Revenue Models and Pricing

1. Revenue Models
Shaer Hassan
CEO, Nascenia

2. What?
• How a business generates revenue streams
from its products and services

3. Why
• To sustain the business

5. Revenue Models: Commerce & Retail
• Selling physical goods: Clothing
• Selling digital products: Cell phone
Ideal Customers Advantage Problems Ideal Products

6. • A service sold per unit (hour, distance, weight,
bandwidth): ISP, Telecom, Theater, Bus
• A service with fixed price: ISP, Telecom
• Daily deals / flash sales: ajkerdeal, akhoni
(previously)
Ideal Customers Advantage Problems Ideal Products
Revenue Models: Commerce & Retail

7. Revenue Models: Subscription &
Usage Fees
• Subscription: Newspaper
• Usage fees: Electricity
• Rental: House, Car
Ideal Customers Advantage Problems Ideal Products

8. Revenue Models: Licensing
• License of usage: Software
Ideal Customers Advantage Problems Ideal Products

9. Revenue Models: Auctions & Bids
• Auctions: ebay
Ideal Customers Advantage Problems Ideal Products

10. Revenue Models: Advertising
• Advertisements: TV, Newspaper, Priyo.com
• Promoted content: Bikroy.com
• Sponsorships: Maya.com.bd
Ideal Customers Advantage Problems Ideal Products

11. Revenue Models: Data
• Databases: SMS gateways
Ideal Customers Advantage Problems Ideal Products

12. Revenue Models: Transaction /
Intermediation
• Brokerage
• Transaction enablers: epayment gateway – SSL
Commerze
• Affiliate programs: Amazon
• Creating a platform / marketplace: Odesk, Oployee,
kaymu.com.bd, carmudi.com.bd
Ideal Customers Advantage Problems Ideal Products

13. Revenue Models: Freemium
• Paid version without advertisements
• Paid version without restrictions
• Paid version with additional features
Ideal Customers Advantage Problems Ideal Products

14. Revenue Models: Negative Operating
Cycle
• Lower price by receiving payment before
delivering the offering
– Amazon, Airbnb, courier service for c-commerce
in Bangladesh
Ideal Customers Advantage Problems Ideal Products

15. Revenue Models: Razor/Blades
• Offer the high-margin below cost to increase
volume sales of the low-margin razor blades.
– Printers and ink
– Glucometer
– Free connection with router by ISPs
– Free SIM by Telcos
Ideal Customers Advantage Problems Ideal Products

16. Revenue Models: Reverse
Razor/Blades
• Offer the low-margin item below cost to
encourage sales of the high-margin
companion product
– Kindle, iPod/iTunes
Ideal Customers Advantage Problems Ideal Products

17. Pricing Strategy
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price

18. Pricing Objective
• Survival
• Maximum Current Profit
• Maximum Market Share
• Maximum Market Skimming
• Product-Quality Leadership
• Other Objectives
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price

19. Determining Demand
• Price Sensitivity
– Less price sensitive when
• Product more distinctive
• Buyers are less aware of substitute
• Expenditure is smaller part of buyer’s income
• Expenditure is small compared to the total cost of the
product
• Product is assumed to have more quality, prestige or
exclusiveness
• Estimating Demand Curves
• Price Elasticity of Demand
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price

20. Estimating Costs
• Types of costs and level of productions
- Variable cost
- Total cost
- Average cost
• Accumulated production
• Target costing
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price

21. Estimating Costs
• Accumulated production
• Target costing
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price

22. Analyzing Competitors’ Costs, Prices
and Offers
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price

23. Selecting a Pricing Method
• Markup Pricing
– Unit cost = variable cost + fixed cost / unit sales
– Markup price= unit cost / (1 - desired return on
sales) = 16/(1-0.2) = 20
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price

24. Selecting a Pricing Method
• Target-return Pricing = unit cost + (desired
return*invested capital) / unit sales
• Break-even Volume = fixed cost / (price-
variable cost)
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price

25. Selecting a Pricing Method
• Perceived Value Pricing
• Value Pricing
• Going Rate Pricing
• Auction-Type Pricing
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price

26. Selecting Final Price
• Impact of other marketing activities
• Company pricing policies
• Gain-and-risk-sharing Pricing
• Impact of Price on other parties
Selecting Pricing
Objective
Determining
Demand
Estimating Costs
Analyzing
Competitor’s
Costs, Prices
and Offers
Selecting a
Pricing Method
Selecting Final
Price

27. Need to Know before Revenue Model
• Your strength
– Operation
– Selling skills
– Existing networks
– Market / customer readiness
– Potential market

28. Thank you
shaer@nascenia.com
linkedin.com/in/shaerhassan
www.nascenia.com