Thursday, December 1, 2016

How Market Commerce Can Become More Cooperative, Fair, and Human



A recent conference on Platform Cooperativism spurred some thoughts on how FairPay offers a path toward a new convergence of traditional ideas about market capitalism and alternative ideas about a "Fairness Economy." (This conference drew added attention from a Wired article about the idea that Twitter should become a co-op, "Let's Build the Next Twitter Like the Green Bay Packers.")

In exploring the concepts of a more win-win approach to commerce called FairPay, I have seen a spectrum of thinking about market capitalism and its limitations as currently practiced, and how to make our economy more in tune with human social values.
  • Market capitalism has created our modern world, and proven efficient, productive, and scalable -- despite a degree of blindness to human values. 
  • That has led to growing concerns about income inequality, slowing productivity gains, and concentration of power in corporations and investors, spawning a wide range of movements to change the game. These range from
    1) incremental steps like "Corporate Social Responsibility," "Creating Shared Value," and "Triple Bottom Lines," to
    2) benefit corporations and other more softly profit-oriented structures, and to
    3) more sharply different forms of organization like cooperatives (and other non-profits).
  • The conference focused on cooperatives, a form of business that has existed for centuries, and harnesses the same spirit as Open Source and Peer Production, and that can now build on the openness of the Internet to put ownership of a business in the hands of its workers and/or customers.
  • All of this occurred with a backdrop of the US election, which highlighted deep concerns about an economy that no longer seems to be serving middle- and working-class people well -- a hard push for change, but one with little consensus as to what kind of change can or should be achieved. 
Meanwhile, most businesses may still be far from meaningful social consciousness in their operational core, but increasing numbers do try to tack on some efforts at "good corporate citizenship." Some would argue this is just lipstick on a pig, but others see real potential to make existing businesses much better.

Hints of convergence -- human-centered marketing

The gulf may seem huge, but deep in the heart of modern marketing, a more direct incentive to being more fair and human is emerging. Companies are realizing that in this networked age, their most important customer relationships are ongoing, and that loyalty and Customer Lifetime Value (CLV) are more important than immediate sales. Companies are beginning to see that Customer Experience (CX) is central, and that they must attend at every touch-point to creating desirable Customer Journeys that build Loyalty Loops to cultivate their best customers. (Forrester recently reported that CX leaders grew at 17% per year compared to 3% for CX laggards.) This re-orientation is starting to drive companies toward deeper, more personalized dialog with their customers and more human, cooperative values.

How FairPay changes the game

FairPay enables a shift in business operations to focus on a more cooperative "co-creation" of value that improves the bottom line. That can help bridge the gap between these two very different models, by making ordinary for-profit corporations more aligned with their customers and what they value -- including human values of people and planet.

The magic of FairPay is that it can be applied in any of these ownership structures. It can work very nicely in alternative structures like co-ops, but can also work as a core operational process in ordinary for-profit businesses. It drives everyday business operations to center on the human values of each customer, in a way that makes it profitable to "do the right thing." No tacking on extra bottom lines, or a veneer of social responsibility, that compete with profit motives. FairPay serves as a kind of cooperative judo that aligns the profit motive with what the customer wants. If the customer is an owner (as with a co-op), that just adds to the alignment.

FairPay provides a structure for building relationships around value, by giving consumers limited power to set prices that correspond to the value they receive -- for as long as the seller considers them to be fair about how they do that (but not longer). This creates a balance of powers (setting prices / continuing the relationship) that rewards cooperation. It changes commerce from largely independent one-time games that are inherently zero-sum, to a repeated game that adaptively seeks win-win co-creation of value.

A new lens on market fairness

So with this new lens of FairPay -- and how it works in any kind of business to fundamentally change customer relationships into a repeated game of cooperative relationship building -- a new path becomes clear.

From one side of the divide, if we use FairPay in conventional businesses, we don't need any new enterprise structures (or any new enterprises) to start with.
  • Conventional corporations can introduce FairPay into their ongoing operations, as an alternative pricing option -- one that drives a new kind of cooperation between a business and its customers (and they can start to do this in limited, controlled market segments).
  • This cooperation focuses on win-win value propositions based on structured dialogs about value that can include broad aspects of value, including "externalities" of people and planet that are typically ignored by our markets (but directly affect the bottom line when FairPay pricing is applied).
  • That in itself should improve things for customers, workers, stockholders, and society at large.
At the same time, we can build from the other side and create new platform cooperatives (or other new models in that vein). They show considerable promise, and FairPay can add to that promise.
  • The same kind of cooperative dialogs about value that FairPay creates in a for-profit business can be applied by a co-op or other non-profit or hybrid form, with the same benefits.
  • Such methods can be expected to be especially effective in such contexts, because of the deeper alignment of values on the part of the alternative business, and the greater willingness to pay of consumer "cooperators" when the business entity is theirs. (More on this in an earlier post, A Better Revenue Strategy for Non-Profits in the Digital Era.)
Thus FairPay offers a common operational logic that can serve as a bridge toward convergence from both sides, wherever along the spectrum we are.
  • Conventional businesses can become more cooperative and aligned with customer and social values, and help instill more cooperative behavioral norms in themselves and their customers -- even in a for-profit, capitalist context. 
  • That sets the stage for further shifts toward cooperation in for-profits -- as well as a more fertile environment for alternative structures.
  • Likewise, alternative structures (non-profits or hybrids) can benefit from the fair and efficient FairPay pricing process that is more attractive and more self-sustaining than conventional pricing. The power of FairPay may be even greater in such alternative structures -- even if such structures are not as operationally efficient as profit-driven structures in some respects, FairPay might enable them to achieve greater price-efficiency to offset that, drawing on their more inherently mutual incentive structure.
Both camps can coexist and seek to flourish as they are able, and each can help drive the growth of an ecosystem that benefits all productive players, as well as society at large. Whatever mix it is that flourishes in any given context, and any point in time, we all can win with FairPay.

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.

