Pennie Frow
University of Sydney, Australia
Richard Reisman
Teleshuttle Corporation, USA
Adrian Payne
University of New So...
Co‐pricing:  Co‐creating customer value through dynamic value propositions  
Pennie Frow, Richard Reisman and Adrian Payne...
 
References 
Ballantyne,  D.,  Frow,  P.,  Varey,  R.,  &  Payne,  A.  (2011).  Value  propositions  as  communication 
p...
Agenda
• Co-pricing: an opportunity for developing focused value
propositions
• New equity-based pricing models and especi...
Value propositions, co-creation and pricing
• “Firms can compete more effectively through the adoption of
collaboratively ...
n
Radiohead:
Pay “What you Want”
download of album
Restaurants:
Customers pay
according to their
perceived value of meal
E...
New pricing models are needed
• Historically - prices were personalized
– Personal negotiation – human buyer and seller
– ...
“The shift of commerce to the digital domain has forced
many organizations to rethink their attitude to value
creation, at...
Monetizing digital offerings
• Digital ‘products’ :
– have a near-zero replication cost
– are not discrete, scarce product...
The long tail of price sensitivity
Increasing price sensitivity
• Green revenue:
(capped at set price)
• Red head: lost su...
Separating the sale from the price as part of
the value proposition
Why not price the experience after it is known?
• Shif...
Accept/buy/use
(before pricing)
(Buyer)
Set “fair” price
(after buy and use)
(Buyer)
Track price
(Seller)
Fair to seller??...
The ‘FairPay’ co-pricing model
Seller-
gated
Premium
FairPay
Offer
Seller-
gated Basic
FairPay
Offer
Buyer
Accepts
FairPay...
• Traditional pricing models are outdated and do not reflect the
customer’s dynamic perceptions of value
• Co-pricing offe...
• A systematic review of how existing co-pricing models have
impacted revenue and profitability
• Exploration of how co-pr...
Pennie Frow
pennie.frow@sydney.edu.au
Richard Reisman
rreisman@teleshuttle.com
Adrian Payne
a.payne@unsw.edu.au
For more i...
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Co-Pricing: Co-Creating Customer Value Through Dynamic Value Propositions

Presentation at Naples Forum on Service 2015. Using co-pricing as a means for gaining deep customer insights offers much potential, ultimately expanding profitability and markets. Models of co-pricing could provide new basis for segmenting customers, based on their perceptions of value. Involvement in co-pricing decisions can also offer opportunities for enhancing relationships, building trust, fairness and commitment between a supplier and customer. A firm can develop value propositions and use them as part of a dynamic learning process that occurs between customer and supplier. Customer segments can be determined based on value perceptions, with each requiring discrete value propositions that are designed around relationship goals. Breakthrough opportunities relating to the special challenges of digital services are highlighted.
Published on: Mar 3, 2016
Published in: Business      
Source: www.slideshare.net


Transcripts - Co-Pricing: Co-Creating Customer Value Through Dynamic Value Propositions

