Updated version of presentation on new revenue strategy for digital and other experience goods/services. As described in my book and presented in HBR, at MIT Enterprise Forum of NYC, Zuora Accelerate, Naples Forum on Service, ISSIP, and elsewhere.

1. Richard Reisman
fairpay [at] teleshuttle [dot] com
1Copyright 2017, Teleshuttle Corp, all rights reserved
Rev 11/8/17
Video available here
(As presented 10/14/15 to
International Society of Service Innovation Professionals )
Harvard Business Review 11/18/13
Journal of Revenue and Pricing
Management (forthcoming)
FairPay book 9/16

2. ”The greatest danger in times of turbulence
is not the turbulence,
it is to act with yesterday's logic.“ --Peter Drucker
• FairPay -- a logic for tomorrow (…not a product)
• The FairPay Story
– Pioneering digital services for people since 1960’s
• Diverse businesses and roles – B2B and B2C, content and services
• >50 patents, licensed to >200 companies, for billions of users
– Steeped in disruption – business model crisis in content industries
– Saw a new way forward – simple new logic – deep implications
– Shifting the entire focus of customer relationships from price to value
• Mission: Change the world
– Save industries + Create new value (journalism, music, video, e-books, other)
– Human-Centered Markets – win-win values, convergent across profit spectrum
– Work pro-bono with business + academia on research, trials, applications
…seeking collaborators, evangelists…and offer free consultation
– You can help: spread the word, prove the concept
(More information at FairPayZone.com)
2

3. Toward the Revolution…
• Extensive conceptual development– online, book
• Extensive discussions with businesses
– Vendors (NYTimes, News Corp, Disney, Spotify, Rhapsody, IBM, American Express, Verizon)
– Platform providers (Zuora, Salesforce)
– Research firms (Forrester and MECLABS/MarketingSherpa)
• Key elements validated by behavioral economics
and emerging marketing theory
• Eminent academic collaborators to assist in trials
– Marco Bertini, Associate Professor and Department Chair, Marketing, at ESADE
(via Dan Ariely and Ayelet Gneezy) – HBR Blog, SSRN paper pending publication
– Adrian Payne, Professor of Marketing, University of New South Wales
Pennie Frow, Associate Professor, University of Sydney Business School
– Naples Forum on Service, Paper in preparation
– Heather Caruso, Director, Center for Decision Research, Booth School of Business, University of Chicago (via Richard Thaler)
• Trials? Behavior change – Find the sweet spots
– Limit risk and investment
– Low-hanging fruit – early adopters (begging for change)
– Delight (and profit from) some – then build from there
3

4. 4

5. 5

6. Monetizing Digital Offerings
in Networked Markets
• Dilemma: Pricing for information
– “Information wants to be free” (infinite replication)
– “Information also wants to be expensive” (creation)
• Answer: Re-think our value exchange process
– Not allocating scarce resources (no invisible hand)
– Still need to sustain creation
Balance value, ability to pay, cost, profit …How?...
6

7. Set Prices Are So Last Century!
Now taken for granted, but unnatural!
• Historically: Prices personalized
– Personal negotiation – human buyer and seller
– Personal contexts – needs, bargaining powers, relationships
– Communal norms (win-win): caring, fairness, even generosity
• Mid-1800s: Price tags / institutions (department stores)
– Institutional sellers to mass market consumers
– Scalable – simple, operationally efficient
– Exchange norms (zero-sum): take it or leave it, bargain hunting, exploitation
• E-commerce: Mass-personalization? 1:1?
– Why not price?
– End race to the bottom, commoditization – personalize a fair price for value
– How to do it effectively, efficiently at scale???
(See Set-Price blog post)
7

8. The Long Tail of Customers
Customers are not the same!
Customer experience is not the same!
8
• Green revenue: capped at set price
• Red head: lost surplus
• Amber tail: lost sales
…Dynamic and context-dependent
(see Long Tail blog post)