Tuesday, November 15, 2016

FairPay Changes the "Game" of Commerce

FairPay literally changes the "game" of commerce -- from a series of independent one-time games of individual transactions, to a repeated game of relationship. Modern consumer commerce is built on seller-set pricing of transactions that is optimized for mass marketing to make sales in the short term. (Even recurring subscriptions have pre-set prices designed to get subscribers, not keep them.) That model can now be seen to have two fundamental failures:
  1. Despite the rise of 1:1 marketing, this model has little structural orientation to retaining customers by building long-term relationships that maximize loyalty and customer lifetime value (the games are essentially independent and zero-sum). 
  2. Despite the growing prevalence of experience goods, this model gives little consideration to how individual variations in value received can affect the value proposition.
It is our habit to think of seller-set pricing as a given in consumer markets, but that only dates back to the mid-1800's and the rise of department stores. Traditionally (and still in much of the less-developed world), commerce and pricing were dynamically personalized, based on human negotiation and personal relationships. The strategies of FairPay may seem to go against what we are conditioned to think of as normal behavior relating to price, but, in reality, they merely return us to more natural human behavioral norms (See So Last Century!.)

How FairPay creates a new kind of relationship focus can be seen most sharply in a slight clarification of my older diagram that highlights its structure as a repeated game. This version makes the game as easy as 1, 2, 3 -- at the most essential level, it has just three repeating steps:
  1. Set the rules (Seller)

    Just as in current practice
    (for mass-marketing), the seller sets the ground-rules of the game. The seller decides to whom to make an offer, on what terms and conditions. That gives the seller overall control. The seller makes the ground-rules clear to the buyer up front, so both parties understand the nature of the game. FairPay is a game that seeks fairness, transparency, and cooperation.

  2. Set the price (Buyer)

    "Price it Backward." Reversing traditional practice, with FairPay the buyer is granted the power to set the price -- and does that after using the product/service and seeing its actual value in use, and in context ("post-pricing"). The buyer is the one who has direct knowledge of the perceived, realized value in the buyer's unique context -- and after use is when that value is best known and quantified. (Obviously the buyer has selfish incentives to set the price lower than the actual fair value, but FairPay provides a new way to balance that selfish motivation.)

  3. Repeat the game? (Seller)

    "Extend it Forward?" This seller power is what makes FairPay work to converge on fair prices over the course of the relationship, balancing the power of the buyer to set the price. The buyer knows this is a repeated game, and must consider the consequences when exercising his price-setting power. The seller tracks the price, and determines, in the context of the overall history, whether it seems fair enough to the seller to continue the game for another round. That motivates the buyer to price reasonably fairly. FairPay offers are not always open to all -- they are a privilege that can be granted or withheld.
  • Repeating the steps (back to Step 1, with a growing shared understanding)

    If the seller pricing is judged fair by the seller, the game repeats, returning to Step 1. At that point the seller can adjust the rules by changing what is offered, under what terms and conditions. If the buyer pricing is judged as generous, more attractive offers may be made. If fair enough, similar offers may be made. If fairness is questionable, more restricted offers may be made, and probationary warnings may be given. Fairness is determined not just from the current transaction, but with consideration to the fairness reputation score that buyer has established over the history of the relationship. If, after repeated tries to nudge the buyer, the seller concludes the buyer is just unwilling to play fairly, the seller may decide that game is not to be repeated further.
  • Ending the game -- Fallback to conventional pricing relationship

    If the game is not repeated because the seller concludes the buyer is unfair, conventional set-pricing offers would typically be maintained as the fallback option. In any case, the buyer knows that if they want to maintain the FairPay privilege of setting their own price, they must satisfy the seller that they are being at least marginally fair about it, most of the time.
A new kind of balance of powers

The game of FairPay applies a central balance of powers, as seen in the dialectic of the two arrows:
  • Price it Backward reflects the buyer's power (and privilege) of setting the price after he knows what the product was actually worth to him (unlike the conventional case where he risks buyer's remorse)
  • Extend it Forward reflects the seller's power to gate the FairPay offers, to control the rules and to repeat the game or not -- to limit FairPay offers as a privilege granted only to those who set prices fairly.
This balance of powers drives convergence toward fair, personalized pricing, in the context of an overall win-win relationship.

This process is participative in that the buyer has real say in the pricing, but the seller still gets to limit their risk, and retain overall control of the business.  This participative process ensures that both parties continue only if they agree that the prices are fair.  The longer this continues, the closer the prices get to an optimal win-win value exchange.

This participative nature is what gives FairPay real power to enable a company to build a deep relationship with its customers -- to achieve high loyalty and sustainable competitive advantage. Instead of a series of largely independent zero-sum games (transactions), we move to a repeated game that seeks win-win (relationships).

Thus FairPay realizes the economic ideal of individually differentiated prices that correspond to the utility and price sensitivity of each buyer, in a way that avoids the feeling of unfair "discrimination." Unfair price discrimination is a problem of roles and perception -- there is nothing inherently wrong about price discrimination (done fairly, it increases our total economic welfare) -- if the buyer sets the price, then the "discrimination" is inherently acceptable and fair.

How this changes B2C relationships is described in Harnessing the Demons of The Digital Economy, How it moves us beyond the invisible hand (which no longer works for digital products/services because there is no scarcity to allocate in balance with demand) is described in An Invisible Handshake for The Digital Wealth of Nations.

Playing the game

Of course the first few cycles of a new FairPay relationship may result in wildly unfair prices as buyers and sellers just begin to learn about one another and what value is obtained. But there is little real cost to that initial learning period when marginal costs are near zero -- as is the case for most digital products/services. The first few cycles are simply expendable learning experiments in relationship building. Throughout the process, the seller remains in control of how much of which products/services to offer to which customers before prices are set, and so remains in final control how much value to put at risk -- effectively limiting "FairPay credit" or value at risk. This is done using the buyer's fairness reputation score in much the same way as a credit rating.

