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.)

Making "Pay As You Wish" More Equitable -- Sustaining the Met Museum (and Others)

The Metropolitan Museum of Art in NYC stirred up a lot of heat and raised some interesting questions when it announced a partial end to its "pay as you wish" (= pay what you want, PWYW) admission policy earlier this month. Under financial pressure, it is ending PWYW admissions for all but residents of NY state (plus students from NJ and CT).

The underlying issue is how can a museum build relationships with "patrons" that are fair and affordable, while encouraging them to be true patrons, paying what they can afford to sustain the museum. Modern technology enables new ways to solve this knotty problem, but few have begun to exploit that.

An industrial strength variant of PWYW -- for profits -- and for non-profits

While for-profit businesses currently tend to fear giving any pricing power to customers, PWYW works surprisingly well in many situations. PWYW is common in museums, and has become popular for digital content and services (and has other well-established uses such as tipping). What I suggest is that the Met -- and others -- look at how to make it work better.

My work on FairPay points to new technology-enabled strategies to make enriched forms of PWYW "ready for prime time" -- by balancing pricing power more fairly on both sides in an ongoing relationship. FairPay was developed for for-profit businesses, but it is very well-suited to non-profits, such as the Met, as well.

FairPay membership relationships

My post from last year, A Better Revenue Strategy for Non-Profits in the Digital Era, explains how FairPay (short for Fair Pay What You Want) can change the game in ongoing patron relationships.

• The idea is to seek to personalize a level of payment that is fair and affordable to each patron, and to motivate each patron to pay at that fair level. 
• The problem is that patrons have very different value propositions -- different levels of usage, of value obtained, and of willingness and ability to pay.
• Addressing that variability is facilitated by shifting to a relationship view: from one-off admissions, to the total being paid by an individual patron over an ongoing period. 
• This shifts all sides from a transaction mind-set to a relational mind-set -- and turns price-setting into a repeated game that centers on value instead of price, and encourages cooperation, transparency, and trust. 
• That relational mind-set builds mutual dialog and engagement -- which is good for both the museum and the patron. Technology enables this to become far stronger.

FairPay works much like a membership, but with fully personalized pricing that adapts to the value each member gets, as well as their willingness and ability to pay. Because FairPay is highly flexible and adaptable in its pricing, it can work for anyone who is likely to make repeat visits. It can provide for free or low-price admission in cases where that is fair, given the circumstances -- and enable simpler forms of premium patronship for those willing and able to provide greater financial support to a cause they think worthy. (Another post explores FairPay memberships in more depth: The Missing Piece of the Membership Puzzle -- Agreeing on Value for Each Member.)

Even for institutions not ready to move to FairPay, understanding the principles behind it suggests a direction to move toward (as encapsulated by the thought experiment described in another post).

From visitors to members ...to become true patrons

Of course many who visit the museum will be one-time visitors. FairPay is primarily aimed at ongoing "member" relationships, and that was the focus of my prior post on non-profits. However, FairPay can be adapted to address the issue of new and one-shot relationships, and to provide a smoother path from visitor to ongoing patron. That leads to pricing that is both more win-win, and more economically efficient -- raising more funds from more people.

Much of the negative response to the Met's PWYW change is about how it may reduce access to disadvantaged visitors. FairPay's flexibility in customizing relationships adapts to patrons with both low and high ability to pay.

Here, I sketch out some suggestions on how a new visitor might be addressed with FairPay, and highlight some of the underlying principles.

• The idea is to invite those who want to pay less than full price -- as well anyone who expects to be a repeat visitor -- to join a special "FairPay patronship program." 
• This can work for any visitor who is willing to build a relationship that is more value-centered, even those of means -- many of whom might pay at premium levels, just as in other membership programs.
• While this may not be well suited to the out-of-area visitors now being excluded from the PWYW policy (at least those who will not visit regularly), it offers a way to get more, on a more cooperative basis, from those who are still permitted to pay as they wish. (And it should be able to pass muster with NYC as being no more onerous to those who cannot pay than the current PWYW policy mandated by the Met's lease of public parkland.)
• It also provides a tool for the Met to build a direct relationship with the many visitors who have not joined as members. Membership now costs $100 for unlimited visits (if within 200 miles) versus the suggested $25 per visit.
• FairPay provides a smoother and more rational range of value propositions -- less that $100 for those who might visit 2-3 times per year, and a basis to suggest those who visit many times per year should pay more, if they can. Instead of pre-set bundles of perks for higher level memberships, FairPay can provide for individually customized on-demand bundling.

