New Business Models - The Most Exciting Role for Pricing
Pricing is fun! We help companies create value, determine how much value they create, and then capture that value. But there is one thing that stands above, creating new business models. Many new business models are based on looking at what customers buy vs what companies charge for. In other words, pricing. Netflix is a great example. They built their company on DVDs by mail. At the time, people went to the video rental store, paying for each rental and most importantly the associated late fees. People were charged for the rental time. However, people were buying the entertainment, the ability to watch a movie at home. Netflix found a different way to charge customers for what they were actually buying and built a business around it. And Netflix is doing it again. They are shifting to streaming access to movies. It isn't about the DVD or the rental, it's about the entertainment experience. Netflix understands this well. Think about Starbucks. Many people grab a latte to go on their way to work, and this is perfect. They are buying coffee, Starbucks is selling coffee. But what about the Starbucks locations that always seemed to be packed with people working on their computers? What are those people buying? Of course they do buy a coffee or something, but that's not really why they are there. Can Starbucks charge for that? Last week NPR published "Rubles for Minutes, Not Mochas, At Russian Cafe Chain". It's a chain that gives away the coffee but charges for the time spent. Interesting concept and a great example of charging for what people are buying. My guess is a coffee shop in the right location will succeed using a hybrid form, charging for both the coffee and the seating. They may give away the seat for 30 minutes with the purchase of a coffee and then charge from there. But this blog isn't about coffee shops or Netflix. It's about business models. Do you know what your customers really buy from you? Dig down a level or two. Once you understand what they really buy, can you charge for that? Software companies have it easy (ahem), in that they don't sell a physical product. They are always asking, what do we charge for? That's where we see things like perpetual license, annual license, per user, per gigabyte data transfer, per gigabyte storage, and of course freemiums (and many many more). It's not always easy for software people to answer the question of what to charge for, but at least they aren't predisposed to simply charge for the physical product. Back to you. What do your customers really buy? Why do they buy from you? What can you charge for? If you come up with something truly unique, you may be able to build a new business model. You may be able to transform an industry. Now that's fun! Mark Stiving, Ph.D. – Pricing Expert, Speaker, Author To gain more insights on pricing, sign up for the Pricing Perspective, a free monthly summary of my blogs and other publications. Photo Credit: veo_ via Compfight cc
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