FairPay creates Win-Win Customer Journeys -- With Dialogs on Value. By applying "dialogs about value" during these three steps of the FairPay game (an enriched form of "loyalty loop"*) the seller can explain why a suggested price seems fair to them, and the buyer can explain why they disagree and decided to set the price higher or lower than that, and the seller can use that information (plus other data) to determine how fair that price is. (The other data can include measured data on how the product/service was used, and other available data about the buyer and his usage, such as relating to value achieved, ability to pay, etc. All of that data can be used to validate the dialog.)

With transparent dialog, each side lets the other know what they think is fair, and what the other should consider. If they cooperate effectively, they converge toward a win-win relationship based on personalized prices that fairly reflect the actual value to that individual customer. Each side is motivated to build a reputation for fairness in assessing value. If either side becomes convinced the other is simply unwilling to be fair, the game ends. In that case the entire relationship may end, or it may revert to a conventional pricing relationship, based on conventional seller-set pricing.

A scholarly research paper on “The Evolution of Cooperation in Infinitely Repeated Games” observes that “cooperation does prevail … when the probability of continuation and the payoff from cooperation are high enough.” That supports the expectation that FairPay will generally work well if the business makes the repeated game attractive to the customer, and applies reasonable, but not harsh, controls on repetition and FairPay credit outstanding to limit the losses in cases where the customer fails to cooperate. (Some basic background on repeated games is in  Wikipedia and Policonomics.) [Update 11/30/16: Very relevant new research paper -- see Update note below.]

Some perspectives

Letting the customer set the price after receiving the product/service may seem to businesses as a terrifying leap. But the seller's power to continue or discontinue the repeated game, and to adjust the rules on each cycle, make all the difference. The seller retains overall control of the game, and manages how much value is at risk. With products that have low marginal cost, the value at risk is small and readily managed.

Many readers will see a similarity to pay what you want (PWYW) pricing in FairPay -- but consider the important differences:
  • First, keep in mind that PWYW has proven to be surprisingly effective in some applications. People naturally do want to be fair and generous (up to a point), even when they do not have to. This is well established by a wealth of recent studies in behavioral economics and actual business trials. (See Making Customers Want to Pay You -- Research on How FairPay Changes the Game,)
  • The problem with PWYW is that most buyers pay, but many do not pay enough to be sustainable for routine business. Too much unfair pricing behavior can limit the usefulness of PWYW -- but PWYW is applied in the form of one-time games that impose no penalty for unfair pricing.  . 
  • It is the motivation to continue the repeated game of FairPay that turns it into a totally different game -- one in which there is a very clear cost to the buyer for being unfair. 
Note also that no other B2C pricing method sets prices backward, after use.
  • It is in hindsight that the true, realized value of a product/service becomes known, and that is when the buyer knows enough to set a fair price (especially for experience goods), without discounting for fear of buyer's remorse. That is also when the seller can see what value the buyer appears to have received, based on actual usage data -- how many items did they consume, when, and how. 
  • This enables a value-based pricing strategy -- much like those that have proven highly effective in B2B contexts -- but in a form that is simplified and scalable for mass B2C use.
For more detail on how the process works, and how it integrates with conventional pricing, please see my post with additional diagrams, such as this one:

  

  More Diagrams and Process Explanation...


Toward a win-win market economy driven by fairness

Throughout most of history, market economies have had a orientation to human relationships that operated as repeated games -- apart from a historically short and dehumanizing detour through a regimented form of mass marketing that we have been conditioned to view as normal. Now our digital age presents a new way to restore that win-win human element -- one that exploits the scale efficiencies of modern marketing, but that returns individual human relationships and values to the fore.

*[Update 11/16/16: A Value Loop -- perhaps the best term for this would be a "value loop," since we are creating a positive feedback loop that seeks to maximize value. The business sees it as Customer Lifetime Value (a result of loyalty) and the customer sees it as Vendor Lifetime Value (as described in Chapter 23 of my book).]

**[Update 11/30/16: A very relevant new research paper,  The Pay-What-You-Want Game and Laboratory Experiments by Matthias Greiff and Henrik Egbert, examines the basic repeated game structure that FairPay applies, and gives strong support to the expectations of success as outlined here. (A blog post expanding on this research is planned.)]

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.

Thursday, October 13, 2016

Continuing Chaos in Cord-Cutting Value Propositions...

"The Definitive Guide to Cord-Cutting in 2016, Based on Your Habits," by Brian X. Chen of the Times, notes that:
Every quarter for the last few years, hundreds of thousands of American households have put an end to their TV subscriptions, fed up with the costs of cable subscriptions, channels they never watch and the annoying commercials. 
But he writes this guide because:
What we found was there is no one-size-fits-all solution because each streaming service carries a different catalog of content, and each gadget has access to different services.
He also notes the fundamental flaws in current TV packages, both from cable and cord-cutting services:
For value, cutting the cord isn’t very cheap if you then subscribe to multiple services to gain access to a diverse set of content. For cable subscribers, paying one bill is less of a hassle than juggling multiple bills. And even after you subscribe to multiple streaming services, there is still some content that you may miss out on because it is available only via cable or satellite, like some TV shows or live sports events. 
But for cable, "all you can eat" gets expensive for those who are not gluttons. The real problem is highlighted in this quote from Kirk Parsons of J.D.Power:
“I would love to have the ability to pick and choose what I want as opposed to having four different services,” Mr. Parsons said. “I think we’ll get there, but right now it’s frustrating for consumers to get what they want.” 
A Post-Bundling future

A ready solution to this chaos is offered in a post I did last year, Post-Bundling -- Packaging Better TV/Video Value Propositions with 20-20 Hindsight. Consider the heart of the problem:
  • Cable packages offer channel bundle discounts for moderate and high numbers of channels, but offer little adaptivity to what you actually watch in a given month.
  • OTT packages are "skinny bundles" of fewer channels.
  • "A la carte" pay per view lets you pay for just the shows you watch, but at one-off prices that are prohibitive if you watch many shows.
  • Why is there no volume discount for just what you watch????
The solution is simple. Post-Bundling lets you have run-of-the-house, and watch whatever you want, then calculates a discounted price for just those shows. The pre-set discount schedule can be comparable to a full or skinny bundle, depending on how much you watch (and how much of that is premium programming). For more, see that post.