9. A digital “product”?
• Valued as an “experience good” – a service
– Not discrete, scarce “product”
– Access, entitlements, usage
– Personalized variations (items, time, intensity, volume, …)
– …all measurable – rich instrumentation in use – Cloud of Value
New data on value for each consumer
• Near-zero replication cost ( “Free”)
• “Free” as a selling tool (eliminate price risk to customer )
– freemium, pay what you want, tipjars, trials …
 Better: Embrace dynamic variability, control pricing risk
9

10. A key part of the answer…
Separate the Sale from the Price!
Post-Pricing
Why not price the experience after it is known?*
• Unlike typical up-front offers (Pay What You Want, etc.)
• Remove the consumer’s risk discount (or rejection)
• Signal supplier’s value and trust
(Timing aspects: packaging/bundling, usage levels, unit price schedules)
_________
*= post-pricing = ex-post pricing = price in arrears = price as you exit = price it backwards
10
–Thanks to John Blossom,
Shore Communications
(ContentBlogger)
“Pay as You Exit: FairPay
Explores New Content
Pricing Discovery
Regimes”
– Watch the episode

11. A Thought Experiment
Imagine an all-knowing Economic “Demon”*
• Read buyers’ & sellers’ minds
to learn value-in-use, value-in-context
• Know how used, liked, value obtained,
willingness/ability to pay
• Know cost, economic “value surplus”
• Arbitrate fair sharing of surplus
Set personalized and fair prices
---
• Practice: Better strategies
• Theory: Better insights
(*Like Maxwell’s Demon and Laplace’s Demon in physics) 11

12. Value-Based Pricing
for Consumer Markets!
• Prices based on actual performance/outcomes
• Proven effective in B2B markets*
– Win-win: Buyer and seller agree to share in the actual
“value surplus” – as co-created
– High economic efficiency, reduced pricing risk,
transformative competitive advantage, customer-first
– But: high pricing cost for custom analysis
• FairPay: a simplified, intuitive, automated
analog for mass B2C markets
• “Ladder of value”– ranking all pricing models
*See Value-Based Pricing Is Transforming B2B -- Now for B2C... and Finding Value in The Subscription Economy
12

13. Accept/buy/use
(before pricing)
(Buyer)
Set “fair” price
(after buy and use)
(Buyer)
Track price
(Seller)
Fair to seller???
(Seller)
Gated FP Offer
(selective privilege)
(From Seller)
Price it BackwardExtend it Forward?
(after trial)(limit FairPay credit)
FairPay Dialog Cycle
Continuous journey of adaptation – a new balance of powers – a “repeated game”
1. Set the rules 2. Set the price
3. Repeat the game?
*
* Can relax criteria in Voluntary Payment Mode ** Can restrict buyer pricing power for more conventional control
**

14. FairPay Value Discovery Engine
Continuous journey of adaptation – Frame/nudge/track
Seller-
gated
Premium
FairPay
Offer
Seller-
gated Basic
FairPay
Offer
Buyer
Accepts
FairPay
Offer
?
Buyer
Tries
Product
/Service
Buyer
Sets
FairPay
Price
Seller
Tracks
Fairness
of Price
High
-Fair
Low-
Fair
Un-
Fair
Buyer
Seller Sets Price
(take or leave it)
Buyer Accepts
Set-Price Offer ?
Buyer Uses
Product /Service
FairPay Zone (revocable privilege)
Conventional Set-Price Zone (Paywall)
14
Value/FairnessOffers
*
* Can relax criteria in Voluntary Payment Mode – no paywall (positive nudges only)
** Can restrict buyer pricing power for more conventional control
(Also a repeated game, but less cooperative and win-win)
**