FairPay relationships generate personalized prices and value propositions based on the following key principles:

• Post-pricing: set the price after the experience, when the value of the experience is known. That eliminates the patron's pricing risk (the risk that the experience is disappointing). Note that the Met has little pricing risk at an individual level (since its marginal cost per person is near zero), only the overall risk that the aggregate pricing level (over all people) is too low. [See update at end on "risk-free membership" as a partial step toward FairPay.]
• Post-bundling: a further aspect of post-pricing -- enable the patron to select the package or bundle of services they desire, one piece at a time, when they know what they want -- not as some pre-set package that is arbitrarily bundled (often with undesired pieces that are not used, as in the Met's current $200 and $600 membership bundles).
• Participatory pricing: get the patron involved in setting a personalized price that they consider fair and affordable for them. That avoids misunderstanding the value proposition (as they perceive it), and helps build a deeper and more cooperative relationship. Some patrons will push for lower prices, while some can be "nudged" to pay more than now suggested.
• A repeated game: shift the focus to the continuing relationship, rather than the one-shot transaction, to focus on value rather than price, and to draw on human values of cooperation:  fairness, reciprocity, trust, and altruism (especially powerful for museums and other public services).

Together, these principles lead to prices that are fair for each patron, whatever their level of activity and their ability to pay.

The repeated game of relationship

How does this game work?  Think of it as something like "running a tab," but with a new kind of cooperative price-setting process. See the diagram (fully explained in another post, with some basics here):

1. Visitors seeking this FairPay admission would join as "FairPay patrons," providing and confirming their email (and maybe presenting a credit card for validation only, with no payment), thus beginning a basic, ongoing relationship with the Met. 
2. They could immediately be given a membership card (or an app) with a coded tag that allows tracking of their entry and exit times (and which exhibits they visit).
3. After their visit, the Met would email them to request a payment -- reminding them of how much time they spent, and any special exhibitions visited, with a suggested price for them. The Met would emphasize the importance of the patron's financial support to maintain its offerings, and emphasize the benefits offered to ongoing patrons. 
4. The patron could then "pay what you think fair" -- and indicate the reasons why they feel it is fair to pay less (or more) than the amount that had been suggested for them to pay. They would be free to be unfair and not pay much (or at all), but that would be tracked. Note the important difference between "pay what you think fair" and "pay what you wish" -- the emphasis is on fairness, not whim. 
5. On their return for another visit, the card or app could be used again on the same terms -- if the holder is in good standing, based on their prior usage and payment history. Thus repeat visits would be enabled, with all payment requests for that month processed together. 

Note how tracking visits provides a way for the Met to make the value obtained more evident, and more personalized. These repeated visits could be discounted on a sliding scale to work much like an annual membership, but still be priced to reflect individually varying levels of activity. There could also be cap on total payments in a given year, as with conventional memberships.

But unlike conventional memberships, it could be made clear that those who visited often, and for longer times (and visited premium exhibits) might be expected to pay more than those who visited less. Similarly, students, retirees, and other categories with limited means might be empowered to claim discounts (with more flexibility and privacy than at a ticket window). Conversely, visitors who can afford to pay more could be "nudged" to do so. Seniors and students who are affluent could be discouraged from seeking discounts.

Another important benefit these methods would provide to the Met is that new visitors are immediately brought into an email-based relationship with the museum. That has numerous obvious benefits.