A simple step toward the win-win future of FairPay

Readers of this blog know that FairPay takes this idea of post-pricing and marries it to deep customer participation in pricing. It does that in an adaptive process that personalizes pricing to match the individual consumer value received. Doing that takes some sophistication on the part of the seller, since the discount schedule is no longer pre-set, but adapts to additional variables such as how pleased you were with the programs you watched in a given month. But basic post-bundling (with pre-set discount schedules) is a very simple step in the right direction, one that can set the stage for an even more win-win future beyond that. Both steps are good for the customer and good for the TV distributor. It will bring the distributor more profits from more and happier customers -- and give them better understanding of how to please their customers.

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.

Tuesday, September 20, 2016

FairPay Book Just Published / Related LinkedIn Group


My book on FairPay was just published. It is part of a series on Service Systems and Innovations in Business and Society, curated by Jim Spohrer and Haluk Demirkan of The International Society of Service Innovation Professionals (ISSIP), and published by Business Expert Press (BEP).

Some extracts from early praise (as cited on the book page):
Anyone responsible for monetizing digital content in consumer markets should understand this radically new perspective on pricing and how to maximize customer lifetime value.
...an innovative and visionary methodology …what disruption could look like...
...groundbreaking...
...compelling …promises to transform business...
Highly recommended for digital business entrepreneurs, as well as established firms...
The full title is FairPay: Adaptively Win-Win Customer Relationships. It pulls together a wealth of material from the blog plus new additions. The book has sections that are very pragmatically focused on how FairPay works in specific industry use-cases (as an alternative or complement to conventional freemium subscriptions, paywalls, and other methods). It also addresses the conceptual foundations in marketing, behavioral economics, game theory, and related areas.  It explains how FairPay can solve critical problems in pricing, value propositions, and customer relationships -- with a focus on the digital content and services businesses now in the throes of digital disruption, but also for other businesses.

I hope readers (both early followers and those new to these strategies) will find this not only a useful introduction to FairPay, but also a thought-provoking perspective on the broader issues of modern consumer commerce and how to make it far more win-win. As noted below, there is now a LinkedIn group dedicated to building on this theme.

Some of the new material in the book will be featured in added blog posts over the coming months.

Details on the book and how to get it are now online.

Order now from:
Online Supplement

As an added feature there is a special online supplement to the book with links to updates, blog posts with added detail, and other resources (also accessible as FPZLink.com).  Even before you get the book, this can offer a preview of much of the content (but in less organized form).

LinkedIn Group for FairPay and related innovations -- Please join!

As part of the online supplement, there is now a LinkedIn Group called FairPay: Adaptively Win-Win Customer Relationship, to enable you to connect with others who share interest in FairPay and related innovations in participative co-pricing, relationship marketing, customer journeys, and behavioral economics - especially to maximize Customer Lifetime Value for digital services.

Background:

This is part of a collection curated by Jim Spohrer and Haluk Demirkan of The International Society of Service Innovation Professionals (ISSIP).

  • Business Expert Press is a leader in concise and applied learning resources, and partners with Harvard Business Publishing
  • ISSIP is an organization founded by IBM, Cisco, HP and several Universities with a mission to promote Service Innovation for our interconnected world.
  • Jim Spohrer is IBM Innovation Champion and Director of the IBM University Programs World Wide,
  • Haluk Demirkan is Professor of Service Science, Information Systems & Supply Chain Management, and the Founder & Executive Director of Center for Information Based Management at the Milgard School of Business, University of Washington (UW) -Tacoma

Tuesday, September 13, 2016

Early Praise for FairPay (the Book)

Available soon!  Pre-order now!

"Anyone responsible for monetizing digital content in consumer markets should understand this radically new perspective on pricing and how to maximize customer lifetime value. FairPay provides strategies and operational methods for creating better relationships -- to increase loyalty, market reach, and profits." 
- Shelly Palmer, Business Advisor, Author, Commentator

"Reisman unveils a new world of possibilities through an innovative and visionary methodology that introduces a reference platform for digital value exchange. FairPay is very versatile in its applications and compatible across industries. It is a great example of what disruption could look like in a new digital business era." 
- Lucila Pagnoni, News Corp Australia

"FairPay boldly explores the future of pricing from a co-creation of value perspective. Highly recommended for digital business entrepreneurs, as well as established firms working on their digital transformation." 
- Jim Spohrer, IBM and ISSIP.org

"A groundbreaking and definitive book on pricing strategy for the digital age. This highly innovative and practical work shows how enterprises can develop relationship-based pricing strategies leading to long-term customer relationships, based on principles of equity and fairness for both customer and supplier."
- Professor Pennie Frow, University of Sydney Business School

"This compelling book explains how a radical shift in how we set prices can help enterprises become more customer focused. It promises to transform business by providing a new operational dynamic for maximizing customer lifetime value."
- Professor Adrian Payne, University of New South Wales Business School


Available soon!

Thursday, September 8, 2016

Customer Journeys of Value -- Measuring the Elements of Value


The Elements of Value, a new HBR article from Bain consultants, provides an excellent structure for measuring value in consumer markets. FairPay provides an adaptive process for managing customer journeys that center on value. These ideas can be applied in combination to drive loyalty loops around value, in order to increase Customer Lifetime Value.

Some interesting quotes from the article:
When customers evaluate a product or service, they weigh its perceived value against the asking price. Marketers have generally focused much of their time and energy on managing the price side of that equation...
What consumers truly value, however, can be difficult to pin down and psychologically complicated. How can leadership teams actively manage value or devise ways to deliver more of it, whether functional (saving time, reducing cost) or emotional (reducing anxiety, providing entertainment)?
...A rigorous model of consumer value allows a company to come up with new combinations of value that its products and services could deliver. The right combinations, our analysis shows, pay off in stronger customer loyalty, greater consumer willingness to try a particular brand, and sustained revenue growth. 
FairPay provides a structure for building relationships around value, by giving consumers limited power to set prices that correspond to the value they receive -- for as long as the seller considers them to be fair about how they do that (but not longer). This is described in my post on customer journeys and the elsewhere on my blog (see links below). The elements of value outlined in this HBR article can be an effective structure for the dialogs on value that FairPay inserts into the customer journey to enable that.