15. Seller Control and Predictability?
Frame/nudge/track
• Managed dialog – “choice architecture” – fully personalized
– Seller: 1. Set the rules
• defines the offer / reports usage
• provides a suggested price personalized to that buyer’s usage
• frames the pricing rationale, and nudges with incentives (+, -)
– Buyer: 2. Set the price**
• sets FairPay prices (as a differential from suggested price)
• states reasons for their differential (multiple choice)
– Seller: 3. Repeat the game?*
• evaluates fairness of reasons – reciprocal value proposition
• frames new offers – manages FairPay credit and incentives
• Nudge buyers toward suggested prices – as fair exchange
• Test/review value propositions, offers, framing, incentives
• Start with those who will be delighted and fair…
15*Can relax criteria in Voluntary Payment Mode – no paywall (positive nudges only)
** Can restrict buyer pricing power for more conventional control

16. Aligning Price with Value
Pricing for the Co-Creation of Value
Intuitive blend of diverse factors, emerging over the relationship
 From provider to consumer (soft/fuzzy meter)
– Value-in-use / experience / outcomes
– Other “soft” value
• Service / support
• Participation / listening / responsiveness (comments, access to reporters)
• Social values / “triple bottom line” (investigative journalism, community)
 From consumer to provider (“reverse meter”)
– Monetary payments
– Other currency -- “Consumer” as provider of value to “provider”
• Attention to ads (customized levels) / Personal data to exploit (customized levels)
• User-Generated Content / Co-creation (eg: participatory journalism)
• Promotion / virality / leads
• Volume/loyalty discounts
Can extend through the ecosystem value chain
– Designations of value share to creators/suppliers (vs. intermediaries)
– Bonus contributions (split to creator/supplier)
16

17. A new twist of the Invisible Hand
…Creating Shared Value over relationship – a repeated game
17(see Invisible Hand, Invisible Handshake, and Customer Journeys posts)

18. Key Evidence and Enablers
• Behavioral Economics and Game Theory
– People are not heartless profit maximizers (eg: traditional, PWYW generosity)
– Traits: Fairness, reciprocity, altruism, self-image, acceptance, …
– Situations: Social/communal norms vs. economic/exchange norms
– Repeated game: Invest in fairness reputation to gain continuing privilege
– Treat me as a patron, make me want to be a patron
• Computer-mediated dialog (AI) – Customer journeys
– Facilitate automated dialog about what I value, on what basis …and act on it
– Engage me as a patron, show you hear/understand me
• Big Data + IoT + Predictive analytics (AI) – Cloud of Value
– Use data to validate customer dialogs about value, incentivize honesty
– Customize offerings and how they are framed
– Show that you recognize and respect my desires as a patron
 Adaptive, cooperative, “customer-first” relationships – “dialogs about value”
1. Segment based on fairness traits (social values) and value propositions
2. Foster social/communal norms (participation and dialog)
3. Nudge buyers toward fairness, perception of value, sharing value surplus
4. Motivate a repeated game that is win-win
18

19. Platform and Database Opportunities
• Single vendor – internal process solutions
• Cross-vendor – added leverage, information
– Shared infrastructure and processes
= “Pricing as a Service” (PaaS)
– New: FairPay Fairness Reputation Database
• Across vendors and contexts (fairness ratings + details)
• Use like credit rating database (FairPay credit line)
• Detailed value perception and willingness to pay data
Database asset / “Data moat” -- first mover advantage
• Interest by established platform vendors (Zuora)
– Plug-ins / SaaS
• Entrepreneurial startups???
19

20. Phasing in…
1. How much pricing power to yield to customers?
• Can limit FairPay to a contained niche offering
• Can build and apply in incremental stages
Level 0: Free Survey Mode
• Free – for value feedback only – no fairness gating
Level 1: Voluntary Payment Mode (much like tipping)
• Simple Pay What You Want / Pay What You Think Fair + Post-Pricing
• Pricing unrestricted by fairness – no fairness gating – but soft nudging
• Post-pricing (“as you exit”) based on value – makes PWYW more meaningful and fair
Level 2: Full FairPay
• “Gated” by seller (minimum fairness threshold) – most of the cost, complexity
• A “repeated game” – invest in reputation as fair, to keep playing
20