  • 1. Pennie Frow University of Sydney, Australia Richard Reisman Teleshuttle Corporation, USA Adrian Payne University of New South Wales, Australia Naples Forum, June 2015 Co-pricing: Co-creating Customer Value through Dynamic Value Propositions
  • 2. Co‐pricing:  Co‐creating customer value through dynamic value propositions   Pennie Frow, Richard Reisman and Adrian Payne  Abstract   Purpose:  Recent scholarship suggests value propositions play a role in value co‐creation through  interactions (Prahalad and Ramaswamy 2004) and learning (Payne et al. 2008) between the  customer and supplier. However, the learning process remains largely unexplored.  This paper  considers the role of co‐pricing as a tool that can assist in designing value propositions, which are  shaped through interactions and dialogue (Ballantyne et al. 2011).  We suggest value propositions  are designed using the two‐way learning that arises when the customer is involved in determining  price, based on their sense of relationship value.  Design/Methodology/Approach:  This conceptual paper draws upon value propositions (Lanning  1998; Frow and Payne 2011), customer management (Payne and Frow 2013), co‐creation (Vargo and  Lusch 2008; Payne et al. 2008) and co‐pricing (Bertini and Gourville 2012; Bertini and Reisman 2013;  Iansiti and Lakhani 2014; Reisman and Bertrini 2014) literatures, in particular exploring the concept  of ‘fair value’ in relationship building and learning.  Using these ideas, we develop a conceptual  model that identifies how co‐pricing can play an important role in two‐way learning between a  customer and supplier.  A value proposition communicates dynamically the outcome of this learning  process.    Findings:  Value propositions play an important role in establishing customers’ expectations of value.   A firm can develop value propositions and use them as part of a dynamic learning process that  occurs between customer and supplier.  Customer segments can be determined based on value  perceptions, with each requiring discrete value propositions that are designed around relationship  goals.  Research limitations/implications:  This study assists in clarifying the learning process that occurs  between customer and supplier, where value perceptions are shaped dynamically based on  expectations and recognition of value‐in‐use and ‐in‐context.  Identifying how value propositions link  to co‐pricing decisions in a two way learning process offers much scope for further empirical  investigation.  Practical implications:  For managers, using co‐pricing as a means for gaining deep customer insights  offers much potential, ultimately expanding profitability and markets.  Models of co‐pricing could  provide new basis for segmenting customers, based on their perceptions of value.  Involvement in  co‐pricing decisions can also offer opportunities for enhancing relationships, building trust, fairness  and commitment between a supplier and customer.  Originality/value:  This paper extends previous discussions of value propositions and contributes to  the growing literature on co‐pricing.  Collaborative pricing as a learning mechanism offers much  potential for further research and managerial practice.   Key words:  co‐pricing; co‐creation; value proposition; learning; relationships  Paper type:  conceptual.
  • 3.   References  Ballantyne,  D.,  Frow,  P.,  Varey,  R.,  &  Payne,  A.  (2011).  Value  propositions  as  communication  practice: Taking a wider view. Industrial Marketing Management, 40, 202‐210.  Bertini, M., & Gourville, J. T. (2012). Pricing to create shared value. Harvard Business Review, 90(6),  96‐104.  Bertini,  M.  &  Reisman,  R.  (2013).  When  Selling  Digital  Content,  Let  the  Customer  Set  the  Price,  https://hbr.org/2013/11/when‐selling‐digital‐content‐let‐the‐customer‐set‐the‐price  Frow, P., & Payne, A. (2011). A stakeholder perspective of the value proposition concept. European  Journal of Marketing, 5 (1/2), 233‐240.  Iansiti,  M.  &  Lakhani,  K.R.  (2014).  Digital  Ubiquity:  How  connections,  sensors,  and  data  are  revolutionizing business.  Harvard Business Review, 92 (11), 90–99.  Payne, A., Ballantyne, D. & Christopher, M.  (2005). Relationship marketing: A stakeholder approach,   European Journal of Marketing,  39 (7/8), 855‐171.     Payne,  A.  &  Frow,  P.  (2013).  Strategic  Customer  Management:  Integrating  CRM  and  Relationship  Marketing, Cambridge University Press.  Payne,  A.,  Storbacka,  K.,  &  Frow,  P.  (2008).  Managing  the  co‐creation  of  value.  Journal  of  the  Academy of Marketing Science, 36, 83‐96.   Prahalad,  C.K.,  &  Ramaswamy,  V.  (2004).  Co‐Creation  experiences:  The  next  practice  in  value  creation, Journal of Interactive Marketing, 18(3), 5‐14.  Reisman,  R  and  Bertini,  M  (2014).  A  Novel  Architecture  to  Monetize  Digital  Goods,    Available  at  SSRN: http://ssrn.com/abstract=2530347  Santana,  S.,  &  Morwitz,  V.  G.  (2013).  We’re  In  This  Together:  How  Sellers,  Social  Values,  and  Relationship Norms Influence Consumer Payments in Pay‐What‐You‐Want Contexts, invited for  revision at Journal of Marketing.  Vargo, S.L., & Lusch, R.F. (2008). Service‐dominant Logic: Continuing the evolution. Journal of the  Academy of Marketing Science, 36(1), 1‐10.