Since there are 30 of these elements, in a hierarchy of four levels (functional, emotional, life changing, and social impact), it would not be practical to force dialog on every element on every cycle -- and only some of them will be relevant to any given business. But the dialog structure can be varied adaptively to introduce relevant elements whenever the customer or the business find them to be relevant. This can enable the dialogs to generate rich value data.

And keep in mind, that these specific elements are just a way to specify and communicate value judgments that are actually very intuitive and nuanced. The beauty of FairPay is that it is driven by the consumer's intuitive sense of value.  The seller can drive the dialog based on analytics such as these, to seek to understand that nuanced and intuitive perception of value through simple questions, while the buyer need only respond, and need not be concerned about the structure that is driving that.

The dynamically adaptive nature of FairPay also enables the level of dialog to be varied over time, to collect this important value data without undue burden on customers. Value dialogs might be relatively frequent and detailed when a relationship starts, but only until a common understanding of value is reached.  Then the dialog level can be cut back, or even dropped completely, as long as both parties are satisfied with putting the adaptation process on autopilot, but then re-engaged in more detail any time either party senses a disconnect on their shared understanding of value (for that particular customer).

The article concludes with a quote from an executive that “I have a lot of people working on product features and service improvements, but I don’t have anyone really thinking about consumer value elements in a holistic manner.” FairPay's embedding of dialogs about value into the customer journey loyalty loop makes thinking about customer value elements in a holistic manner central to routine operations.

For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Monday, August 8, 2016

How Pokemon Nudges Users to Spend


This Wall Street Journal article explores how PokémonGo and other mobile gaming apps "have mastered techniques for coaxing mobile-game players to make in-app purchases." This provides some crucial lessons about the future of marketing in general -- and the case for the new FairPay strategy in particular.

Here are some very interesting points about ways to get consumers to happily spend money -- points that can be generalized in computer mediated marketing of all kinds:

  • Once considered an unrefined nag, the in-app pitch has been honed so well it coaxes tens of billions of dollars a year from people who have gravitated to free mobile games.
  • They “engage people in a longer financial discourse than you would have in an upfront sale.”
  • Algorithms are playing an increasing part in nudging players to spend. Based on dozens of data points—how often gamers play, what model mobile device they use, location and gender—developers might raise a game’s difficulty level, making no two players’ experiences exactly alike.
  • Data on players’ behavior also are used to strategically tweak prices for virtual goods in real time. “You get people to spend more money if you understand their behavior,” said Niklas Herriger, founder and chief executive of Gondola, a New York analytics firm that develops algorithms for game developers. “You can trace their finger every step of the way.” 

In talking to companies about the potential of the new FairPay pricing strategy described in this blog, the two concerns that are most often raised relate to consumer behavior. Will customers be willing to become engaged in the game of spending money? And can I design the game to nudge users to be fair enough to provide a fair profit? 

The article suggests that both can now be done successfully. With the right choice architecture, a form of game design, customers can be nudged efficiently and effectively. If it can be done in marketing for a game, why not in other forms of marketing as well? 

That suggests the same is true for FairPay. It is a new logic, but a natural one -- the kind of economic cooperation that people have excelled at for millennia.  It is only in the past century that we have been conditioned to think differently. This anomaly has held force for all of our lives and is therefore all we know, but now it is time to jump into to the future. We have the technology -- and both businesses and consumers will love it.


For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Monday, August 1, 2016

Price Discrimination for the Good!




"Higher prices in an affluent area help bring healthier meals to a poor neighborhood" reads the teaser for an interesting NYTimes article, which goes on to report on a 2:1 difference in prices between two Everytable restaurants only two miles apart in LA:
The big price difference represents an unusual experiment to address the persistent issue of limited food choices in poorer neighborhoods around the country. The higher prices at the downtown store are effectively meant to offset smaller profits at the other location, making the lower-priced restaurant more economically viable.
The article includes comments from advisory firm partner Michael Kaufman:
To make it work, he said people would need to understand why prices are higher in one neighborhood than in another. ...“I think the key to it will be how they tell their story” 
FairPay applies similar logic -- in a more dynamically adaptive, emergent process -- to set prices based on an individual "invisible handshake" that applies a balance of powers to learn what value customers receive, and factor in their ability to pay to determine the fair share they should contribute the the profits that sustain a business. This was explained in my earlier post Price Discrimination Can Be Good!, which was triggered by the equally interesting, if less noble, example of Uber surge pricing.

One key point is that price discrimination is not inherently evil, as it is often viewed. It depends on how and why it is done:

  • When price discrimination is done unilaterally by sellers, to extract maximum profit with no buy-in from customers it can be bad -- especially if done secretly in a way that is exploitative.
  • When it is done with transparency and customer buy-in, based equitably on differentials in ability to pay and value received, it can be laudable, and customers can feel good about it.  
What matters is the openness and fairness of the process. As Kaufman said, "the key to it will be how they tell their story.”

This relates to the broader issue of the growing call for a more socially conscious capitalism, a "fairness economy." We want the efficiency of free markets, but with an awareness of social values and bottom lines that factor in people and planet. Many are seeking ways to to achieve that. FairPay points to a new and more powerful solution.

FairPay's invisible handshake is not just a feel-good image, but an operational process based on a specific balance of powers that shapes the "story" -- a process of dialog that gives pricing power to customers, but only as long as they use it in a way the seller agrees is fair. FairPay can be applied in a wide range of contexts, from those that today lack much social context (like TV), through those that have stronger social context (like journalism and indie music), to those with dominating social context (like non-profits and charities).