21. Phasing in…
2. Post-pricing only – maintains full seller price control
• Sellers may be reluctant to yield price control
• “Post-bundling” achieves post-pricing benefits,
retains full seller price control:
– Price as a bundle at period end (after use)
– Buyer gets run-of-house access (by category)
– Bundle price reflects volume discounts aligned with
unlimited usage plans (including price caps)
– Seller retains full control of price rate schedules
21

22. FairPay can be tested, phased in
“Toe-in-the-water” examples for News Subscriptions
Acquisition =“Fuzzy Freemium”
Paywall balkers? – special limited usage “trial”
versions, tie-ins, gamification, membership
”club”
Retention (Saves) low usage, low price
Premium “club”/“patron” segments curated, early access/new releases, quality,
downloads/offline use, added features
Usage /style segments
Limited usage?
low/high usage, low/high cost,
song frequency, …
Content segments: Long-tail / genre indies, back-list, genres
Device segments phones, embedded systems
Family Plans “seats,” concurrent use
“Deserving” sellers compensation to artist/creator
Trials, sampling, coupons, specials limited offers
Special branding distinct from conventional
Retention (Saves)
(Revenue recapture)
low usage, low price
Acquisition =“Fuzzy Freemium”
(Revenue from day one)
versions, tie-ins, gamification, membership
”club”
Premium “club”/“patron” segments
(Eg: NY Times “Premier”/”Insider”)
curation, early access, journalist access,
archives, downloads/offline, extra features
Usage /style segments low/high usage, low/high cost, alerts acted
on…
Content segments: Long-tail / genre investigative journalism, analysis, financial
insight, sports insight, crosswords
Device segments phones, embedded systems
Family Plans “seats,” concurrent use
“Deserving” sellers compensation to journalists, field reporting
Trials, sampling, coupons, specials limited offers
Distinct branding separate from conventional offering 22

23. Changing Consumer Behavior
Initial Sweet Spots
Back to the Future
– rebuild win-win social/communal norms and values
• Small segments / value-focused tiers – low cost/risk
• High generosity
– Superfans – loyal, perceive value
– Deserving providers
– High service / value-add – justify appreciation
• High cooperation
– Thrilled to share price responsibility
– Willing to bear burdens to do it right
…The thin end of the wedge of behavior change
23

24. Change the Game with FairPay!
From invisible hand to invisible handshake
24
• From: set prices
 shop for “bargains”  commoditization
• To: FairPay participative value exchange
 shop for value, relationship  engagement, loyalty
• Analogous to tipping
– Easy, intuitive, with rich multi-dimensional nuance
– Happily pay more than you “need,” often generously
• Delight your customers
– give pricing freedom, focus on value, gain loyalty
• Start with those who will be delighted and fair
 Emergent strategy
 Pricing “legitimacy”
 Higher profits + deeper market penetration (+ad $)
(See Handshake post)

25. Thank You
Call to Action
• Questions?
• Strategic cooperation? Trials?
• Spread the word…
(leads to vendors, platforms)
• FairPayZone.com -- Overview, Details
• Book
• E-mail Reisman: fairpay [at] teleshuttle [dot] com
----------------------
Additional Commentary Follows…
25

26. A New Cloud of Value
• Implicit signals of value
– Traditional + new IoT data (“E-Books are Reading You” example)
• New: Explicit expressions of value
– New, generate from FairPay “dialogs about value”
– Validate consistency with implicit signals
Adaptively win-win customer journeys
• Focused, flexible value propositions
– Match to customer perceptions, contexts, times
– Sell value: a positive experience (not focus on price)
– Build a relationship (not just customers, but patrons)
26

27. Climbing The Ladder of Value
Timing and Participation
• Value in use is best assessed…
– after use (timing = pre-pricing/post-pricing)
– with recipient input (participation = seller/both/buyer)
• Who takes on pricing risk?
– Digital sellers can afford to take the risk (cost near zero)
• Price/Value aspects:
– Packaging: who defines packages, before or after use?
– Usage levels: does pricing depend on actual usage?
(with fair volume discounts?)
– Price schedules: set by seller? – joint?– buyer?
• FairPay points the way up the ladder*
*Post-bundling as an intermediate example: post-packaging / discounted usage / seller-set price schedule.27

