Monday, June 23, 2014

Interview: FairPay -- Making Pay-What-You-Want Profitable and Sustainable for the Mainstream

Tom Morkes, author of "The Complete Guide to Pay What You Want Pricing," interviewed me about FairPay, as a bonus for readers of his excellent how-to guide.  FairPay draws on the increasingly popular PWYW pricing model and makes it "ready for prime time." FairPay builds on key aspects of PWYW in a way that can be highly profitable for mainstream businesses, not just a fringe strategy for Long Tail content or special promotions. The audio of the interview was recently make available for download separately, as well. Both are available from Tom (on a PWYW basis, of course!) at the links here:
Tom's e-book and related bonuses offer a rich and useful guide to using PWYW, and are full of insights and experience on best practices for making it work.  PWYW draws on subtleties in human behavior -- it can be very powerful, but there is nuance to framing such offers, and making it profitable on a sustained basis is often difficult.

My interview focuses on FairPay, and how it builds on the core benefits of PWYW, and goes far beyond conventional approaches, to make it more sustainable and profitable, and scalable to large businesses.  Most uses of basic PWYW are for limited promotions. FairPay adapts it to be more predictable and workable for ongoing use -- whether on small scale, or for seller who aggregate items or offer ongoing subscriptions, even to the scale of Amazon or the iTunes Store.

Using Tom's PWYW Checklist as a nice starting point, I clarify how FaiPay adds a process that builds an ongoing relationship based on dialogs about value. Tom lists 11 steps to making a PWYW offer work.  I group Tom's list as follows, and add one more:

#1-4 are prerequisites to using these methods, both PWYW and FairPay:

1.  Identify a Competitive Marketplace
2.  Identify and Target a Demographic with Fair-Minded Customers
3.  Determine a Product with Low Marginal Cost
4.  Create a Product that can be Sold Credibly at a Wide Range of Prices
 
...And #5-11 enhance the process of using these methods, also relevant to PWYW and FairPay:
 
5.  Establish a Strong Relationship with Your Customer
6.  Clarify the Offer
7.  Show the Customer You’re Human*
8.  Appeal to Idealism
9.  Anchor the Price
10. Steer the Customer to the Right Choice
11. Remind Your Audience to Contribute

...To which, FairPay adds a new 12th step, to make it an ongoing, adaptive, individualized process:

12. Repeat offers contingent on fairness -- build continuing relationship and dialog

Doing that involves a number of component steps, as described in the interview and elsewhere on this blog.  (An earlier post provides some diagrams that may be helpful while listening.)  The interview also expands on the rationale for how FairPay applies to various business contexts, and the behavioral economics that show how it can be effective.

I hope you will enjoy this material, and will want to use FairPay to take your business to the next level.  Comments are welcome, and I offer free consulting to those with a serious interest in considering FairPay.

____________
[*Added note:  Even large corporations can emphasize their human values and the people behind them.]

Friday, June 6, 2014

Times Premier? [/Insider?] -- What is it really worth? ...FairPay can tell

The recently introduced Times Premier premium subscription service provides a nice case study of the problems with conventional pricing models for digital content, and how the more adaptive model of FairPay promises to do much better. [Update: Apparently Times Premier did not meet objectives and was re-introduced in 2015 as Times Insider. The differences seem insignificant with regard to the points made here.]

"For those with a curiosity that matches our own," the Times' pitch reads, but what I am most curious about is whether and how I would value it. ...And whether the value to me would be consistent, or highly variable and hard to predict.

The Times' metered paywall has been working better than many feared, but is obviously leaving money on the table from loyal, engaged readers who can and would pay more for Times' journalism and extras.

Premier attempts to capture that value, but, like the old "Godfather"-inspired joke, they have made me an offer I cannot understand.
  • It offers me a combination of new features, some in specific quantities.
  • I don't know what these are, have never seen many of them, have no idea if I will like them. And, even if I do like some of them, how many will I want in any given 4-week cycle?
  • Some sound interesting, and some not at all
  • Even after I have tried them, I expect my desire and opportunity to enjoy them will vary and might decrease over time
  • I may want more than the included number of some features, while having no interest in others
I can afford the extra $10 per 4 weeks cost,* but have no confidence I will value the service.
  • Maybe I might try it and, if not too disappointed, just continue to pay the $10 without much thought (as the Times might hope) -- but profiting from my inattention leaves me feeling exploited.
  • Alternatively I might try it for a while, then cancel -- even if I would be willing to pay something for the occasional feature -- leaving both me and the Times losers.
  • In any case, I feel little temptation to even bother -- again leaving both me and the Times losers.
The core problem is a rigid, one-size-fits-all pricing scheme for a time- and quantity-varying experience good that is offered to diverse buyers with different and time-varying needs.

