A Platform for Teaching Men to Fish -- "Revenue-as-a-Service" for Non-Profit Impact

Fund development of a platform that enables non-profits to sustain themselves

Give a man a fish and you feed him for a day;
Teach a man to fish and you feed him for a lifetime.

The same applies one level up:

Fund teachers of fishing and you feed their teaching for some days;
Fund a platform that supports teaching men to fish and you feed all of them for all of their lifetimes.

This could be a very high leverage opportunity! Making a transformative new tool widely available and affordable.

Foundations and others who fund charitable service organizations face a huge problem:

• Current strategies for funding non-profit services have yet to exploit the power of digital relationships to transform how they work with their customers and donors.
• Digital technology is already enabling transformative tools, especially for businesses on the leading edge of relationship commerce. Businesses are shifting to recurring revenue models, managing customer journeys and loyalty loops, and the most enlightened are engaging in dialog the brings a mutual focus on co-creation of value. The FairPay framework described in this blog and elsewhere supercharges value-centered relationships, and applies to non-profit organizations  (NPOs) as well as for-profit businesses.
• But non-profits lack business sophistication and can rarely afford to put resources into developing, testing, and applying similar methods to their relationships. The FairPay framework can transform revenue management at a full range of levels, but much of this potential remains out of reach for many organizations. 
• Meanwhile foundations and others are looking for ways to support worthy non-profit organizations, and for ways to make those services more cost-effective in their funding and operations.

***Note that much the same applies to news organizations that struggle to sustain socially valued journalism -- even where there is a for-profit element.***

"Revenue as a Service" for Non-Profits -- platforms as a universal leverage point

Viewing this from a systems perspective, this opportunity appears: Fund development of a platform to enable non-profits to sustain themselves by drawing more systematically on support from their community of customers, patrons, and donors. This can provide leverage across a broad swath of service organizations.

• Non-Profit Organizations (NPOs) -- as well as others, such as news providers -- need a systematic, ongoing way to obtain funding to sustain their operations.
• That can now be done in very sophisticated ways -- and that sophistication will be constantly increasing -- drawing on advancing technology. 
• The FairPay framework outlined here suggests a path to transformational improvements in relationship-based revenue models. 
• Doing that will take skills and resources that may not be economically feasible for small or even mid-sized organizations (even if they would pay back handsomely).
• That is just the kind of problem that "Software as a Service" was designed to solve: a platform provider (whether for-profit or non-profit) can develop, operate, and continue to enhance a high quality service that non-profit organizations can outsource to. 
• This can bring economies of scale and network effects to solving the problem of nurturing revenue relationships with large numbers of patrons. (Venture capitalists love platform businesses because of their scalability and high return on investment.)
• The impact of a non-profit platform could be so transformational that such projects should be very attractive to the charitable foundations that support non-profits and/or journalism. (VCs might be concerned that profit potential of such a platform may be limited by the tight budgets of the NPOs that would use it -- all the more reason for foundations to step in.)

Such a platform would provide "Revenue as a Service." Just what is that outsourced service?:

• The platform provides the common base of operational software services (based on marketing and behavioral science, technology, and systems analysis), that can facilitate relationship-based revenue management strategy and execution for each of many organizations. Build it once, use it many times. Spread the cost of research, development, and support across many client organizations.
• Each of those client organizations can retain full control -- setting all the key policies and retaining control of all exception handling. Each decides on all the parameters that define how the system works for them (the platform service may offer suggestions to guide that). Each  gets to have its people handle all human-to-human contact (but can outsource parts of that as well).

There are some existing models for revenue platforms for NPOs. They range from cooperatives like Tessitura, to for-profit services like The News Project, and less structured services for recurring crowdfunding like Patreon. FairPay provides methods for making such services far more powerful, across a far broader range of NPOs. The paths forward are 1) to add advanced FairPay features to existing platforms, or 2) to create new platforms that are clearly focused on FairPay strategies.