28. Usage/Value Pricing - Buyer-friendly
• Deadweight loss of “all you can eat”
unlimited subscriptions
• Soften the “ticking meter” / no shocking usage bill
• Price considering usage, but…
– Buyer decides, factors in:
• Usage history
• Volume discounts
(…with seller guidance)
– Soften the extremes – average out
Price tracks to value (with affordability)
Warm and fuzzy, good feelings
28
Advanced Economics:

29. “Price Discrimination” - Buyer-accepted
Economic optimum: price tracks to value
• Buyer “self-discrimination”  Legitimacy
(not imposed, not hidden)
• Engages buyers – a rewarding process,
centered on personalized value propositions
• Infinite segmentation, in all dimensions
– Context, ability-to-pay, usage, time, devices, users, …
…Price discrimination can be good!
when it is “value discrimination”
29
Advanced Economics:

30. A Flexible, Extensible Architecture
• Coexist with conventional pricing (segment by fairness)
• Tunable parameters (choice architectures)
– Gating, nudging, warning, dispute-resolution
– Up-selling, down-grading
– Liberal or tight control
very tight = conventional /… / very liberal = PWYW
• Analogs of conventional methods, plus new ones,
in any combination
– Freemium, Paywalls (metered/soft)
– Tiers, segments, dynamic/usage pricing
– Custom mix of customer revenue and advertising
– Phasing: Survey mode, Simple Pay What You Want
– …
30

31. Business Contexts
• Ongoing relationships
– Subscriptions / ongoing services
– Aggregation (iTunes, Amazon, App stores, …)
• Experience goods
• Low marginal cost, perishable, promotions
(Also, costly goods, using a minimum price floor)
• “Deserving” sellers/producers
31

32. Product / Service Category Examples
• Anything with low marginal cost
– Long-tail / low-demand products (expand market / gain revenue)
– Short-head / high-demand products (expand market / gain revenue)
• Digital content / products /services (by item or by subscription)
– News / information / magazines
– Music / audio / podcasts
– Video
– Games
– E-Books
– Apps / Software
– Other Digital Services
• Real products /services (especially experience goods)
– Low marginal cost (primary product or extras/support)
– Sampling / trials /coupons (eg: Groupon)
– Perishable excess (eg: hotels, transport, performances)
– Costly goods with a minimum price floor + FairPay bonus
32

33. FairPay can be tested, phased in
“Toe-in-the-water” examples for Music Subscriptions (…or TV)
Acquisition =“Fuzzy Freemium”
Paywall balkers? -- special limited usage “trial”
versions, tie-ins, gamification, membership
”club”
Retention (Saves) low usage, low price
Premium “club”/“patron” segments curated, early access/new releases, quality,
downloads/offline use, added features
Usage /style segments
Limited usage?
low/high usage, low/high cost,
song frequency, …
Content segments: Long-tail / genre indies, back-list, genres
Device segments phones, embedded systems
Family Plans “seats,” concurrent use
“Deserving” sellers compensation to artist/creator
Trials, sampling, coupons, specials limited offers
Special branding distinct from conventional
33
Retention (Saves)
(Revenue recapture)
low usage, low price
Acquisition (=“Fuzzy Freemium”)
(Revenue from day one)
versions, tie-ins, gamification, membership
”club”
Premium “club”/“patron” segments
(Add-on subscription features)
curation, early access/new releases, quality,
artist access, offline use, added features
Usage /style segments low/high usage, low/high cost,
song frequency, …
Content segments: Long-tail / genre indies, back-list, genres
Device segments phones, embedded systems
Family Plans “seats,” concurrent use
“Deserving” sellers compensation to artist/creator
Trials, sampling, coupons, specials limited offers
Distinct branding separate from conventional offering