eines Gesamtprodukts
• vor allem bei digitalen Produkten
Mass Customization
• individuelle Anpassung eines Produkts aus verschiedenen Modulen
• ohne Steigerung der Kosten in der Produktion (Masse und Klasse)

4. Preisbildung
Beispiel: Buch
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Preis pro Sachgut.
Das Produkt ist vorproduziert.
Der Preis hängt am Produkt.
!
!
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Beispiel: Wissensdatenbank (Online-)
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Preis pro Aktivität
Produkt entsteht bei Aktivität durch den Kunden.
Der Preis hängt an dem Kunden

5. Statistik ist ein Teil des Produkts
Kleiner Einschub:
Bauen Sie ein Produkt, dass Kunden nur nutzen könne wie SIE es möchten.
Ansonsten werden Sie nie herausfinden was ihre Kunden machen.
Häufig wird ein Produkt erstellt und danach Lichtschranken zur Messung der
Nutzung eingebaut. Wieviel Nutzer bzw welches Nutzungsverhalten zeigen wohl
die Lichtschranken am Ende der offiziellen Gehwege und welche Produktstrategie
würden Sie ableiten?
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Was Sie nicht messen können können Sie nicht Verbesserung und auch nicht
bepreisen.

6. Finding a price
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• Price pro Time
• Price per Amount of Activity, Usage
• Price per Lifetime
• Price per Customergroup
and more…
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Pricing Modells
- Fremium
- offers core services or features for free, and charges a premium for the more sophisticated components
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- Capacity based:
- Product usage is free up to a capacity usage or number of users, beyond which it is chargeable.
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- Feature based:
- Customers offered a limited version of a product for free, with certain key features locked.
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- Time based:
- A typical free-trial that expires after a fixed period. This offers customers a period of time to experience the full value of the product
before they decide to buy.
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- Use Case:
- A less common model in which customers can use the offering for free provided they fall under certain specified categories (such as
non-commercial use, educational, non-profit, etc.)
!
!
- Tiered
- tie pricing to some driver of value and usage which can often be seats, modules, data volumes, servers, and many other scale factors
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- Consumption
- A popular pricing model that allows customers to manage their costs by managing the quantum (time, bandwith, storage) of product usage
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- Perpetual License
- Structured as a one-time upfront payment with an additional recurring fee for“maintenance and support”plus professional services

7. Key Metrics for Subscription Businesses
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MRR - Monthly Recurring Revenue
- Normalizes annual charges
- Focus on repeatable business
- The best predictor of next month is this month.
- Changes in MRR indicators of health
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8. Key Metrics for Subscription Businesses
Churn (Abwanderungsquote)
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Churn (% customers lost per time period) drives customer lifetime and customer lifetime value
Beware of averages – timing of churn impacts revenues
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Churn is the direct opposite of growth
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Limits growth – can’t add new customers fast enough to account for losses
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Satisfaction index
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Variations
Customer churn
- Single product companies
- All customers similar
Subscription churn (i.e., product level)
- Measure product performance
Revenue Churn
- Accounts for variations in customer size
Lumpy customers
Aging
- Churn of new customers typically much higher than older ones
- Successful sales month can increase churn…
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Cohort Analysis – look at lifetimes of similar customers
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9. Key Metrics for Subscription Businesses
CLV - Customer Livetime Value
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Per customer view of business
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Projects breakeven and profit per customer
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Use to model cash needs
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CLV (Lifetime Margin) – (Cost of acquisition)
Cost of Acquisition
- Marketing Programs and Promotions
- Sales (salaries, commissions)
- Channels (commissions)
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Contribution Margin
- Revenue – Costs
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Costs
- Cost of Goods
- Customer Support
- Data Center, Bandwidth…
- Sales costs (incentives for upgrades, renewals)
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By Product, By Channel
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Places value on customer base
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Highlights impact of 3 levers:
- acquisition costs
- Revenue/margin
- Customer lifetime
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Useful to examine cohorts
- Clients from 2010 vs 2012
- Online vs sales team
- Gold vs Bronze
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10. Key Metrics for Subscription Businesses
CAC - Customer Acquisition Cost
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The cost to acquire a particular customer.
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The key to determining your level of sales and marketing investment
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Measure because
- Use CAC to optimize sales and marketing programs
- Highlights unprofitable channels and programs
- Measures efficiency
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Variations
Full cost view
- Include all salaries, commissions, program spend etc.
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Incremental costs:
- Essentially treat headcount costs as fixed
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Marketing Program
- Only consider external marketing program costs

11. Think about
1) What is the Customer’s Value of the Product?
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There are several sources of value that a customer can derive from a product
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ROI for Customer:
- time saving
- increased revenue
- reduced errors
- resource or cost saving
- efficiency gains
PLUS
Exogenous Factors
- customers price sensivity
- attribute tradeoffs
- network effects
= Establish a demonstrable ROI Value for the customer to set the price ceiling

12. Think about
2) Is the Customer Aware of this Value?
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Understand if the customer’s perceived value is less than the offering
that the firm has calculated
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In case of new products without available substitutes, customers
might need time to understand the value, and may initially not be
willing to pay the true value as determined in step 01
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Customers perceived value is
< then that arrived in Step 1: Fremium model or a low introduction
price model
> then that arrived at in Step 1: Reset price ceiling to this higher
perceived value
Consider offering a Tiered model

13. Think about
3) Can the Customer Base be Segmented?
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Look for opportunities to segment the customer base to see if different
values can be separated from each other
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Common Segmentation Criterias
- Using fewer or more product modules
- - if yes: Tiered Pricing
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- More number of items are being processed
- - if yes: Consumption or Freemium pricing
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- Fewer or more employees are using the product
- - if yes: Consuption or Tiered Pricing
-

14. Think about
4) Is the Customer’s Demand Variable or Uncertain?
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Variability in demand and other uncertainties (or lack of it) can provide indicators
for pricing model selection
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Type 1
- Inconsistent demand for product
- Requirements on an“as-needed”basis
- Lack of clarity into future demand
—> Consumption Pricing model is favorable as it will capture this variable demand
!
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Type 2
- Reasonably certain demand for the offering
- Clear perceived value in line with actual value of offering
—> Tiered Pricing model would be ideal if customers are likely to have a long
relationship with the company

15. Think about
5) Establish a Floor Price
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Calculating a price floor - the purpose is to determine if the business is
economically viable
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IF Cost of Customer Acquisition IS
< Value derived from the customer in terms of payment
In that case: optimal decision would be to not produce
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> Gross margin earned form customer in Year 1
Invest in consumer acquisition for rapid scale up
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16. Think about
6) What Value Metrics are Most Important to the Customer
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The final important consideration to make is the value metrics that are
important to the customer
With any of the pricing strategies, as the customer grows which metrics will
increase?
These metrics could be
- Capacity
- Usage
- Users
- A specific time period
- Access to certain features
- Specific customer segments, etc.
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Having an understanding of these features will allow the firm to create value
through the pricing strategy by setting proper thresholds between pricing tiers

17. About me
Want to know more about me / Günther Haslbeck :
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https://www.xing.com/profile/Guenther_Haslbeck
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https://www.linkedin.com/in/guentherhaslbeck
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http://www.guentherhaslbeck.de