"Impact Data as a Service" -- platforms as instrumentation

Funders not only want to get good results, but to get the data to validate whether they are in fact succeeding in that. Common platforms lead to common data and metrics, and common reporting practices.

FairPay drives organizations to increase the quality and frequency of their operational dialog with their community, creating a new level of impact data. Platforms that manage and add new layers of communication with an NPOs's customer/donor community will create new kinds of fine-grained data and metrics -- on just what services are consumed by whom, with what outcomes, how those are valued by those individuals, and how they add value to each community member -- interaction by interaction, over the lifetime of the relationship.

• That creates a new level of rich data on just what services were consumed and the impact they achieved. 
• That enables the organization to be more dynamically adaptive and self-tuning, to maximize their co-creation of value with their community. 
• Funders can use that data to manage their funding and maximize their own impact.

The following sections explain how this is achieved.

The heart of the platform opportunity -- the FairPay framework

FairPay is a radically innovative framework for relationship-centered, “customer-value-first” revenue strategies for the digital era. Its varying forms can be adapted across a wide spectrum of business contexts, both for-profit and non-profit.  (It is an open architecture in the public domain, not a product, and I am working on this as a pro-bono project.)

The original focus of FairPay was on advanced strategies for sustaining for-profit enterprises (especially for digital products and services) -- but the framework spans non-profit services as well, and can be even simpler to apply in non-profit contexts. The core strategies of FairPay have gained recognition in business and scholarly publications. It has strong foundations in behavioral economics, and sheds light on many knotty issues and perverse incentives that are often poorly understood.

What can FairPay do for service organizations? FairPay provides a framework for applying elements that can be mixed and matched to provide a powerful solution to engage customers and donors, and build ongoing relationships with them in a way that motivates them to cooperate in sustaining services that they value. (I use the term "customer" in the broad sense, as including those served as wells as those who donate, regardless of whether they are overlapping or distinct sub-groups. The term "patron," in its broad sense, also conveys that inclusiveness.)

• Modern behavioral economics has shown that people want to be fair and even generous when asked in the right way to support a service they find valuable. 
• Game theory teaches that relationships can operate as repeated games, and that well-designed repeated games that are rewarding motivate cooperation to continue the game. (Subscriptions and memberships are forms of repeated games, sometimes well-designed, sometime not so well-designed.)
• Marketers have learned that they can build profitable recurring revenue businesses based on ongoing relationships (a simple form of repeated game) rather than one-shot transactions, and are beginning to apply the lessons of behavioral economics to enhance that process. They are managing customer journeys and loyalty loops, and engaging in dialog the brings a mutual focus on co-creation of value.
• FairPay adds more advanced elements to the mix, and combines them to re-align the repeated game to maximize cooperation in creating lifetime value. FairPay builds on transparency and trust to build relationships. It applies empowerment of stakeholders (to show trust), dialog about value given and received (to achieve transparency and motivate willingness to pay to sustain that), and reputation (to sustain trust). 
• FairPay works best when the business can position itself as a benevolent and fair partner in value co-creation that is worthy of the "price" it needs to sustain the relationship.
• Non-profit organizations can apply the same methods, and are more naturally seen as benevolent and fair partners in value co-creation.
• Therefore non-profits have more power to motivate fair contributions from their "customers," and therefore they are able to yield more power to their customers than for-profit businesses are. 
• That enables them to make contributions voluntary (as is already common practice, but not yet effectively managed with modern relationship-building tools). Such voluntary forms of the more advanced methods of FairPay are relatively easy to apply. 
• These methods center on regular and ongoing dialogs about value that remind customers of the value co-creation they have benefited from (looking backward to what has been experienced, not just promised for the future), how much they have contributed to sustaining that, and what more can and should be done to add value (in whatever forms are agreed to) in this relationship. That points to what else of value can be done. 

