Welcome to Atlanta – it’s the 30th Annual Spring Pricing Workshops & Conference at the Loews Midtown Hotel in Atlanta with some of our top pricing experts in the Syncron organization to share our insights and learn from others in the industry. In case you’re just now joining us, we’ve been live-blogging the entire event, so head to the main Syncron Blog page to check out all the coverage!
This week we’ve heard from leaders at world-class companies and pricing communities about the 80/20 rule and how to amplify its impact in business by layering and streamlining pricing into processes, the top 10 lessons on the pricing transformation journey and how to start the journey to usage-based pricing today. Now we’re into the final workshops of the week, starting with Abhi Vora, Senior Director of Value Strategy at Cox Automotive, talking about value-based monetization strategies for the digital world.
As companies walk through a framework to effectively analyze the drivers of value from your product, there’s a specific approach to uncovering key drivers of value for customers and structuring monetization models in a way that aligns price, value and customer willingness to pay. The goal of this process is to establish sustainable and optimized revenue streams that benefit both the consumer and the company.
Simply put, a true monetization strategy is the act of converting products or services into revenue. More specifically, value-based monetization quantifies that product monetization along with customers’ willingness to pay (WTP). WTP is often higher than the actual cost of the product, and the gap in between is the profit potential for you as the value-based seller. The following steps are the milestones you need to hit as you shift toward a value-based monetization pricing strategy:
Step #1: Identify product value drivers.
Value drivers are the fundamental customer needs that drive willingness to pay. They are what you ask your product team to optimize, but these change over time as new competitors and innovators hit the market. For example, some of Uber’s value drivers are:
- On demand – efficient service
- Cashless – automatic payment via mobile app
- Quality – user ratings based
- Choice – optimized fleet to meet consumer preferences
Step #2: Quantify WTP and identify segments.
WTP is key in value-based monetization. You need to be able to explain why, when all else is equal, different customers still have different WTP. It’s also the basis for price segmentation because it enables efficient monetization as things change over time. That’s why analyzing WTP data helps identify price segments, and combing surveys with historical data can uncover that root WTP.
Step #3: Determine price model and price metric.
In a flat rate subscription model, the advantage is a consistent revenue billed via fixed price, but the disadvantage is that changes in product usage means changes in revenue. This, however, can be both a risk and an opportunity. In a pay-per-x transactional model, the advantages of increased usage can be captured through increased billing and the fact that there’s a low barrier to trial, but the disadvantage is less predictable revenue. A hybrid model, on the other hand, can provide the flexibility the first two are missing. There are many more pricing models that exist in the marketplace, and the fixed to variable continuum fluctuates with each option.
Step #4: Set price and discount levels for customer segments.
As you price segments and levels from your WTP analysis, one way that you can set your price levels is to have the lower amount as your base price, adding modifiers down the road based on market and segment, followed by changes in list price, discounts, etc. Then, discount ranges provide flexibility to sales, along with aligned alternatives with competitors, like price and product differentiation.
Lessons to Remember Along the Way:
- Know your customers – not all customers are alike and segmentation is key.
- Art + Science – people don’t always make rational choices and perception is often king.
- Make it simple – value-based monetization is inherently complex, so it’s our job to explain recommendations in terms that decision makers can understand.
- Make sure you can execute – advanced strategies often require technology, and we need to strike the right balance to ensure that recommendation translates into action.
- Incentives drive behavior – complimentary incentive structure and governance are key to ensuring the right sales behavior.
- Measure impact – estimating the marginal value of a well executed pricing strategy is hard work, but essential in gaining leadership support.
Join us as we live blog our experience during the performance workshops, interactive working groups, and so much more. With nearly a week’s worth of networking, technology and strategy, we’re sure to come home with some of the best tools in pricing today!