There are strong behavioral economic underpinnings to making this strategy fair and sustaining -- this should be primarily "carrots," but there are also some "sticks:"

• Some might try to abuse FairPay and not return, or could return with another email address. But FairPay's tracking process makes such abuse harder -- and more conspicuously at odds with maintaining one's own positive self-image. 
• Such abuse might have results similar to the current PWYW policy -- but probably for fewer people, and less aggressively -- and abusers could now be tracked and cut off from repeated abuse. (Enforcement of fairness criteria could be lenient, or as whatever level the Met and the city agree to be appropriate.)
• Other methods proven by behavioral economics could be applied to nudge patrons to pay fairly, and even generously. 
• More direct, proactive programs could be applied to encourage participation by the disadvantaged (or others) -- and even to encourage them to volunteer non-cash support that might be credited toward their membership obligations.

Thus total revenue should be higher than with the current PWYW policy -- and relationships should be much stronger.

Naturally the Met would want to test this to learn how to manage the process well, starting with selected segments of visitors who can be expected to be most deserving and appreciative of this increased level of cooperation, transparency, and trust.

From visits to relationships, from price to value

FairPay is all about building value-centered relationships, and being smart about how to motivate and value such relationships. Technology is providing much more powerful ways to do that than ever before.

The institution's challenge is to exploit these new ways to make museum pricing work better for all of us -- whether with full forms of FairPay, or with partial steps in that more win-win direction.

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[Update 7/11/19]: For an important "80/20" variant on FairPay, see "Risk-Free" Subscriptions to The Celestial Jukebox? This outlines a simpler solution to the Met's membership offer that does not get into the participatory pricing of a full FairPay solution described above, but makes simple $100 memberships "risk-free." Why not offer a plan that starts with a first visit, tracks member visits, and guarantees a refund at the end of the year for any unused visits (less than the break-even level of four)?  Of course there will be some revenue loss from the refunds. But how many added memberships would there be? How many additional members would keep renewing if they did not fear they would lose money by doing so? What is the value of the added connection to all those additional members who would otherwise just be anonymous visitors (and the value of all the activity data you can continue to obtain about them)?]

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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.)

Price Discrimination for the Good!

"Higher prices in an affluent area help bring healthier meals to a poor neighborhood" reads the teaser for an interesting NYTimes article, which goes on to report on a 2:1 difference in prices between two Everytable restaurants only two miles apart in LA:

The big price difference represents an unusual experiment to address the persistent issue of limited food choices in poorer neighborhoods around the country. The higher prices at the downtown store are effectively meant to offset smaller profits at the other location, making the lower-priced restaurant more economically viable.

The article includes comments from advisory firm partner Michael Kaufman:

To make it work, he said people would need to understand why prices are higher in one neighborhood than in another. ...“I think the key to it will be how they tell their story” 

FairPay applies similar logic -- in a more dynamically adaptive, emergent process -- to set prices based on an individual "invisible handshake" that applies a balance of powers to learn what value customers receive, and factor in their ability to pay to determine the fair share they should contribute the the profits that sustain a business. This was explained in my earlier post Price Discrimination Can Be Good!, which was triggered by the equally interesting, if less noble, example of Uber surge pricing.

One key point is that price discrimination is not inherently evil, as it is often viewed. It depends on how and why it is done:

• When price discrimination is done unilaterally by sellers, to extract maximum profit with no buy-in from customers it can be bad -- especially if done secretly in a way that is exploitative.
• When it is done with transparency and customer buy-in, based equitably on differentials in ability to pay and value received, it can be laudable, and customers can feel good about it.  

What matters is the openness and fairness of the process. As Kaufman said, "the key to it will be how they tell their story.”

This relates to the broader issue of the growing call for a more socially conscious capitalism, a "fairness economy." We want the efficiency of free markets, but with an awareness of social values and bottom lines that factor in people and planet. Many are seeking ways to to achieve that. FairPay points to a new and more powerful solution.

FairPay's invisible handshake is not just a feel-good image, but an operational process based on a specific balance of powers that shapes the "story" -- a process of dialog that gives pricing power to customers, but only as long as they use it in a way the seller agrees is fair. FairPay can be applied in a wide range of contexts, from those that today lack much social context (like TV), through those that have stronger social context (like journalism and indie music), to those with dominating social context (like non-profits and charities).