Engaging customers, telling the story, and building long-term relationships based on this invisible handshake promises to increase Lifetime Customer Value, to offer more profit, greater market share -- and more total value to society.

For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Tuesday, July 26, 2016

A Better Revenue Strategy for Non-Profits in the Digital Era



FairPay is a revolutionary new logic for revenue relationships in our increasingly digital world -- it was designed to make for-profit digital business more effective, but also promises to dramatically enhance revenue generation for non-profits

The Internet has given new power to consumers. FairPay accepts that power and works with it to shift relationships from a short-term, zero-sum focus -- one that no longer works effectively for anyone -- to an ongoing win-win focus that seeks to maximize the co-creation of value over a relationship. It creates a new focus on the fairness of pricing and value propositions on an individual basis -- an "invisible handshake." This FairPay handshake is particularly relevant to non-profit services. What better sector to benefit from the fairness and cooperation that FairPay elicits? 

A museum example

I joined the Whitney Museum not long ago, and was offered a complex menu of membership levels and optional features:
  • There was the usual set of levels based on number of people and features to be included, with a set price for each.  This made it easy for me to pick a level, but offered only a crude basis for the museum to seek more share of wallet.
  • There was also a "Curate Your Own Membership" program that let me choose from five series of premium features -- with any one included, and added ones offered for $40 each.  The five series were billed as Social, Learning, Insider, Family, and Philanthropy, with a short phrase explaining the apparently non-overlapping of features in each. That was a nice touch, adding some of the spirit of FairPay, in that it was meant to enable me to better customize my value proposition. The problem was that they made me an offer I couldn't understand. Not having been to any of their events, and not knowing the exact topics, how could I know which I would want? I doubted I wanted enough to buy extras, so just picked one that sounded OK. Great willingness to customize the value proposition, but not very effective at it.
The core problems: unpredictable value, and need to set prices in advance, in ways that cannot be expected to match well to value.

Before looking at other examples, let's dig a bit deeper on the issues here. The problem is there is no real dialog about value, so no real optimization of the value proposition. I have been to the museum several times since joining, and have had no real interaction with the organization. They must know my attendance record, and that I have gone to none of their special events, but I have no hint of that. If they want a bigger share of my wallet, they are not targeting me well at all.

With FairPay, the membership price could be set based on usage, with 20-20 hindsight (maybe every three or six months) -- after I use whatever services I please, and get a usage report that reminds me what I used (exhibit visits, extras from any of the five event series) along with an itemized suggested price from the museum, tailored to what I used and what is known about me (maybe visits were 30 minutes or five hours; some at peak times or not, some to sold-out events, student/artist/senior, etc.). 

The museum could instead offer "post-bundling," a way to create ad-hoc packages of services on demand, at prices that build in personalized volume discounts. That could encourage me to try more services, and to pay more, to the extent that I found them valuable. Even with just a simple form of this kind of "post-pricing," the extras from all five series at the Whitney might be offered to me at per-event prices, but with volume discounts based on number of events attended in a given pricing cycle. That way I need not guess in advance what I might like, and would take no risk of being wrong, (There could even be "roll-over" provisions to smooth over the arbitrary period boundaries, just like "roll-over minutes" on cellular services).

A win-win customer journey with a loyalty loop centered on value

Such post-pricing is an important foundation of FairPay, which adds other key features to generate rich customer journeys that center on win-win value. Modern marketing has come to realize that the key to success is not in individual transactions, but in maximizing return business. Transactions roll into customer journeys, and creating "loyalty loops" in those journeys brings the return business that maximizes Lifetime Customer Value (LCV). FairPay drives those loyalty loops to center on value, to fuel deeper and more effective relationships.

FairPay does this by combining post-pricing with a new supercharged variant of Pay What You Want (PWYW) pricing. Non-profits often apply PWYW principles to donations, but in the digital age, even profit businesses are finding PWYW can sometimes be surprisingly effective. FairPay adds a new balance of powers to make this more effective. The new balancing factor is that the consumer pays what they think fair, knowing that the organization will track that, and make or withhold future offers depending on how fair the price seems to them, based on full consideration of the particular situation. 

Continuing our museum example, with full use of FairPay, the price schedule would just be suggestive (the PWYW aspect). The museum could highlight the value I actually got, based on actual usage data and report that with its suggested price. If I were a regular who came to value the programs, that would be evident to both me and the museum from the usage data, so we could converge on a fair price for what I used. If I went often, the price should be higher. If I ended up just going occasionally, we could settle on lower prices, but still keep me as a supportive patron with a sense of belonging and patronship, at whatever level seemed appropriate. That would still make me more likely to visit than a single-shot set-price pay-as-you-go alternative, and thus more likely to pay something, and more likely to consider a more generous level of payment/donation. Of course at first my price setting might be unduly high or low, but the museum could nudge me toward a good understanding of value and fairness by adjusting the level of perks in its offers (or terminating the privilege of FairPay membership, requiring me to adhere to a conventional price schedule).

(A very similar example of how this can work is described in my post on FairPay pricing for premium tiers for the NY Times -- journalism has much similarity to non-profit cultural enterprises.  Another post takes a broader look at the issues for journalism that are also very relevant to non-profits.)

For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

The big picture -- How "customers" make non-profits sustainably win-win

Consider the spectrum of non-profits, from more service oriented to more charity oriented:
·         Co-operatives that operate much like a business, but with all profits shared by the members.
·         Professional organizations that may offer publications, conferences, certifications, and other benefits
·         Cultural organizations such as museums that may offer exhibits, facilities, and events.
·         Secular or religious organizations that may cover a wide spectrum of direct services like food, housing, schools, hospitals, and museums, and have a wide mix of direct customer recipients and indirect customer benefactors.

"Customers" are central across this spectrum, but with variations in expectations of how pricing applies:
·         In traditional for-profit business exchange, customers are generally expected to pay enough to sustain the enterprise. (But even here, there are social values, such as in the business of journalism, and more generally in various "social" and "environmental" bottom lines, and in "benefit corporations.")
·         In non-profits that deliver services for fees, direct customers are expected to pay for services, but often with the help of subsidies from benefactors (indirect customers) who give donations to make those services more affordable.
·         In pure charities, direct customers may not be expected to pay at all, and benefactors are needed to donate enough to sustain that.

