by Richard Reisman
Today it is common, for most suppliers, to set a price and then for consumers to either accept or reject the offer. This has not always been the case as, until the mid-19th century, negotiation and bargaining were the main means of arriving at a price for most purchases. However, with the advent of retailing and retail stores, fixed prices largely replaced negotiating and bargaining practices. Although the advent of fixed pricing greatly simplified transactions and improved operational efficiency, it left little room for flexibility and the recognition that different customer segments, and different individual customers, are willing to pay different prices based on the perceived value of the product or service being offered to them.
Today, customers in all industries are shifting from being passive participants to active collaborators. This represents substantial opportunities to improve customer focus and address the enterprise’s key tasks of winning, keeping, and growing customers. The ideas in this book resonate strongly with me as a result of my long-term research work in relationship marketing and customer relationship management (CRM). This book offers a new strategy for operationalizing a participative form of pricing that promises to drive deep adoption and bottom line impact, especially in our new digital world. It embodies the lessons of recent decades of conceptual advances in relationship marketing, CRM, customer retention, pricing strategy, customer experience, co-creation of value, and value proposition design. The book provides a new logic—a new operational dynamic for maximizing lifetime customer value based on direct learning about what different customers value longitudinally over time.
This carefully researched work builds on recent behavioral economics research and business experience on participative pricing and shows how new pricing strategies can be used to achieve sustainable profitability in mass consumer markets. In the last decade in particular many consumer markets such as newspapers, music, and, increasingly, video are facing desperate straits. Traditional pricing models for such industries are becoming outdated as they do not reflect customers’ dynamic perceptions of value. The ideas in this book represent a new approach that can help enterprises maximize their most important asset—the lifetime value of their base of customers. This approach has the greatest likely utility for digital products, yet both digital and conventional markets can be expected to benefit from value propositions that seek to provide greater equity and fairness to customers.
Over the last decade there have been a number of developments in developing more flexible pricing approaches, including “pay what you want,” “freemium,” and others. The “FairPay” model takes participative pricing to a new level, where customers can experience and use the product or service offer before payment. As a result they are then in a much better position to determine a fair price based on their individual sense of value. This potentially represents a much more equitable distribution of value for both customer and supplier. Critically it provides a new basis for segmenting customers based on price, which permits a much more granular understanding of the different levels of value experienced by different customers. The approach outlined in this book enables suppliers to develop more focused and flexible value propositions that reflect the customer’s real willingness to pay. Customer involvement in pricing in this way can offer opportunities for enhancing relationships, building trust and an increase in fairness and commitment to one-another, with resulting increase in long-term customer value.
The “FairPay” model capitalises on the nature of digital services (and other experience goods/services) and can permit the power of computer-mediated, data-driven customer journeys to be unleashed through adapting value propositions to individual contexts over a relationship, working through new dynamic feedback/control processes. Importantly, it can co-exist with conventional methods but it can gradually displace them in those markets and segments where that is most advantageous. Most critically, by introducing the concept of the “long tail of customers” it shows how enterprises can benefit from those customers who are willing to pay more than the set price—as well as those customers who are not willing to pay the set price, but are willing to pay some reasonable price above the marginal cost. It has great potential to exploit automation, “big data,” predictive analytics, and advanced CRM, yet can be initiated with simple rules-based processing.
The author, Richard Reisman, is the president and founder of Teleshuttle Corporation. He is a highly regarded entrepreneur and inventor in digital content industries. Billions of users have benefited from his prior inventions. The “FairPay” pricing model, his most recent innovation, represents a bold new opportunity for companies to break the legacy bonds of “fixed pricing” and build customer relationships and long-term customer value through a more equitable form of engagement. This important new framework for equity-based pricing is worthy of strong consideration by businesses wishing to develop a deeper customer focus. It has great promise for enterprises wishing to transform business by enhancing customer relationships, loyalty, market share, and profits. Businesses and entrepreneurs should think about how to test and build on this innovation and gain the benefits of a first mover advantage.
Professor of Marketing, University of New South Wales Business School, Australia
Visiting Professor, Cranfield School of Management, Cranfield University, UK
Adrian is one of the foremost authorities on Relationship Marketing and CRM. He is author of fourteen books, including the first text to be published on Relationship Marketing (1993), and most recently Strategic Customer Management: Integrating Relationship Marketing and CRM (2013).