The FairPay framework informs an architecture that can enable NPOs (and journalism organizations) to enhance their revenue-related operations -- to apply the latest business systems, methods, and communications media in a way that optimizes their relationships with their "customers" (again, including donors) to maximize their ongoing sustaining revenue. 

• This process applies a new kind of leverage -- as a self-adapting engine to create real and valuable impact, measure its perceived value, and adjust the process to do even better.
• From this perspective, the FairPay framework clarifies how little most businesses and NPOs are currently doing to maximize that, and how much more they could be doing.

More detail on just how this FairPay framework works follows, but first, what does it take to make it happen?    

The platform that supports teaching men to fish

A basic platform for bringing these tools to fund-raising and revenue operations could be built in stages. This is a natural candidate for applying an open source strategy (or a cooperative) to become self-funding beyond a certain initial pump-priming:

1. Do a basic proof of concept. This could demonstrate the synergy of the combined elements and make the case for further investment. It might take something like 1/2 person-year in total, split between technology and business analysis.
2. Enhance that to a "minimum viable product" level to be a useful service for a large number of organizations.
3. Facilitate cooperation of that user community to continue further development, and to attract experts to aid in developing and testing more advanced methods.
4. Build all of that out into a vibrant, self-sustaining platform ecosystem (much as has been done with other platform or SaaS services like Linux, Mozilla, and Wikipedia).

NPOs (and/or news organizations) could then use this platform to get far more effective and sophisticated in managing their activities as a revenue-generating business, in ways that deepen their social contract with their community.

(As noted above, existing revenue platforms might also be enticed to take the lead in adding FairPay features.)

The FairPay social contract

FairPay works by creating a new social contract for sustaining the creation of desired services.

Consider this change in the game:

• From today’s conventional repetition game: “Here is our requested price/donation, take it or leave it. We hope you will take the risk — and be satisfied enough to continue this game.”
• To the FairPay game: “We will grant you the power to pay/donate what you think fair for you after each period of service — we will remind you of the services you got (or funded for others), and will encourage you to pay/donate accordingly.”

This voluntary form of FairPay relies on dialogs about value to frame the value proposition, and to remind patrons of the value they received. It empowers them to determine the "price," engages in transparent dialog about the value that the price should relate to, and tracks reputation to build trust and to know how to nudge fair levels of support.

• It draws on all available information on when and how services are actually consumed by each patron. Increasing availability of fine-grained usage data will make that increasingly meaningful.
• It may seed its dialog with individually-calculated suggested prices based on the value and cost of those services. (Even if services may be offered to some at no charge, it may be fair to gently nudge others who have greater means to pay for those services for themselves (and others) as they can afford.) 
• It regularly solicits payments to sustain ongoing services in an open and transparent way, framing and managing the dialogs about value to remind patrons of the value they (and others) got, and what and when they have paid in the past to sustain that, why they should now pay again, and what new value to expect. 
• It learns which patrons are fair or even generous in their corresponding payments, so that they can be most effectively nurtured, and resources can be directed to serving those who most appreciate the value offered.  
• It can suggest additional benefits (perks, tiers of services) based on how fair or generous the customer is. 
• In selected uses, it can also withdraw benefits -- for-profit businesses can use that "stick" to enforce fairness, but non-profits might stick to more positive "carrots" (but might still use "sticks" in limited situations).

That is how it drive revenue operations, building on that basic social contract. This is simple in in its core concept, but it is amazing how few organizations engage in real and regular dialogs about value with each customer at this fine-grained level.

• Engaging an NPO's community on what it offers each of them, what each of them values, and what it needs in the way of support from each of them is the way to build strong sustaining support, enabling it to co-create the maximum value. 
• Some managers fear getting customers to think about value and price, and some fear that customers will not be willing to engage in such dialog. But behavioral economics shows that customers are far more responsive to productive dialog about value and price than most businesses realize (my latest journal article cites a number of compelling studies, and the most relevant are listed in my Resource Guide). 
• Managers also tend to forget how much their value propositions vary from one community member to another. (A simple thought experiment can help recenter on the importance of these individual value propositions.) 
• That, in turn, enables a funder to leverage its impact -- the value it co-creates with its NPO portfolio and each member of their communities.

