Tool #26

My friend came by for a late-night workshop in 1998. We were to design a pricing model for handling e-mail send-outs to clients. No one was willing to pay for e-mails, but they were willing to pay for ads, project management, design, and IT development. It was during the dotcom-era. We created models that worked well. They bridged the willingness to pay with the value we delivered.

3 years later, we got aggressively attacked by a large American supplier (today part of Oracle). Numerous clients showed how the competitor's price was only 1/3 of our price. We tried to defend the price LEVEL with value deliveries. Clients left us while we increased production costs. The equation did not work out.

We should have worked on the Price LOGIC, not the Price LEVEL. We got outsmarted by a smart pricing logic creating an illusion of low prices (in some rare circumstances).

The price logic is more important than the price level. After my hard-learned experiences, I today know how to integrate the pricing in the product offering and the business model. A key for opening up the connections is to work with the Revenue Stream Creation and the four objects of a revenue stream.

The four key questions are:
  1. Who is paying?
  2. What are the actual forms of compensation?
  3. How is the price determined?
  4. How is the exact amount determined?

They give you the Compensator, Effect, Rating, and Charging. The concept is clearly defined in the excellent article by Michale Popp (Revenue Models in the Software industry). In many products, we can create multiple revenue streams.

Attached is also the Tool card, examples of revenue, and business models.

Empty space, drag to resize
Empty space, drag to resize

Oops, looks like you're not logged in!

Log in in order to access the tool!