Engaging customers, telling the story, and building long-term relationships based on this invisible handshake promises to increase Lifetime Customer Value, to offer more profit, greater market share -- and more total value to society.

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).

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.)

Indie Games Generate $ Millions with Pay What You Want

For those that think there is no real money in Pay What You Want (PWYW) pricing, the growing success of the Humble Indie Bundle suggests otherwise. Their first four promotions have raised over $6.1MM,** with the last one just ending at $2.2MM [now much more**].  It has been reported that the venture behind these offers has raised $4.7MM in VC funding [now more**]. Their model includes payments to the game developers, the distributor, and charities including EFF.*

EFF has posted a nice summary, observing that "While the record labels, movie studios, and video game producers have not figured out a way to compete with free, others have...as the Humble Bundle has shown us, it is possible, with creators and distributors finding new and exciting ways to compete with free. ... when done right – developers, content providers, and even those who provide the business model can successfully compete with free." Additional details are in a Wikipedia entry.

All of this adds to my suggestion that FairPay (which augments PWYW with feedback processes that incentivise buyers to be fair to sellers, as described on the sidebar) can take this from a promotional tool to a mainstream business model for ongoing use.  Indie games and music are a great place to start, since that Long Tail content is where basic PWYW selling is already gaining traction.***

My previous post, How Indies Can Disrupt the Disruptor - A Disruptive Revenue Model for Music and Games, addresses this in more detail -- suggesting how indie distributors can take on iTunes to change the game, starting with the Long Tail, and moving toward the mainstream.

(*The charitable element is also a notable factor in the Humble Indie Bundle, at two levels. One is true charity, in the form of EFF and others. The other is a charity-like feature, in that the structure of the Humble Bundle revenue is for lightweight (and buyer controllable) contributions to the distributor, such that the significant share to the game creator ("developer"), analogous to the artist, musician, etc., provides a social-benefit motivation to pay -- rewarding the creator, and enabling further creation.  See other charity-related posts.)

Updates:-------------

**[9/21/14:  Wikipedia on Humble Indie Bundle reports this as a total of $30MM, in addition to $20 million to charity, as of 8/23/13.  CrunchBase reports funding of $9.2 million. Check there for further updates.] 

***[1/17/12:  For general insight into real uses and experiments see "Pay What You Want -- Still Crazy After All These Years?," and Wikipedia on PWYW.]

Pay What You Want -- Still Crazy After All These Years?

Pay What You Want (PWYW) pricing has gotten some attention in the past few years, but most people still view it as naively idealistic, only suited to very special situations. However, a growing body of research and actual usage is suggesting that it has much more potential value than most businesses realize, in a wide range of situations very different from that of Radiohead or a museum.

The Freakonomics Blog has paid some attention to this, and the greatest publicity for PWYW since Radiohead has come from the special PWYW preview offer for the Freakonomics movie.

PWYW is of particular interest to me because the FairPay pricing process described on this blog is a radical enhancement of PWYW that adds tracking and consequences to encourage buyers to pay fairly over an extended series of transactions. This encourages what might more accurately be called Pay What You Think Fair, to produce much better revenue and profitability. As described elsewhere on this blog and the companion Web site, this model offers many of the advantages of Freemium models, but in a more powerful, individualized, and dynamically adaptable form.
...But the point of this post is that plain vanilla PWYW, alone, is highly underrated.

To help make that point, and to encourage research into PWYW, FairPay, and other innovative pricing models, I have posted a Resource Guide to Pricing - Annotated links and references as a survey of this emerging body of exciting research.

I suggest that a whole new era in pricing models is just beginning, spurred by the capabilities of the Internet. A nice summary of some of these directions is in the book "Smart Pricing" by Raju and Zhang of the Wharton School, which has illuminating chapters on PWYW and many other innovative models. Two other notable books on pricing are also listed.

