I started this discussion on this post and once I got into a lengthy reply to the comments, I realized there is more to be explored.
You may want to read Part 1 and the associated comments here.
The more I have been thinking about this, the more I want to see companies explore user-generated pricing. In the beginning, I suspect very few would pay and those who do would pay less not more. But once there were leaders who were willing to pay and explain why, it may pave the way for others to follow suit without feeling hosed.
I have this sense that people would be happier paying when they can set the price. But as soon as I write this, I think of clients who make boatloads off our consulting and support, and who have no interest in paying even a tiny percentage of their revenue to us – revenue earned from things we built for them.
So maybe there is some gradual way to introduce this concept, and maybe it is actually a way to attract different types of customer relationships – where we discuss the many iterations of “value” up front and agree to how we would each like to receive and reward value in the relationship.
What has not been specifically addressed though was suggested in the comments (want vs need) is business vs pleasure use. Traditionally, people charge businesses more because there is a profit-making agenda on the table. Airlines, hotels, and rental car agencies charge a lot more for weekdays than weekends, as they have a captive customer for one and they know that companies are theoretically making money off of their use of said services. And because there are others like me who want to change the hard line between work and fun.
Weekenders however, are theoretically there “just for fun” – so this costs less? This is making less sense to me though once I look at everything as an exchange of value and once I realize many of us will pay a lot more for things we truly love that have nothing to do with our jobs! Just because it is for business, does that mean it should cost more? And does the “costing more” taint the transaction? And how does a business recoup the costs it has to develop and maintain its products and services?
What do you think? How do we take the bitterness factor out of paying for things we like? Are people more generous or greedy? What risks would you take with new pricing strategies?
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{ 6 comments… read them below or add one }
Creative agencies sometimes charge by “Usage”. For example: Stock photography pricing is often determined by how the image will be used, where it’s used and for how long.
Other times the pricing is determined by the size of the client. For example: A logo designer will typically charge non-profits one price, a small business another price, a big business a much bigger price and a logo designed for something like a professional football team will cost an almost astronomical price – For the same logo.
Roxanne: Fascinating question you’re presenting thinking about creating a system that supports a dynamic market/pricing model. This requires faith, trust and real accountability in terms of the real value creation.
dbw
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I think much of the pricing model depends on the service and features offered. And then what value does the service/features add to the person’s life? How is it unique? What’s the ROI in dollar amounts, time saved, enjoyment even? Would it benefit someone enough to spend THAT amount of money?
I know that I personally don’t want to add another monthly bill to my life and will sometimes opt for the version of something that is ad supported as a result. Not always but sometimes.
Jott was this way but recently they removed the ad sponsored version and I decided it wasn’t worth the cost FOR ME. But that’s only because for some reason it and my cell phone don’t always get along … a friend I know doesn’t have this problem so I’m pretty sure it’s something about my phone specifically.
Jott actually is doing a pretty good job of transitioning from free to paid and it might be a good example to look at.
Also another aspect to this is advanced warning. Surprising people and changing something from free to paid overnight will just get knee jerk reactions. Plan, let people know that there will be a transition. Let them budget and have some time to figure out before they’re stuck with a bill or no service. Let them know what your pricing structure is going to be in advance. If it’s horribly out of line with the perceived value you’ll probably find out before the implementation date.
As for charging different rates in a service based business – why should my time be less valuable only sometimes based on who is paying? Or also put another way – why charge a larger customer more per hour for being successful and big? If my business grows I don’t want to be punished for it in that way so I don’t do this to others. Sure maybe a larger client will need more services, more hours spent, more revisions, bigger projects and will ultimately spend more than the little businesses but that’s not the same as increasing your hourly cost simply because the client has more money. Non-profits are slightly different in that do tend to give back directly to the community in some way which is why most people discount for them.
User generated pricing can work sometimes but typically works best when there’s something exceptional being offered. Or user generated pricing in the form of donations can also sometimes work. Twit Network (not twitter) runs off of a combination of things including one time donations, monthly donations, ad revenues and I have no idea what else.
Anyway – that’s just my 2 cents on the concept as a generality.
Would I pay for Twitter specifically? I’m not sure. In a way on a service like Twitter if other people wouldn’t then it would lose it’s appeal to those that remain. In a way Twitter is like instant messaging. Instant messaging has stuck around through the ages as a free service but most of those services are supported by bigger businesses making money in other ways (MSN, AOL, Yahoo…) Maybe Google should/could buy out Twitter. :)
And then again, sometimes businesses simply fail.
Lots of food for thought…
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Another random thought about paying for online services like Facebook or Twitter or whatever.
I buy a lot of things online. I’ll buy an iPhone app on an impulse if it looks cool and it’s cheap. I’ll buy music and books and travel and all sorts of things… (Buy once – enjoy forever)
However… The only things where I pay any kind of “reoccurring fee” is for web hosting and domain names. (If I don’t pay – my property gets repossessed)
I need another monthly charge on my credit card like I need a hole in my head. At this point in time – It would be extremely difficult for anyone to sell me anything that comes with any sort of reoccurring fee – no matter how small it is.
Maybe if I was already paying you every month – like AT&T. If they purchased Twitter and tried to sell me a subscription where $1 per month gets added to my preexisting bill, I might think about it – but I doubt it.
I LOVE my iPhone – However – Paying the extra monthly fee for an iPhone is a BIG sticking point for a LOT of people. The phone was around for about 7 months before I finally broke down and accepted the extra monthly fee.
A couple of years ago our company decided to start charging a fee for pick up/delivery (proofs, CD’s, etc). This came about because a particular client started “liking” that we personally delivered content to him rather than emailing a 2MB file. His requests to meet became more and more frequent – the total drive time round trip was about 1hour. Meetings that used to last for an hour and be very productive suddenly turned into 2 min drop-off-hello-goodbye meetings. When the client noticed the charges on the invoices it was BAD news – he perceived he was being nickel ‘n dimed to death and he was quite offended. So, we learned from that experience to be TRANSPARENT in regards to pricing–How and Why we charge. We also present choices and options to avoid the charge, so the client doesn’t feel stuck or “tricked”.
Over the last year it seems more companies are charging me personally for things they did not used to, i.e. “Sure, we’ll give you special pricing” then 6 mo’s later they start tacking on a fee in order for you to keep receiving the special price. Our old merchant account provider was notorious for making up new charges as they went along… it was very difficult to determine WHY you are paying all these fees?
For my company, presenting our pricing in a transparent and easily understand format has really helped develop relationships with our customers. If our pricing structure needs to change then we are upfront about the changes and we present options that will be mutually beneficial.
This is a good discussion. Mahalo
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The most interesting thing these posts are doing for me is how you all are laying out the huge variation in how things get priced! Clearly, the concept of transparency is relevant – and being as much a seller as a buyer, I would request that be a two-way street.
What I am really after though are two things:
1) Are we as a conscious collective capable of having flexible pricing strategies that result in win-win? There is such a history still of only one side having a voice in the set price, and a tremendous amount of backlash people still feel. That seems to feed into the urge to want things for free.
2) What really is it that causes a free service that has been enjoyed to lose value when a price is attached to it? Is this going to last indefinitely, or is it a temporary “parents are away so let’s party” mindset that will eventually give way to sustainable business models beyond AdSense?
And yeah, Shane and I pay a lot for our iPhones but the increase in productivity and sheer user pleasure makes it very worthwhile.
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