There is of course much more to how this is done, and it will vary greatly from context to context. Background on these variations is in my previous post, The Elements of Next-Gen Relationships and Pricing -- A Unifying Framework. It provides this summary table of the elements, and then comments on each:

 (with minor updates 10/27/19)

The columns to the right show that while most of these elements are applicable to both for-profit and non-profit organizations, the details will vary, and it will further depend on the level of trust and cooperation in the customer segments to be addressed.

As indicated, most non-profits currently use fewer of these elements than for-profit businesses, but greater use could improve their results (including increasing the satisfaction and generosity of their community). This presents a broad opportunity for a platform to make it easy for non-profits of all sizes to gain leverage.

Again, the clearest difference from how FairPay is used by for-profits is that fairness will often be left as voluntary, to be gently nudged with positive "carrots" rather than enforced with negative "sticks" (such as the revocation of privileges). But motivating fairness should be relatively easy for non-profits, since they can readily point to both the individual value and broader social value of their cause. (And non-profits can generally avoid the most complex element of FairPay, the business logic and policy issues of revocation or other negative incentives.)

The foundational elements are already used to some degree in many contexts, to build on the power of ongoing relationships. Now the amplifying elements can be added in and combined, to bring new synergy to revenue operations.

The general implication of the differences across columns is that the more advanced elements of the FairPay framework are most effective when the parties are perceived as holding up their side of the social contract:

• for service providers who are perceived as offering real value and warranting trust and commitment from customers/patrons for being fair, transparent and responsive to their value creation needs and desires.
• for customers who are perceived as fair and honest about communicating their needs and desires, and being fair (even generous) in making contributions to sustain that desired value creation. 

Concrete use-case examples

If this still seems abstract or unclear, please see my other posts with more concrete details of how FairPay applies in specific use-case examples:

• This example of membership based on the Whitney Museum.
• This example of membership based on the Metropolitan Museum.
• This example of reader-funded "patronship" for journalism (and many other discussions of journalism are linked to from the Business Use Cases section of my list of selected items).

Simpler "80/20" solutions with the same platform

Organizations using this proposed Revenue as a Service platform need not use its more advanced features, except as they are ready and wish to. The platform can be configured to deliver just the features each organizations wants. Thus it can provide a service that scales gracefully, from very basic, to very advanced.

One very important simplification of FairPay can serve as a high-leverage 80/20 solution in both voluntary and payment-required contexts. That is the "risk-free" subscription model that relies on post-pricing (after the experience). That can be done without using any of the participative pricing elements of more advanced FairPay solutions (and need not even exploit nudging). That is less of a departure from traditional set-price subscription or membership pricing. But unlike the high hurdle of an all you can eat, fixed price membership paywall, it works as a gentle "pay ramp." (This, too, is explained in my Elements post, and the Whitney and Metropolitan Museum use-case examples listed above.)

Similarly, the platform, itself, can be built in stages, beginning with the more basic elements, then gradually adding the more advanced ones.

Crossing the lines between donors and those served

As explained in my 2016 post on non-profits, FairPay provides new and better way to address the complex issues of pricing and sustainability across the spectrum from donors to those served.  Consider how this works for these two often overlapping constituencies:

·         Recipients -- direct customers/patrons 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 to them, and to the added overheads needed to sustain the organization -- and optionally to the cost of service for those who can less afford it).

·         Benefactors -- indirect customers/patrons 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 direct services to others enabled by the benefactor’s donations, and the value of the indirect benefits to the benefactor.

The details will vary with the type of customer/patron and the nature of the organization and mission, but the essential task is the same -- to generate sustaining revenue by cooperatively setting prices (for service or donation) that make the value proposition "win-win." (That also includes recognition of non-monetary contributions by those who give in kind.)