FairPay provides new and better way to address the complex issues of pricing and sustainability across this spectrum.  Consider how this works for the two different (but often overlapping) kinds of customers:
·         Recipients -- direct customers of direct services (the mission). Here, pricing takes on two interrelated dimensions -- what is the fair value of the service, and what is the fair contribution from the recipient (to both the cost of the service, and to the added overheads needed to sustain the organization).
·         Benefactors -- indirect customers of indirect services (the altruistic value of supporting services to others, and the value of being a benefactor, including perks and recognition).  Here, the key dimensions are the value of services to others enabled by the benefactor’s donations, and the value of indirect benefits to the benefactor.
The details will vary with the type of customer and the nature of the organization and mission, but the essential task is the same -- to generate sustaining revenue by setting prices that make the value proposition be "win-win."

Of course these factors are difficult to quantify in any precise and objective way, but the beauty of FairPay is that it puts value into personal terms, with all of the nuance of human evaluation. Value setting need not be precise, as long as it is done through flexible and open dialog.
·         Organizations can frame the value they think they provide in terms of whatever metrics are available (and the metrics are becoming increasingly meaningful)
·         Customers (direct or indirect) can respond by factoring in whatever aspects of value they think important, including their perceptions of what is reported to them, plus any positive or negative factors they think important, including ability and willingness to pay. Multiple choice options (with some interpretation of free-text comments) can enable this to be automatically scored and factored into assessments of whether customer-set prices are fair.
·         The organization can offer "carrots" to encourage generosity, and gently withhold privileges or perks when "sticks" are needed.

FairPay provides a dynamic, emergent process for both sides to learn how to make the relationship maximally win-win. That can bring the organization more customers (recipients and benefactors) and get more share of wallet (the amount that the customers can justify and afford to give).

FairPay was developed because the invisible hand of Adam Smith no longer works well in the digital world. FairPay turns instead toward this new invisible handshake -- an agreement to work together in good faith to build a relationship that is win-win.

If non-profits cannot justify support of their mission on the basis of fairness, what basis do they have? If fairness is the basis, what better process for justifying support than FairPay?

Making it happen

FairPay processes are not difficult to build and put into trials, but still require a degree of effort that might challenge the technical resources of smaller non-profits. This represents a major opportunity for a shared platform that can be used by many non-profit organizations. For example, Tessitura Network is a consortium of over 500 arts and cultural organizations that provides a common e-commerce and CRM infrastructure. A shared FairPay platform (and shared tracking of fairness) could benefit many of its members.

I am working on FairPay as a pro-bono project, and would be happy to assist non-profits in exploring how it might work for them. (I can be reached at fairpay [at] teleshuttle [dot] com.)

Tuesday, June 7, 2016

My Forthcoming Book on "FairPay: Adaptively Win-Win Customer Relationships"


Enterprises everywhere are recognizing the need to be more customer focused, but struggle to see how.  This new book explains a revolutionary approach to pricing – FairPay -- that can change the game.  FairPay is a new logic for conducting ongoing business relationships that adaptively seek win-win value propositions in which price reflects value.

I am very pleased to report that this book is in production, to be published later this year. It will be part of a series on Service Systems and Innovations in Business and Society, curated by Jim Spohrer and Haluk Demirkan of The International Society of Service Innovation Professionals (ISSIP), and published by Business Expert Press (BEP).

Jim saw the potential of FairPay, and how well it is aligned with the service-related innovations he and his colleagues at IBM and ISSIP are championing. He asked that I write this book, drawing on the material in my blog. I look forward to seeing it published in the coming months.

The full title is FairPay: Adaptively Win-Win Customer Relationships. It pulls together a wealth of material from the blog plus new additions. The book has sections that are very pragmatically focused on how FairPay works in specific industry use-cases (as an alternative or complement to conventional freemium subscriptions, paywalls, and other methods). It also addresses the conceptual foundations in marketing, behavioral economics, game theory, and related areas.  It explains how FairPay can solve critical problems in pricing, value propositions, and customer relationships -- with a focus on the digital content and services businesses now in the throes of digital disruption, but also for other businesses.

I hope readers (both early followers and those new to these strategies) will find this not only a useful introduction to FairPay, but also a thought-provoking perspective on the broader issues of modern consumer commerce and how to make it far more win-win.

Some of the new material in the book will be featured in added blog posts over the coming months.

I will be providing updates about the book on this blog as it approaches publication.

Background:

Business Expert Press is a leader in concise and applied learning resources, and partners with Harvard Business Publishing

ISSIP is an organization founded by IBM, Cisco, HP and several Universities with a mission to promote Service Innovation for our interconnected world.

Jim Spohrer is IBM Innovation Champion and Director of the IBM University Programs World Wide,

Haluk Demirkan is Professor of Service Science, Information Systems & Supply Chain Management, and the Founder & Executive Director of Center for Information Based Management at the Milgard School of Business, University of Washington (UW) -Tacoma

[Updated 9/10]

Thursday, March 24, 2016

How Blendle Could Do Much Better with FairPay

Blendle has made impressive progress, but still has some serious issues to face with its model. FairPay shows how it can do much better.

This news aggregator that just launched its US beta, after success in the Netherlands and Germany, bills itself as "a Spotify, Netflix, or iTunes" for news, and has major funding and publishers behind it.  I wish them well, and hope they will adapt improvements along the lines suggested here.  I have addressed many aspects of selling news in this blog (see some links below) but let's focus on Blendle.