  • 4. Agenda • Co-pricing: an opportunity for developing focused value propositions • New equity-based pricing models and especially monetizing digital offerings : Co-pricing with the ‘FairPay’ model • Conclusions and future research
  • 5. Value propositions, co-creation and pricing • “Firms can compete more effectively through the adoption of collaboratively developed, risk-based pricing value propositions.” (Lusch, Vargo & O’Brien, JR, 2007: Derivative Proposition 7) • Both digital and conventional markets can benefit from value propositions that seek to provide greater equity (i.e. fairness) to customers • Co-pricing (Frow, Payne and Storbacka 2012; Reisman and Bertini 2014) offers an approach that can assist firms in design of better risk-based value propositions. • When customers experience the value proposition before payment AND the customer then determines price based on their sense of value, a more equitable distribution of value can be achieved • Existing successful examples of collaborative pricing/co-pricing provide impetus to development of more sophisticated highly scalable approaches
  • 6. n Radiohead: Pay “What you Want” download of album Restaurants: Customers pay according to their perceived value of meal Examples of focused value propositions: Co-pricing: collaborative pricing activities involving multiple actors that reflect their joint perspectives on value, risk & pricing
  • 7. New pricing models are needed • Historically - prices were personalized – Personal negotiation – human buyer and seller – Communal norms of caring and fairness • From mid-1800s – largely set formulaic pricing – Institutional sellers to mass market consumers – Scalable: operationally efficient; buyer ‘take it or leave it’ – Set prices typically leave profit on the table (‘the long tail’ of price sensitivity) • Pricing in the digital 21st century – Some useful research already conducted* – Digital products (music, video, newspapers, magazines, ebooks, apps, etc.) represent a major opportunity for new value propositions based on innovative co-pricing – Co-pricing – represents an opportunity for a return to personalized pricing – End ‘race to the bottom’ – personalize a fair price for value – New co-pricing models are needed *e.g., Bertini & Koenigsberg 2014; Chen et al. 2010; Chao et al. 2014; El Harbi et al. 2011; Gneezy et al., 2012a; 2012b; Isaac et al. 2010; Kim et al. 2009; 2010; 2013; Mak et al. 2013; Santana et al. 2013). 5
  • 8. “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.” Reisman & Bertini 2014 (emphasis added)
  • 9. Monetizing digital offerings • Digital ‘products’ : – have a near-zero replication cost – are not discrete, scarce products – offer access, entitlements, or usage – are a service • Digital ‘products’ represent an opportunity to: – Exploit new power of computer-mediated relationships – Co-operatively build relationships based on perceived value – Learn the right price for each customer … each time – Optimize price over the relationship – Sell value: as a positive experience, rather than focus on price – Build a relationship and get not just customers, but patrons 7
  • 10. The long tail of price sensitivity Increasing price sensitivity • Green revenue: (capped at set price) • Red head: lost surplus • Amber tail: lost sales 8 Increasing price
  • 11. Separating the sale from the price as part of the value proposition Why not price the experience after it is known? • Shift from typical up-front offers • Remove the risk discount • Signal value and trust 9
  • 12. Accept/buy/use (before pricing) (Buyer) Set “fair” price (after buy and use) (Buyer) Track price (Seller) Fair to seller??? (Seller) Gated FP Offer (Seller ) Developing an equity-based value proposition: Co-pricing with the ‘FairPay’ model Price it BackwardExtend it Forward (after trial)(limit FairPay credit) 10
  • 13. The ‘FairPay’ co-pricing model 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 11 Value/FairnessOffers The process involves frame, nudge and track – continuing adaptation
  • 14. • Traditional pricing models are outdated and do not reflect the customer’s dynamic perceptions of value • Co-pricing offers opportunities for gaining deep insights about customer relationship value, especially in the context of digital markets • Using these insights, a focal firm can craft focused and flexible value propositions that reflect a customer’s real willingness to pay Conclusions
  • 15. • A systematic review of how existing co-pricing models have impacted revenue and profitability • Exploration of how co-pricing models can provide a new basis for segmenting customers, each with their own specific value proposition, based on more granular perceptions of value • Determine how customer involvement in co-pricing decisions can offer opportunities for enhancing relationships, building trust, fairness and commitment between a supplier and customer – and deepen market penetration. • Empirical testing of the ‘FairPay’ Co-pricing Model – we are seeking collaborators. Future research
  • 16. Pennie Frow pennie.frow@sydney.edu.au Richard Reisman rreisman@teleshuttle.com Adrian Payne a.payne@unsw.edu.au For more info see: FairPayZone.com Thank you! We would welcome your comments

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