The platform as a universal leverage point for achieving impact

The problem that limits the uptake of these methods is the implementation effort, and the need for ongoing testing and refinement (including "devops," the work of enhancing and maintaining the operation). Fund a platform for that, and many more organizations will be able to teach men to fish -- or give them fish -- or whatever other good works they do. The platform is a universal leverage point.

A platform solution across many organizations also has other kinds of economies of scale and network effects, beyond simply outsourcing that service. FairPay dialogs about value generate valuable data about exactly what each customer values at a fine-grained transaction level, as well as reputation data about the fairness of each customer (and how that varies with context). While that data is sensitive, if managed with care it could potentially be used in win-win ways to help guide service providers to engage with those customers who most value their service (for a single service provider, or across all the service providers that use the platform, subject to appropriate privacy controls). That can lead to more effective co-creation of value for everyone.

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Posts that are specific to non-profits and social welfare:

• A Better Revenue Strategy for Non-Profits in the Digital Era
• Making "Pay As You Wish" More Equitable -- Sustaining the Met Museum (and Others)
• An Invisible Handshake for The Digital Wealth of Nations
• How Market Commerce Can Become More Cooperative, Fair, and Human
• Turning the Invisible Hand to Create Shared Value -- The FairPay Strategy

...and focused on journalism:

• Patron-izing Journalism -- Beyond Paywalls, Meters, and Membership
• What Lies Beyond Paywalls -- A Better Way
• The Missing Piece of the Membership Puzzle -- Agreeing on Value for Each Member

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[Update 4/14/20:]  An excellent article on how one platform service, Network for Good, is bringing some of the relationship-building methods I describe here, is How NonProfits are Doubling Down on Relationships with Subscription Giving. The article is by Tien Tzuo president of Zuora, who wrote the excellent book, Subscribed, that I reviewed in 2018.

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More about FairPay

A concise introduction is in Techonomy, "Information Wants to be Free; Consumers May Want to Pay"

For a full introduction see the Overview and the sidebar "How FairPay Works" (just to the right, if reading this at FairPayZone.com). There is also Selected items (including links to videos and decks). 

And these journal articles, A Novel Architecture to Monetize Digital Offerings and Pricing in Consumer Digital Markets: A Dynamic Framework. 

Or, read my highly praised book: FairPay: Adaptively Win-Win Customer Relationships.

(FairPay is an open architecture, in the public domain. My work on FairPay is pro-bono. I offer free consultation to those interested in applying FairPay, and welcome questions.)

Podcast: FairPay as a New Logic for a More Human Economics - a Wide-Ranging Conversation

A podcast of a very wide-ranging interview of me by Jeff Saperstein is now online. Jeff nicely steered our conversation to briefly highlight not only the basic ideas of FairPay and how it can change business-to-consumer relationships, but also how this bears on many broad issues of current concern about how market capitalism works for people -- as customers, workers, and citizens.

(Jeff is co-author of Interconnected Individuals and a companion Web site that hosts a series of podcasts. He is a career coach with a background in communications and marketing and a focus on values. Our discussion was on 4/22/19, and we covered a lot in 38 minutes!)

Here is a sampling of what we covered ...from the basics:

There is growing unease with how market capitalism is failing society and workers.  FairPay begins with a focus on unrecognized issues in how conventional economics no longer works for digital content and services. That leads to new perspectives on business more generally.

The invisible hand flails: "information wants to be free," but it also "wants to be expensive." Current pricing models for content -- all you can eat subscriptions -- increasingly fail to serve all but the most voracious consumers. Digital services companies fail to see that "artificial scarcity" is a short-sighted response, in direct conflict with the overarching shift of commerce from isolated transactions to recurring revenue relationships based on value and loyalty.

FairPay and related value-based solutions offer a practical new logic for creating and sharing value.  The full, customized, participative FairPay solution leads to consideration of true value in its fullest aspects, combining the complementary perceptions of both the provider and the customer over the course of a developing, evolving relationship -- but still fitting within the familiar context of individual business to customer relationships.

