Reisman on FairPay Win-Win Relationships at ISSIP Speaker Series 10/14/15. For future updates, find the latest slide deck at http://www.slideshare.net/rreisman/reisman-fairpay-overview.

1. Adaptively Seeking Win-Win
Customer Relationships for the Digital Era
FairPay
Richard Reisman, Teleshuttle Corporation
fairpay [at] teleshuttle [dot] com
1Copyright 2015, Teleshuttle Corp, all rights reserved
Speaker Series
10/14/15

2. Tomorrow’s Logic
”The greatest danger in times of turbulence is not the turbulence,
it is to act with yesterday's logic.“ --Peter Drucker
• FairPay -- a logic for tomorrow (…not a product)
• Reisman Background
– Pioneering digital services for people since 1960’s
• Diverse businesses and roles – B2B and B2C
• ~50 patents, licensed to >200 companies
– Steeped in disruption – business model crisis in content industries
– Saw a new way forward – simple concept – deep implications
– A whole new logic – centered on value propositions
– Changes the entire focus of customer relationships from price to value
• Mission – Change the world
– Save news, music, video, e-books, other content industries – Create new value
– Work on a pro-bono basis with business and academic partners
on research, trials, and applications – seeking collaborators, evangelists
…and offer free consultation.
(More information at FairPayZone.com)
2

3. A Thought Experiment
Imagine an all-knowing Economic “Demon”*
• Read buyers’ & sellers’ minds to learn
value-in-use, –in-context
• Know how used, liked, value obtained,
WTP, ATP
• Know economic value surplus
• Arbitrate fair sharing of surplus
Set personalized and fair prices
---
• Practice: Better strategies**
• Theory: Better insights
(*Like Maxwell’s Demon and Laplace’s Demon in physics)
(**Like B2B value/performance/outcomes-based pricing – need lightweight analog for B2C)
3

4. 4

5. 5

6. Monetizing Digital Offerings in Networked Markets
…A Radical Re-framing
• Dilemma: Pricing for information
– “Information wants to be free” (infinite replication)
– “Information also wants to be expensive” (creation)
• Answer: Re-think our value exchange process
– Not allocating scarce resources (no invisible hand)
– Still need to sustain producers
Balance value, ability to pay, cost, profit …How?...
6

7. Adaptive, Win-Win Value Propositions
• How?: Build value exchange relationships
– Exploit new power of computer-mediated relationships
– Co-operatively build relationships on perceived value
– Learn the right price for each customer …each time
– An invisible handshake …with each consumer
 Emergent approximation of economically ideal pricing
 Share more value, with more customers - sustainably
Better business – profit, market reach, lifetime value
More value for society
7

8. Set Prices Are So Last Century!
(Taken for granted, but wrong!)
• Historically: Prices personalized
– Personal negotiation – human buyer and seller
– Personal contexts, needs, bargaining powers, relationships
– Communal norms (caring, fairness, …even generosity)
• Mid-1800s: Price tags / institutions
– Institutional sellers to mass market consumers
– Scalable: simple, operationally efficient
– Buyer take it or leave it  exchange norms, bargain hunting
• E-commerce: Mass-personalization? 1:1?
– Why not price?
– End race to the bottom – personalize a fair price for value
– How to do it effectively, efficiently???
(See set-price blog post)
8

9. Digital Problem=Opportunity #1
The Long Tail of Price Sensitivity
Customers are not the same!
Customer experience is not the same!
(increasing price sensitivity)
• Green revenue: capped at set price
• Red head: lost surplus
• Amber tail: lost sales
…Dynamic and context-dependent
(see Long Tail blog post) 9

10. Post-Pay
Separate the Sale from the Price!
Why not price the experience after it is known?*
• Unlike typical up-front offers (Pay What You Want, etc.)
• Remove the consumer’s risk discount (or rejection)
• Signal supplier’s value and trust
_________
*= post-pay = ex-post pricing = pay in arrears = pay as you exit = price it backwards
10
–Thanks to John Blossom,
Shore Communications
(ContentBlogger)
“Pay as You Exit: FairPay
Explores New Content
Pricing Discovery
Regimes”

11. Digital Problem=Opportunity #2
A digital “product”?
• Near-zero replication cost (”Free”)
• Not a discrete, scarce “product”
• Access, entitlements, usage
– Valued as an “experience good” – a service
– Personalized variations (items, time, intensity, volume, …)
– …all measurable – rich instrumentation in use
 New data on value for each consumer (see data blog post)
• “Free” as a selling tool
– trials, freemium, pay what you want, …
 Better: Embrace dynamic variability, control risk
11