I had previously suggested to the Times that FairPay offers a new adaptive strategy that is far more promising. As explained further elsewhere in this blog, this is how it might work:
  • The Times identifies me as a current digital and print subscriber, and offers to let me try Premier on a FairPay basis, as a "patron" of their quality journalism.
  • They "bill" me in arrears on a pay what you want basis, telling me for the past 4 weeks how much of each Premier feature I used, and advising me of a suggested price based on that usage and my history. The suggested price may reflect volume discounts and a maximum for "unlimited" use, and may have adjustments for students, disadvantaged, or affluent patrons.
  • They try to nudge me to pay well by reminding me of their quality journalism, telling me that others are paying much as they suggest, and offering added incentives.
  • I decide whether I think it is fair to pay as suggested, higher, or lower, and check off possible reasons for that. 
  • The Times weighs the reasons, considers my history, demographics, and usage, and decides how fair my price seems -- on an individualized basis.
  • After a period of probation, the Times decides whether to continue as is, bump me up to more privileged offers, or drop me from FairPay pricing and require that I pay the standard $10 per cycle if I want to continue Premier.
  • This dynamic adaptation continues indefinitely, as the product and the relationship change and evolve.
This has a number of benefits to both me and the Times:
  • It builds a true patronship relationship where I feel empowered, participate in real dialog about what I do or do not value, and build on my experience with the Times and my reputation for fairness.
  • It encourages me to recognize the value of what I get from the Times, and to reward them accordingly.
  • It lets me try Premier at no risk, but (optionally for the Times) with the understanding I am expected to pay, even for the first 4 weeks, if I find value in it.
  • Each cycle, I can pay as suggested based on my usage -- or more or less -- as I wish. 
  • If I have an occasional heavy usage cycle, I can apply whatever "volume discount" I like to avoid an unduly high charge, as long as I don't abuse that privilege.
  • If I thought the features were especially good that cycle, I can pay a bit more, and increase my fairness rating to show my "patronship" -- and earn more priviliges.
  • If I thought the features less good that cycle, I can pay less, and only harm my reputation and privilges if I make a habit of devaluing the product.
Some of the key benefits to The Times
  • They can get far more people to try Premier, and retain far more, for wider market reach and greater profit. Many may pay less than the standard $10, but some may pay more, generally in line with the value they receive.  The net profit can be higher, with a lower average price, but from more patrons.
  • Since Premier is a new offering, they would not risk cannibalizing existing revenues.  Even after it is new, an added FairPay option could extend its reach down-market, and add more premium revenue up-market.
  • They can build a deeper relationship with their patroms, based on this deeper empowerment, dialog, and experience. 
  • That can shift the relationship with the Times from quid-pro-quo business exchange norms to cooperative, communal norms, and fosters social values of fairness and reciprocity, both of which increase willingness to pay.
  • They can learn far more about what their patrons value and why.
  • They can justify different prices to patrons with different value propositions and abilities to pay.
  • They can start with fairly simple decision rules and liberal continuation criteria, and gradually add more nuance and discrimination as they and their patrons gain experience with the process.
Trying a radically new approach like FairPay has risks, and takes some effort, but I suggest that a FairPay version of Times Premier offers far more profit potential and far better relationships with the Times' patrons than the conventional version. Time will tell.


[UPDATE:]  I did try Times Premier, and cancelled after the four week trial. As I feared, the value of offers was very episodic, and a constant subscription price makes no sense when my usage and value varied widely from week to week or month to month (much of the time low). The insider features at the time were not of great interest to me (the David Carr item that was of interest came up weeks after I cancelled). The free e-books were only specific titles that were not the ones I would have been interested in. If I could have run-of-the-house access, and pay commensurate with what I actually found interest in (as FairPay would permit), I would have been very willing to be a patron. As far as I can tell, not very many others have found this offer attractive, and readers I have talked to about it saw little appeal.


__________________
*My print insert offer says $10, but the Web page says $11.25. The print insert offers a free 4 week trial, but the Web page asks for $0.99.  Seller pricing manipulations that are hardly endearing to patrons!