Overview -- Start Here!

Adaptively Seeking Win-Win
Beyond Freemium: How to Really Exploit The New World of Networked Commerce

FairPay is a new logic for conducting ongoing business relationships that adaptively seek win-win value propositions in which price = value.

It promises to transform how we do business in ways few imagine, because we have not come to grips with the fact that...

Traditional economics does not work for pricing digital experiences in networked markets:
  • Replication is nearly free -- The invisible hand flails without scarcity, and freemium just begins to exploit this -- meanwhile many consumers question why they should pay at all
  • Value is experiential, personal, and context-dependent -- Freemium totally misses this 
  • Relationships are the new marketing -- Freemium just scratches the surface
This has led to a crisis in many industries, and freemium is just one limited step in the right direction. It fails to exploit networked relationships to seek pricing that consumers can see as fair. 

FairPay literally changes the "game" of commerce -- from a series of independent one-time games of individual transactions, to a repeated game of relationship.

Building Profitable Relationships with FairPay

FairPay is a simple, but fundamental, rethinking of how businesses and consumers conduct business with one another.  It offers a new kind of architecture for approximating an optimal price that is personal and dynamically context-dependent, by building a deep relationship that is based on dialogs about value -- as described at high level in The Harvard Business Review Blog post: When Selling Digital Content, Let the Customer Set the Price.  

FairPay makes dialogs about value a central feature of a new kind of emergent learning relationship that becomes an integral focus of each customer journey -- to shape what people are offered, what they buy, and at what price. It moves from the mass-market tyranny of set-pricing to personalized, dynamic pricing -- in a way that uniquely develops trust, fairness, loyalty, and profit -- to maximize Customer Lifetime Value (CLV) -- and can factor in social values as well.  

This has the promise to transform many markets, especially digital media. Many have seen potential in participatory pricing, but seller control and predictability has been a big stumbling block.  FairPay makes this practical, controllable, and profitable for mainstream business use.  It does this by using structured dialogs (choice architectures) plus Internet-enabled tracking, to limit price-setting privileges to only those who price fairly over an ongoing relationship, and to guide consumers to price fairly.  These dialogs generate a whole new level of customer feedback on their experiences - and their real willingness to pay for them - as that evolves over the relationship.

FairPay embodies modern concepts of business as the co-creation of value by producers and consumers working cooperatively. It provides a new and empowering form of co-pricing (also known as participative pricing). It builds better customer relationships for greater profit from a wider market.

How it Works

FairPay re-envisions elements of freemium, paywalls, dynamic pricing, value/performance-based pricing, pay what you want, subscriptions, and loyalty programs, to provide a strong and sustainable customer revenue stream. FairPay solves the nasty problems of pricing digital products and other experience goods -- and does that in a way that assures customer buy-in. 

We have been conditioned to think only of seller-set prices (the price tag) or traditional negotiation (haggling over price) in a context of isolated transactions. FairPay introduces 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 a both are satisfied. This feedback control loop creates a new logic for adaptively seeking win-win value that grounds and enriches the customer journey.

>>>>>>>>>>>>"How FairPay Works" >>>>>>>>>>>>
The central process of FairPay is outlined in this sidebar 
(see more on how)
Why it Works

Behavioral economics: FairPay builds on extensive behavioral economics research to give sellers control of how much power to yield to buyers, depending on how well they pay over an ongoing learning relationship, to segment buyers based on their payment behavior, and to nudge them to pay generously, using structured dialogs and incentives. 

Many ask why consumers would pay if they do not have to, but extensive experience with "pay what you want" (PWYW) pricing shows that people actually do pay -- they want to be fair -- and the FairPay process adds strong motivation to pay fairly.

Game theory: Even the hard-headed homo economicus, the rational, self-interested utility maximizer of classical economics (not just the homo reciprocans of behavioral economics) will see the compelling logic of FairPay.  FairPay is structured as a “repeated game” in which it is worthwhile to pay up, to invest in reputation building, in order to maximize FairPay access to future purchases.  It is just a matter of careful and constantly adaptive game design to ensure that the game remains win-win (and that any losses from those who seek to play unfairly and then quit are limited to be acceptably small).

Basic economics: The most economically efficient prices are not uniform, but are customized for each consumer to the actual value they receive, and their willingness to pay for it. This is true in theory, and has been proven effective in high-end B2B businesses where actual value-in-use can be cooperatively determined and used in "value-based pricing" strategies. Doing that in mass consumer markets had seemed unfeasible, but FairPay now points the way to do just that, in a consumer-friendly way. (This contrasts to the deadweight loss of seeking to impose "artificial scarcity.")

Customer journeys:  Modern marketing practice is increasingly focused on fostering customer journeys that develop loyalty loops to maximize profitable repeat business. What better way to build strong loyalty loops than to center them on true dialogs about individual value perceptions?

Where it Works

FairPay promises to be useful for any product/service where low marginal costs apply, so a seller can afford to put a limited amount of product at risk in order to seek to build a profitable relationship with a consumer. This includes most forms of digital content (newspapers, magazines, music, video, e-books, games), software/apps, and services (of any kind) offered to consumers (or low-end B2B offers).  It can also apply to perishing items of any kind (much like Priceline and Groupon offers) -- and to more costly items, when used with a minimum price floor that ensures variable costs will be covered.

FairPay can be applied by individual content/service businesses, but gains economies of scale when applied across a platform serving multiple provider/seller businesses. FairPay builds a new kind of database on each consumer’s fairness and willingness to pay for specific value propositions – that can become a very valuable resource for targeting marketing offers. For platform providers, this creates a network effect in which this detailed reputation data can be leveraged across the platform to predict how known customers will respond to new sellers (creating a valuable asset much like a credit rating database).

FairPay can become a primary pricing model, but can be trialed and tested at low risk:

  • Retention win-back programs are a particularly promising place to experiment at low risk -- selectively using FairPay to seek win-win value propositions for customers who reject the standard offer (such as light users for whom standard set prices are just too high).
  • Customer acquisitionpremium tiers and loyalty programs are also good areas to begin tests -- or other selected product tiers or market segments.
  • FairPay is designed to coexist with conventional methods, which can continue to be used as the segments that respond well to FairPay are identified and onboarded.
How do I get FairPay?

I have been working on FairPay on a pro-bono basis, and am happy to explain the concepts (which I have placed into the public domain), and help companies develop applications of it, at no charge.

The concepts have been developed in depth and published. Key elements of FairPay have been proven in commercial use, but the full FairPay feedback control process has not yet been implemented in software. FairPay has generated wide interest, and discussions on implementation and trials of the full process are underway.
  • I have had encouraging discussions with a wide range of companies and industry experts, including both vendors (such as NY Times, News Corp, Disney, Spotify, Rhapsody, IBM, Verizon, American Express, and many smaller companies), platform providers (such as Salesforce and Zuora), and market research firms (such as Forrester and MECLABS).
  • My collaborators include prominent academic researchers who can assist in conducting and reporting on trials. 
  • My primary current objective is to develop opportunities to do proof of concept testing and refinement of the strategy, create effective implementations, and foster its wide adoption.   
  • Please contact me at fairpay [at] teleshuttle [dot] com for information and assistance. 

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