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 )
FairPay Dialog Cycle
Ongoing adaptation, continue indefinitely
Price it BackwardExtend it Forward
(after trial)(limit FairPay credit)
12

13. FairPay Value Discovery Engine
Frame/nudge and track – continuing adaptation
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
13
Value/FairnessOffers

14. Seller Control and Predictability?
Frame/nudge and track
• Managed dialog – “choice architecture” – fully personalized
– Seller
• reports usage
• provides a suggested price personalized to that buyer’s usage
• frames the pricing rationale, and nudges with incentives (+, -)
– Buyer
• sets FairPay prices (as a differential from suggested price)
• states reasons for their differential (multiple choice)
– Seller
• evaluates fairness of reasons – reciprocal value proposition
• frames new offers – manages FairPay credit and incentives
• Nudge buyers toward suggested prices – as fair exchange
• Test/review value propositions, offers, framing, incentives
14

15. A new twist of the Invisible Hand
…Creating Shared Value over relationship
15(see invisible hand post, and invisible handshake post)

16. Aligning Price with Value
Pricing for the Co-Creation of Value
Intuitive blend of diverse factors, emerging over the relationship
• From provider to consumer
– Value-in-use / experience / outcomes
– Other “Soft” value
• Service / support
• Participation / listening / responsiveness
• Social value / “triple bottom line”
• From consumer to provider
– Monetary payments
– Other currency -- “Consumer” as provider of value to “provider”
• Attention to ads / Personal data to exploit
• User-Generated Content
• Promotion / virality / leads to others
• Up-sell/cross-sell revenue potential
Can extend through the ecosystem value chain
– Designations of value share to creators/suppliers (vs. intermediaries)
16

17. Key Evidence and Enablers
• Behavioral Economics
– People are not heartless profit maximizers (eg: PWYW generosity)
– Traits: Fairness, reciprocity, altruism, self-image, acceptance, …
– Situations: Social/communal norms vs. economic/exchange norms
– Treat me as a patron, make me want to be a patron
• Computer-mediated dialog
– Facilitate automated dialog about what I value, on what basis …and act on it
– Engage me as a patron, show you hear/understand me
• Big Data + Predictive analytics
– Use data to validate customer dialogs on value, incentivize honesty
– Customize offerings and how they are framed
– Show that you recognize and respect my desires as a patron
 Adaptive, cooperative relationships
1. Nudge buyers toward fairness, perception of value, sharing value surplus
2. Foster social/communal norms (participation and dialog)
3. Segment based on fairness traits (social values) and value propositions
17

18. FairPay can be tested, phased in
“Toe-in-the-water” examples for News Subscriptions
Acquisition =“Fuzzy Freemium”
Paywall balkers? – special limited usage “trial”
versions, tie-ins, gamification, membership
”club”
Retention (Saves) low usage, low price
Premium “club”/“patron” segments curated, early access/new releases, quality,
downloads/offline use, added features
Usage /style segments
Limited usage?
low/high usage, low/high cost,
song frequency, …
Content segments: Long-tail / genre indies, back-list, genres
Device segments phones, embedded systems
Family Plans “seats,” concurrent use
“Deserving” sellers compensation to artist/creator
Trials, sampling, coupons, specials limited offers
Special branding distinct from conventional
Acquisition =“Fuzzy Freemium”
(Revenue from day one)
versions, tie-ins, gamification, membership
”club”
Retention (Saves)
(Revenue recapture)
low usage, low price
Premium “club”/“patron” segments
(Eg: NY “Times Premier/Insider”)
curation, early access, journalist access,
archives, downloads/offline, extra features
Usage /style segments low/high usage, low/high cost, alerts acted
on…
Content segments: Long-tail / genre investigative journalism, analysis, financial
insight, sports insight, crosswords
Device segments phones, embedded systems
Family Plans “seats,” concurrent use
“Deserving” sellers compensation to journalists, field reporting
Trials, sampling, coupons, specials limited offers
Distinct branding separate from conventional offering 18

19. Change the Game with FairPay!
From invisible hand to invisible handshake
19
• From: set prices
 shop for lowest price  commoditization
• To: FairPay participative value exchange
 shop for value, relationship  engagement, loyalty
• Analogous to tipping
– Easy, intuitive, with rich multi-dimensional nuance
– Often happily pay more than you “need”
– Free is an option, not a price
• Delight your customers, give them pricing freedom,
focus on value, gain their loyalty
– Treat me as a patron; make me want to be a patron
– Engage me as a patron; show that you understand what I care about
 Emergent strategy
 Pricing “legitimacy”
 Higher profits + deeper market penetration (+ad $)
(See Handshake post)