"Risk-free" subscription models build on the same value-centered principles, but are even simpler to understand and apply. While not as fully risk-free to the customer, they leave the provider in full control of pricing -- so may be more readily adopted by businesses, while still providing significant benefits on both sides.

This perspective also casts light on the good and the bad of "dynamic" pricing -- as currently done secretly by providers in ways that customers view as manipulative, compared to more cooperative and transparent new forms.

...to the broader implications and potentials:

The FairPay perspective also sheds new light on how our platforms and social media have lost their way, with perverse incentives to serve advertisers to the detriment of their users. It points to how better business models can refocus them to serve what their users value. One part of that is giving users credit for their attention and data, making ads more win-win for consumers, advertisers, and publishers/platforms.

We explore how shifting to value and fairness-based pricing can harmonize fair exchange down the value chain -- to more fairly compensate the people who work to create the value we consume.

We also talk about how this can work across the value chain -- to let provider-direct and aggregated offerings coexist harmoniously to serve varying needs without perverse economic conflicts.

On the broad logic of capitalism, we speak about how the logic of FairPay can better align shareholder profit with customer and community value -- to incentivize businesses to create value in the broadest senses. Businesses will find reason to focus on lifetime value to the customer  (not just the long-term but self-serving metric of "customer lifetime value" to the business).

We speak of empathy for customers as an intrinsic element of this broad logic of value, and how capitalism can refocus entrepreneurs and investors on creating wealth for all of us. Behavioral economics and related research shows that people are wired to cooperate in creating value. Market economics can be the most effective way to do that once we re-learn how to build on that at scale -- "to re-mold it nearer to the heart's desire."

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More about FairPay

A concise introduction is in Techonomy, "Information Wants to be Free; Consumers May Want to Pay"

For a full introduction see the Overview and the sidebar "How FairPay Works" (just to the right, if reading this at FairPayZone.com). There is also Selected items (including links to videos and decks). 

The Journal of Revenue and Pricing Management, "A Novel Architecture to Monetize Digital Offerings" provides a scholarly but readable overview. 

Or, read my highly praised book: FairPay: Adaptively Win-Win Customer Relationships.

(FairPay is an open architecture, in the public domain. My work on FairPay is pro-bono. I offer free consultation to those interested in applying FairPay, and welcome questions.)

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 set 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 reliably 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.)

[Update 1/24/18: A further example explores how FairPay can make the Metropolitan Museum's Pay As You Wish pricing policy more fair for both patrons and the museum.]

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.)

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[Related post, 1/24/18: Making "Pay As You Wish" More Equitable -- Sustaining the Met Museum (and Others)]

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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.

(FairPay is an open architecture, in the public domain.)

How Consumers Can Nudge Corporations for Good

Richard Thaler raised some interesting points about The Power of Nudges, for Good and Bad in a NY Times opinion piece on 10/31. "Nudges, small design changes that can markedly affect individual behavior, have been catching on" he observes, and then explains his concern that "Many companies are nudging purely for their own profit and not in customers’ best interests."

He concludes the piece with this observation (emphasis added):

As customers, we can help one another by resisting these come-ons. The more we turn down questionable offers like trip insurance and scrutinize “one month” trials, the less incentive companies will have to use such schemes. Conversely, if customers reward firms that act in our best interests, more such outfits will survive and flourish, and the options available to us will improve.

I take that as a nice statement of the power of FairPay, a new framework for choice architectures designed to use the power of nudges to adaptively seek win-win value propositions, and to directly reward firms that work with us to serve our joint best interests.

• Using FairPay, firms and consumers can jointly create a virtuous cycle in which the consumer nudges the firm to understand what they value and are willing to pay for, and the firm rewards those consumers who work with them by delivering more of what those consumers show that they value. 
• This builds customer journeys around cycles architected to build a mutually beneficial relationship of service, value, profit, and loyalty.

