MM7- 4. MONITIZING MODELS.
Monitization model is how customer pay for your product. And how you charge may trump what you charge. Choosing model without reflecting, stratigically thinking and testing you missed opportunity and made a huge mistake. Michelin created pay as you go model.
Monitizing model in itself is innovation, Netflix, introduce subscription than pay for a cd. Uber disrupted with daynamic pricing. Fixed Tv deal made them loose money. Proving a bad monitization model can be worse than bad pricing.
FIVE POWERFUL MODEL:
subscription model - customer spent year spent more money, and customer on subscription also likely to stay longer. It limit the customer buying decision and lock them in. Auto-renewal even take it further. Subscription also opens cross-selling and up selling opportunity. House of card by Netflix. Person on subscriptions are more sticky and even become unofficial brand embasdor.
It is great option where customer use product continuously like music. It also work in highly competitive industries. And subscription makes it more affordable by allowing people to buy in chunk-size than one time huge upfront cost.
Daynamic pricing - where price fluctuate season, time, weather.. that can affect WTP, demand and supply. Uber ties price with real time demand and supply. The benefit goes both way. Customer don’t need to wait in rain, driver makes more money. Also the customer who buy regularly get less price.
You don’t want costly-asset empty, five star hotel. Daynamic price let you adjust price to monitize unused capacity. Telco charge higher in evening.
You should consider it if your supply is constrained or fix or market is very elastic. But it is a complex undertaking and require investimet on technology and process.
Auction - set price based on competitions for good. Two sided market place are riped for it. Google, eBay.
This let you withdraw from price setting and let market figure it out. Customer outbid each other to buy and raise the price.
It is ideal when inventory is constrianed, power is with the seller.
Pay as you go - mile flown on plane, hours of usage of medical practice, customer pay when they use or benefit from the product. Michelin.
If your innovation enhance performance superior to the alternative alternative pricing might be right, by aligning metric with customer performance you achieve full monitization potential.
Price by surgery than equipment.
Freemium model - a company offer two or more tier of pricing, one of which is free, the idea is to attract huge customer base and then convert them in subscription. The internet expand the possibility by reducing the cost to near zero.
Free offering becomes a marketing tool for premium offering. It helps to reduce the cost of customer acquisition
It is preferable when the cost of production is very low. Companies often struggle to turn free customer to paying one, hardly 10% ever convert. It you offer fermium you must double down the effort to convert to premium.
YOU CAN ALSO CREATE MI|X MODEL. Membership for warehouse, one time for product.
People have opnion about different model, know how your customer will react. How further development will affect the model? Is you model choice fit the stage your company is in? If you are startup you might wanna keep things simple. What your competitors are doing? The idea is to set your self apart from the competitor. Use to create comparative difference. How difficult the model is to implement?
Volume based structure. The more they use the lower the price get model.
Matrix based system- based on how volume and share of the market.