Get ready. I am expecting to see significant innovation in value pricing in order to better monetize the value of products and services. The recently announced test – AT&T to Let Content Companies Subsidize Users’ Data Costs, the US Appeals Court ruling against “Net Neutrality”, and Direct TV’s Attack on The Weather Channel Fees all illustrate that value is earned in multiple places. Companies owe it to all their stakeholders to determine all the places where that value is earned and capture the value through appropriate pricing mechanisms.
Last year I wrote a blog, Innovation in Pricing – Watch the Airlines. In that article, I described how the airlines ignored the “We can’t do that” mentality and used new tools and pricing structures to capture value where it was earned. For example, they learned that business travelers placed more value on being able to get the flight they needed than leisure travelers, and they priced accordingly. Airlines learned that some customers placed a higher value on an exit row than others, so they charged more for exit rows. In each case, the airlines took the time to understand all the elements of value they offered, and adjusted their pricing to capture it.
Many years ago utility companies identified different streams of value and began using peak-load pricing. This process essentially identified that there was higher value to businesses, government, hospitals, schools, etc. who needed power during the daytime, than there was to consumers who were heating and cooling their homes at night. The utilities understood that by charging a higher price to the users who needed power during the peak periods, they could generate enough income to pay for investments in new power capacity and lessen the burden on consumers at night while generating incremental revenue.
We are now seeing the cable TV, satellite, and telephone companies all broadening their value pricing. They have always charged more for phone or internet service to businesses than consumers pay, and they have long offered bundles of services. The path they are now on recognizes that it is not just consumers who benefit from their broadband and 4G offerings. Look at the stock prices of Google and Netflix and you can see they are clearly getting value from others having access to their content. It will not be easy, but by capturing some of the value earned by content providers, AT&T, Comcast, Verizon, and others will be better able to invest in expanding and upgrading their infrastructure. That will benefit consumers and the content providers too.
As with anything in life and business, successes will be imitated. It will be important for all of us to watch and learn from the pricing innovation we see. We need to avoid thinking “That’s not how our industry works”, and think about how we can apply those lessons to our environments. Think about “Who gets value from our product/ service?” and “Can I quantify it?” You will have a much better chance at improving your profitability and improving your ability to invest in new or expanded capability.
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