From this perspective, the appeal of FairPay is in how it deepens the relationship between a firm and its consumers to be more open and responsive, and shifts focus toward value -- in context, in the broadest sense, over the life of the relationship,

• It not only channels the nudges from the company to the consumer, but also creates a framework for nudges from the consumer to the company. 
• Consumers who use FairPay fairly will get the most value, and companies who use FairPay effectively will attract and keep the most profitable and loyal customers.

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Background

The core dynamic of the FairPay choice architecture is described in the sidebar and the broader implications are discussed throughout this blog. (Check out the Overview, and More Details.)  Some posts of particular relevance to nudging for good:

• Thinking Fast and Slow about FairPay: A New Psychology for Commerce in a Networked Age.
• Making Customers Want to Pay You -- Research on How FairPay Changes the Game
• Turning the Invisible Hand to Create Shared Value -- The FairPay Strategy

So Last Century! - It's Time to End the Tyranny of Set Prices

We think we know what a price is, but new kinds of markets require new kinds of prices. A price has a function, and that function has changed.

We recognize that electronic markets and digital products have created a new age, but we seem to not recognize that these markets and products need a radically new approach to pricing. FairPay is a new concept of what a price is for these new markets.

Expanding on ideas in Harvard Business Review, Marco Bertini and I have co-authored an article, "A Novel Architecture to Monetize Digital Offerings" that has been submitted to a leading journal for publication [now published in the Journal of Revenue and Pricing Management*].

Conventional thinking about prices is blinded by a mind-set that we all grew up with and take for granted -- but that is actually a historical oddity. As we observe in the article:

Throughout most of the history of commerce, price was the outcome of a negotiation between individual sellers and buyers. Different buyers achieved different prices depending on their current situation, needs, and bargaining power. In other words, prices were very personal.

Starting in the 1850s, however, the shift to mass retail shoved this tradition aside. Shoppers no longer bought from individuals, but from organizations interested in standardization and scale. Indeed, the price tag gained popularity in the early 1860s with the arrival of the department store—John Wanamaker, the trailblazing American merchant and religious leader, opined that if everyone is equal before God, then everyone should also be equal before price. The company dictated terms, with prices set to maximize profit or some other objective and offered to the market on a take-it-or-leave-it basis.

Now that commerce is shifting back to personalization, it is interesting that one of its central ingredients, price, lags behind. Businesspeople appreciate that prices should be fitted to people’s personal valuations as they once were, but there is no real agreement on how this comes about.

Our suggestion seeks to undo the tyranny of fixed prices while retaining the efficiency inherent to institutionalized commerce...

Specifics of how and why to do that are explained in the article (preliminary version online at SSRN). Additional background is in other posts on this blog.

To be clear, our answer is not to try to somehow go backward to automate traditional negotiation. Instead we need to go forward with new ways to build relationships based on human values in a world of electronic markets and digital experiences. What we need is a totally new concept of what a price is, how it is arrived at, and why.

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Article abstract:    

The shift of commerce to the digital domain has forced many organizations to rethink their attitude to value creation, at times backtracking to the very question of what “value” actually means. Electronic commerce facilitates and thrives on social interaction, yet the way companies convert digital anything into cash they can bank seems to be stuck in time, obeying rules and practices that may have worked for physical goods but make far less sense today. We believe that earning revenue in the digital age needs a fresh approach. This short article seeks to lay the foundations for such an approach and proposes FairPay as one viable alternative.

*The text here may not reflect final edits in the published article.

[Update:] Short NPR Video: The History of the Price Tag
This is worth watching as an amusing perspective on how the price tag was introduced and took hold. It emphasizes how haggling became impractical as commerce scaled with department stores, but glosses over the human dimension that was lost with this "take it or leave it" solution.

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More about FairPay

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.

(FairPay is an open architecture, in the public domain.)  

(My work on FairPay is pro-bono. I offer free consultation to those interested in evaluating and applying FairPay, and am happy to address questions.)