The heart of the issue is the inherent flaw of a set-price micropayment model (that apparently does not offer volume discounts). According to the Wired report, "Newspaper stories will cost on average between 19 and 39 cents per article, while magazine stories will cost on average between 9 and 49 cents." For light users who want a variety of stories, or even just one or two stories from a publication that is locked behind a paywall, that is a good deal. But for moderate to heavy users, the meter will be clicking away, and the bill will get to be pretty hefty. If one news story in a month costs say 25 cents, should 100 stories in a month cost $25, and 500 in a month (just 17 per day) cost $125? That gets expensive fast, and clearly subscriptions offer much lower unit prices.

Subscriptions are less exposed to bill-shock, but subscriptions have other issues -- they are too expensive for light users and give away too much for heavy users.  My post, Beyond the Deadweight Loss of "All You Can Eat" Subscriptions, explains how neither subscriptions nor micropayments result in prices that are economically efficient and fair for a wide range of users. (The references by Shirky and Odlysko cited at the end of this post specifically address the problems with micropayments in more depth.)

A fundamental flaw of set-price micropayments is that there is no volume discount or pricing sophistication of any kind -- so total billings become unfair and prohibitive to your best potential customers.  That creates inefficiency, lost sales, lost profits, and unhappy customers -- and is something that can easily be fixed.

As a first and relatively easy step, is to provide volume discounts. Why not offer volume discount tiers on Blendle, so that unit costs decrease with volume (across all publications). There might even be a cap on billings. All that takes is appropriate agreements with the publishers and a little added programming. As we know, subscriptions offer the ultimate volume discount (all you can eat), and usage related charges for such items as cellular voice minutes and data bytes are routinely discounted (if not unlimited). Consumers hate the ticking meter, and the risk of nasty billing surprises, and discounts are only fair. Neither costs nor value increase linearly with usage -- why should prices?

That would be a great improvement, but there are still serious issues, How different readers read different stories is not equal, nor is the value they get from them, or their ability to pay. How about readers who skim many stories versus those who linger over a few? How about some who are well-off and gain significant value from financial news versus a struggling retiree who just wants to manage his small nest egg?

Blendle points to its emphasis on journalism versus commodity news as a point of value, but there will still be huge variations in quality and perceived value. The instant refund option is a very nice feature, but far too all-or-nothing. [Update below.]

As a second, and more advanced step, Blendle could use the FairPay strategy to let readers have a say in how much their news is worth to them. As explained in the Overview and other posts on journalism, FairPay does this in a relationship-centered, participatory way that that customers buy into.
  • It structures a new kind of balance of powers that works over a series of transactions to build a relationship.  A consumer is selectively granted new power to set prices, but the seller decides whether to continue granting that power to that consumer. The relationship continues as long as both are satisfied.  This operates as a repeated game to motivate mutual fairness. 
  • This feedback control loop creates a new logic for adaptively seeking win-win value.  At heart, it provides a way to radically simplify value-based pricing to work in mass consumer markets. It builds stronger customer relationships, for greater profit, from a wider market.   
FairPay can give the effect of volume discounts as well as reflect the variations in value noted above. Shirky observes that "users want simple and predictable pricing." FairPay suggests a different way to skin that cat --  not 100% simple and predictable, but close enough, because it offers prices that the user has significant say in.

As a third, intermediate step, Blendle could offer a reverse meter. This could let users who want lower prices get credit for accepting ads. Blendle pitches its freedom from ads, but for some, ads might be a benefit. Similarly, users who share stories virally could get credit for that. This too could be done as a simple add-on, but the added flexibility of FairPay pricing builds in a unified process for factoring in a continuous range of such value factors.

It seems Blendle is off to a promising start, but until they address the issues raised here, I expect their business model will take them only so far. By adding the steps I suggest, I expect they will be able to grow much larger and faster.

---
Notes

Some related posts:
For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Background on micropayments

Those who have followed the long history of micropayments as the panacea that keeps failing, are familiar with two classic articles, both titled, "The Case Against Micropayments," first by Clay Shirky in 2000, and then by Andrew Odlysko in 2003. Blendle may have solved some of the issues of friction, but as I have noted, others relating to discounting, bundling, and the behavioral economics of value remain. The steps I suggest may help Blendle, and others, solve the rest of those issues.

----- [Update 3/31/16:]  Further notes

I should have included some points made in my earlier post that added comments on Blendle and aggregation:  "...Why should my incremental cost for one more article be very low (actually zero) if I am an average subscriber on an unlimited usage subscription plan, but high if I have the same activity level using a micropayment system? The incremental charge for an added article should be very small (once beyond some minimal level of volume). The reason consumers hate micropayments is this constantly ticking meter – if we cannot make the meter go away, we must at least make it tick very softly."

Also, I should have noted that FairPay reputation data can be especially powerful when collected by an aggregator across multiple merchants or suppliers, as for Blendle. The balance of powers in FairPay can be controlled by the seller to be as relaxed or strict as desired as to what level of consumer generosity is demanded to gain access to offers. For an aggregator like Blendle, different publishers could apply different policies, depending on their strategy for how inclusive or exclusive they wish to be (demanding of premium prices or less demanding, and more open to a wide market). Even for publishers new to the aggregator, the ability to apply reputation data obtained with respect to other publishers served by the aggregator provides a way to target offers to consumers they as yet have no direct experience with (working much like credit ratings).

[Update 4/27/16:] Refunds are too all-or-nothing!

Some early testing reinforces my view that the refund feature is a good start, but much too binary.  On viewing a WSJ article, I get a header link that says "$0.49 - No good, money back guarantee." which leads me to this pop-up at the right.

What if I just skimmed the first couple paragraphs and then moved on? -- should I pay the same as if I studied it and saved it?  What if I thought it was OK, but not worth the full price? Or if I thought it was great, and wanted to add a bonus?

In my case, I already have a WSJ subscription, so why should I have to pay at all?  (I assume both Blendle and WSJ would both like to know that Blendle email caught my eye before the WSJ did, and that the cost of supporting that is not very high. If I should pay anything at all, it is much less than $.49.  I could not even tell is was a WSJ article until I clicked into it because I don't download images in my emails.)

And what if I ask for refunds too often? Will I get slapped?

FairPay would give me a say in how much I paid.