20. Thank You
Call to Action
• Questions?
• Follow on ISSIP talks?
• Spread the word
• Test FairPay in use
• FairPayZone.com – Extensive information
• E-mail Reisman: fairpay [at] teleshuttle [dot] com
----------
Additional Commentary Follows…
20

21. Value-Based Pricing
for Consumer Markets!
• Prices based on actual performance/outcomes
• Used very effectively in some B2B markets*
– Win-win: Buyer and seller agree to share in the
actual product value surplus
– High economic efficiency
– But: high pricing cost for custom analysis
• FairPay: a simplified, intuitive, highly-
automated analog for mass consumer markets
*See this 2014 HBR article, and this 2002 HBS article.
21
Advanced Economics:

22. Usage/Value Pricing - Buyer-friendly
• Deadweight loss of “all you can eat”
unlimited subscriptions (See deadweight blog post)
• No ticking meter / No usage shock
• Price considering usage, but…
– Buyer factors in:
• Usage history
• Volume discounts
(…with seller guidance)
– Soften the extremes – averaging out
Price tracks to value (with affordability)
Warm and fuzzy, good feelings
22
Advanced Economics:

23. Price Discrimination - Buyer-accepted
Economic optimum: price tracks to value
• Buyer “self-discrimination”  Legitimacy
• Engages buyers – a rewarding process,
centered on personalized value propositions
• Infinite segmentation, in all dimensions
– Context, ability-to-pay, usage, time, devices, users, …
…Price discrimination can be good!
23
Advanced Economics:

24. Business Contexts
• Ongoing relationships
– Subscriptions / ongoing services
– Aggregation (iTunes, Amazon, App stores, …)
• Experience goods
• Low marginal cost, perishables, promotions
• “Deserving” sellers/producers
24

25. Product / Service Category Examples
• Anything with low marginal cost
– Long-tail / low-demand products (expand market / gain revenue)
– Short-head / high-demand products (expand market / gain revenue)
• Digital content / products /services (by item or by subscription)
– News / information / magazines
– Music
– Video
– Games
– E-Books
– Apps / Software
– Other Digital Services
• Real products /services (especially experience goods)
– Low marginal cost (primary product or extras/support)
– Sampling / trials /coupons (eg: Groupon)
– Perishable excess (eg: hotels, transport, performances)
25

26. Platform and Database Opportunities
• Single vendor – internal process solutions
• Cross-vendor – added leverage, information
– Shared infrastructure and processes
= “Pricing as a Service” (PaaS)
– New: FairPay Fairness Reputation Database
• Across vendors and contexts (fairness ratings + details)
• Use like credit rating database (FairPay credit line)
• Detailed value perception data
Database asset, first mover advantage
• Interest by potential platform vendors (Zuora)
– Plug-ins / SaaS
26

27. Engage Customers in Real Dialog
Real-time, Real-life “Market Research”
• Dynamic pricing and value discovery
– Real willingness to pay
– Specific to actual product/buyer/context/usage
– New kinds of Big Data at a micro level
• Ongoing “trials” of mutual value discovery
• Focused, flexible value propositions
– Match to customer perceptions, specific contexts, times
– Sell value: a positive experience (not focus on price)
– Build a relationship - get not just customers, but patrons
27

28. A Flexible, Extensible Architecture
• Coexist with conventional pricing (segment by fairness)
• Tunable parameters (choice architectures)
– Gating, nudging, warning, dispute-resolution
– Up-selling, down-grading
– Liberal or tight control
• Analogs of conventional methods, plus new ones,
in any combination
– Freemium, Paywalls (metered/soft)
– Tiers, segments, dynamic/usage pricing
– Custom mix of customer revenue and advertising
– Phasing: Survey mode, Simple Pay What You Want
– …
28

29. Phasing in…
• Can limit to a contained niche offering
• Can build and apply in incremental stages
1. Free survey mode
(free, for value feedback only – no fairness gating process)
2. Simple Pay What You Want – As You Exit
(pricing unrestricted by fairness – no fairness gating process)
(post-pay “as you exit” makes PWYW more meaningful)
3. Full FairPay
(“gated” by fairness, by seller – most of the cost, complexity)
29