Wednesday, March 16, 2011

FairPay Pricing -- Some Process Diagrams

[See a simpler, big picture view in more recent 3/30/11 diagram post]

Here are some diagrams (work in progress) that seek to clarify how the FairPay Pricing process works. This first chart shows the core process:

  • Beginning at the lower left, a potential buyer is first presented with a FairPay Offer from a potential seller, subject to basic qualification criteria.  The initial offer is for basic services, as the buyer and seller get to know one another.
  • The buyer can accept the FairPay offer, with the understanding that it is on the basis of Pay What You Think Fair (= Fair Pay What You Want), with the price to be determined after initial use.  (The seller might provide suggested or reference prices, but those serve only as non-binding guidance.)
  • The buyer tries the product/service, and learns its actual value to him at that time.
  • The buyer is then reminded to set his FairPay price for that transaction -- to "Price it Backward" -- and invited to give any explanation that might be relevant (preferably in multiple choice form). The seller might include a report on usage and suggest an individualized value-based price, to help frame an anchor price.
  • The seller tracks that price and any explanation, and relates it to any prior history for that buyer to determine a FairPay Reputation for the seller.
  • Based on that price and the FairPay Reputation, the seller decides whether to make further offers (now or in the future).  This can be done at various levels of granularity -- for example, in a simple two product tier case:
    • If the price is considered Low-Fair, basic offers are continued. 
    • If the price is considered High-Fair, offers are continued, and even better premium offers might be extended (including higher value products/services, more time to try before pricing, etc.).  Use of a premium tier gives added incentive for the buyer to pay the maximum he thinks fair.
    • If the price is considered Un-Fair, the FairPay privileges are revoked, and the buyer goes back to the conventional pay wall (at least for a time).  That gives the buyer an incentive to be at least minimally fair. (Note that such downgrades can be handled gently, such as with a probationary period in which the customer is warned that more favorable pricing is needed to maintain the FairPay privilege.)
This process is generally best applied in combination with conventional fixed pricing (as with a pay wall).  That gives a clear alternative, and clear consequences for not paying at a level the seller can consider to be fair.  It establishes a clear reference price to use as a starting point for FairPay pricing considerations (it need not be taken as a minimum, since there may often be good reasons to pay less).  The conventional pricing remains a real alternative for any buyers for whom the FairPay process is ill-suited or unappealing.  Such a combined process is shown below.


As described elsewhere, this simple approach can take on many forms, and provide great amounts of flexibility and adaptability. (And of course good marketing communications skills should be applied to framing the operation of this choice architecture in the most customer-friendly light.)

The diagrams below seek to look at the bigger picture.  First we start with a simple conventional "soft" pay wall, with limited free product, and a fixed pay wall for usage beyond that (such as for a newpaper subscription).  As shown, there might be multiple tiers of services, with a higher fixed price for the higher tier:


Then we add a FairPay Zone above that:


Here we hide the details of the FairPay processes, and simply show it as a fuzzy FairPay Zone, with prices running along a spectrum.  The idea is that there is no longer a fixed pay wall with fixed prices, but a flexible spectrum of prices vs. products/services, that adapts to whatever the buyer thinks to be fair...as long as the seller accepts that as fair.

Presumably, once a buyer is invited into the FairPay Zone, he will want to retain the privileges that go with that, and will seek to keep the seller satisfied, so that privilege is not revoked.  (And when this is not the case, the extent of abuse can be limited.)  This balance of forces increasingly converges over time to enable the seller to obtain the maximum price that each participating buyer thinks fair, and thus to maximize revenue over the entire addressable market.

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