More specific to PWYW are some eight research papers published in the last two years, all of which find it to be quite effective in a range of situations, explaining a number of reasons why people actually chose to pay, and to pay reasonably well, even when they do not have to. One (the Gneezy paper) also looks at PWYW combined with a share of proceeds to charity, which was found to be particularly effective (and subject of an article on the Discover Magazine blog). Another (the Regner paper) focuses on a very interesting online indie music distributor with a PWYW model (combining a try-before-you-buy feature and a high revenue share with artists, both seen as enhancing payment levels).

While many of these papers are theoretical and written for academics, I suggest that business people would do well to give them a look (skipping over the heavy parts, and with just reasonable caution that many of these models and experiments are simplified).

I welcome feedback on this resource guide, and suggestions for additions -- it is a work in progress.

Also sought are researchers interested in doing studies of Fairpay.

Note to searchers: PWYW is also known as Pay As You Want (PAYW), Pay What You Wish, Pay What You Like (PWYL), Pay As You Wish, Pay As You Like (PAYL).

(Revised 10/6/10)
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[8/29/11 update:  The Wikipedia article on PWYW also has useful information, including links to articles on some notable real uses of PWYW.]

Doing Well by Doing Good with FairPay -- Shared Social Responsibility and Pricing

Adding charitable giving to the pricing process can significantly increase total revenue and profit. This was the finding of a paper in the July 16 issue of Science that was reported recently on the Discover magazine blog. The finding was for charity combined with Pay What You Want pricing (PWYW), but the lesson seems equally applicable to charity combined with FairPay. FairPay builds on PWYW by adding feedback on buyer pricing that lets sellers decide whether to make further FairPay offers, as explained in the sidebar to the right.

As reported, PWYW+charity yielded significantly higher total profit than PWYW without charity, and also more than either a simple set-price, or set-price+charity.

Individually, the PWYW buyers paid less than the set-price buyers, but far more of them made a purchase. In this case the product was a photo of the participant taken during an amusement park ride. Purchase rates were very low with standard pricing (at $12.95) and only slightly higher when 50% of that price went to charity.

As summarized in the Discover blog, "...But when customers could pay what they wanted in the knowledge that half of that would go to charity, sales and profits went through the roof. Around 4.5% of the customers asked for a photo (up 9 times from the standard price plan), and on average, each one paid $5.33 for the privilege. Even after taking away the charitable donations, that still left Gneezy with a decent profit."

"This is a substantial result, especially since it came from a real setting. The theme park that Gneezy used stands to make another $600,000 a year in profits if it takes up her sales strategy. And just to be sure, Gneezy confirmed that sales at a nearby souvenir shop didn’t fall on the days when she ran her study. These extra profits weren’t coming at a cost to retailers elsewhere in the park."

These results suggest that combining FairPay with charity could have even better results, possibly even with much lower levels of charity, and thus higher profit. The charity component encourages people to buy and to pay a fair price, and the FairPay feedback process provides even more incentive to pay a fair price. I suggest that FairPay without charity will also prove very effective, and be more widely applicable, but the combination certainly seems worth trying.

Gneezy describes this use of charity as "shared social responsibility," a variation on "corporate social responsibility," which gets to issues of how corporations seek to build a more collaborative relationship with customers. I suggest that the FairPay pricing process is a complementary way to build more collaborative relationships, and to do so more directly and efficiently. Whether the combination is more or less effective than FairPay alone, remains to be seen, and probably depends on the details of the situation.

The charity contribution percentage could be fixed as it was in this experiment, or it might be at a user-specified rate. One real-world example of a PWYW offer with a buyer-specified rate of charity is from Camel Audio (until the end of August 2010). The suggested price is $59 (which seems to be the usual list price), and the suggested charity contribution is 50%. My test indicates this Web offer restricts payments to being between $1 and $100, but that it allows charity rates up to 100%.

The results of the Gneezy paper also show how much of the addressible market can be lost under conventional pricing. Sixteen times more people bought photos when given the ability to pay what they wanted (but they paid poorly), so that is not so attractive. But nine times more people bought with PWYW+charity -- and they paid at a rate that tripled profits!

Trying new pricing models takes time, effort, and some risk, but it would seem that the payoffs might be very large indeed. Businesses struggling with revenue models might be risking much more by not taking the plunge.