NYCML19 Reisman Workshop - "21st Century Relationships, Value Propositions, and Pricing - A New Economics for Digital Services" (A FairPay Perspective)

1. Copyright 2019, Teleshuttle Corp, all rights reserved Richard Reisman fairpay [at] teleshuttle [dot] com @RReisman, #FairPayZone 1 Techonomy 10/15/18 Journal of Revenue and Pricing Management 2/26/18 Australasian Marketing Journal (accepted 6/19/19) FairPay book 9/16/16 Harvard Business Review 11/18/13 Links to background info included 21st Century Customer Relationships, Value Propositions, and Pricing A New Economics for Digital Services – The FairPay Framework NYCML19 Workshop (SlideShare Version, Rev 9/27/19)

2. 21st Century Customer Relationships Two Sea Changes, Known – Interrelationships Not Clear 2 1. Computer-mediated relationships deepen 1-shot games (transactions)  Repeated games (loyalty) 2. The Invisible Hand fails Scarcity of supply  Digital: no scarcity to ration Free??? A new social contract to sustain creation – An Invisible Handshake Win-win relationships – Empowered, loyal customers Central focus: actual value to each customer

3. 21st Century Customer Relationships Two Sea Changes, Known – Interrelationships Not Clear 3 1. Computer-mediated relationships deepen 1-shot games (transactions)  Repeated games (loyalty) 2. The Invisible Hand fails Scarcity of supply  Digital: no scarcity to ration Free??? A new social contract to sustain creation – An Invisible Handshake Win-win relationships – Empowered, loyal customers Central focus: actual value to each customer A new social contract to sustain creation – An “Invisible Handshake,” balanced powers Win-win relationships – Empowered, loyal customers Central focus: actual fair value to each customer

4. ”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 – The FairPay Story – Pioneering digital services for people since 1960’s • Diverse businesses and roles – B2B and B2C, content and services • >50 patents, licensed to >200 companies, serving billions of users – Steeped in disruption – business model crisis in content industries – A new way forward – simple new logic – deep implications – Shift the focus of customer relationships from price to value • Ideas that can change the world – Save industries + Create new value (journalism, music, video, …+nonprofits) – Human-Centered Markets – win-win values, convergent across profit spectrum – Work pro-bono with business + academia on research, trials, applications …seeking collaborators, evangelists…and offer free consultation (More information at FairPayZone.com) 4

5. • Extensive conceptual development – online, book, patent filing in public domain • Extensive discussions with businesses – Vendors (NYTimes, News Corp, Disney, Spotify, Rhapsody, IBM, American Express, Verizon, plus startups) – Platform providers (Zuora, Salesforce, TheNewsProject) – Research firms (Forrester and MECLABS/MarketingSherpa) • Key elements already proven in wide use • New combinations supported by behavioral economics and emerging marketing theory • Find the sweet spots with partial steps, trials • Eminent scholar collaborators to assist in trials Toward FairPay… An open architecture, not a product 5

6. Agenda New Context for All Biz-Model Alternatives B2C, Digital …in light of B2B, Physical • A thought experiment – what is value? • The Ladder of Value • The Relationship Economy • Through the digital looking glass • FairPay: a strategy and an architecture • Climbing The Ladder of Value • Conventional and alternative paths 6

7. A Thought Experiment Imagine an all-knowing Value “Demon”* • Read buyers’ & sellers’ minds to learn value-in-use, value-in-context • Know how used, liked, value obtained, willingness/ability to pay • Know cost, economic “value surplus” • Arbitrate fair sharing of value surplus (specific to each customer) Set personalized and agreeably fair prices --- • Practice: Better strategies • Theory: Better insights (*Benevolent, like Maxwell’s Demon and Laplace’s Demon in physics) 7

8. Climbing the ladder of value Customer-value-first (Trust, loyalty, recurring revenue) Customer-value-hostile (Distrust, resentment, churn) 8

9. The Elements of FairPay Climbing the Ladder of Value 9 Elements of FairPay For-Profit Non-Profit (Now) Low Trust High Trust (Now) Low Trust High Trust Foundational Elements Relationship-centered (repeated game) ? ✔ ✔ ? ✔ ✔ Individual-value-centered X ✔ ✔ ? ✔ ✔ Post-pricing (“risk-free”) (after the experience) X ✔ ✔ ? ✔ ✔ Basic framing and nudging; transparency and trust ? ✔ ✔ ? ✔ ✔ Amplifying Elements Participation of customer in price-setting X ? ✔ ? ? ✔ Individual nudging based on reputation tracking X ✔ ✔ X ✔ ✔ Enforced fairness / revocable privileges ("Gated FairPay") X ✔ ? ? ? ? Flexible adjustment for ability to pay ? ? ? ? ? ?

10. Relationship Business Models Fundamental Questions • Who takes the pricing risk? Value and Risk = f(Experience, Time, Price) – Who decides the price? Advanced strategies (built on behavioral economics – homo reciprocans) – When do they decide it? Simple “Risk-free” “Post-bundling” 10

11. “The future of subscriptions is to be risk-free to the consumer” For digital services, the provider risks nothing …except the opportunity to take money in exchange for no value. That will be less and less tolerated. • Risk-free subscriptions can attract and keep more customers, for more total profit. • It’s the relationship, stupid!

12. The Problem of Consumer Risk Desired Value/Cost vs Experienced Value/Cost A. All-You-Can-Eat (AYCE) Subscriptions (and One-Size-Fits-Few Bundles) – Pay for the month/year, don’t use much? – Not happy with what you do use? – Subscription hell: Want many content sources, but not AYCE of each? – Bundle hell: So many bundle elements, little clue which you will use? B. Micropayments (Usage pricing) – Ticking meter: Surprise at huge bill? – Pay for items, but not satisfied with them? – Scan many items lightly, pay full price for all? 12

13. A Risk-Free Subscription? “Pay-ramp” vs. “Pay-wall” 13 Compare to $5/mo AYCE*: • Run of house access • Month-end bill, on value of usage -- discounted • No use = $0 (not $5) • Increasing usage ramps up fee …but with volume discount (often <<$5) • Cap for high usage ($5+?) – no nasty surprises • +++ (*All You Can Eat)

14. The Relationship Economy The Customer Journey Experience -- as Important as the Product 14 [News publishers are getting smarter about the conversion funnel, …the loyalty loop, not so much!]

15. “The Subscription Economy” 15

16. “The Age of the Customer” …Based on Digital Transformation Mind-shift: • Linear to cyclical • Customer-centric empowerment • Top-down and bottom-up • Big-Data insights • Transformed cross-functional operations: innovation, marketing, sales, finance, IT,… • Transformed Customer Experience (CX) 16

17. From products, to services From transactions, to relationships 17 • Goods-Dominant Logic  Service-Dominant Logic – “Customers want holes, not drills” – “Power by the hour,” “Tires by the mile” – Book of the Month…Dollar Shave…iPhones…Cars… – Anything as a Service (AaaS) • Service Level Agreements, CX, Customer Success • New Success Factors (KPIs) – Customer Lifetime Value (CLV) – Customer Acquisition Cost (CAC) – Churn/Retention

18. The Game Theory of Commerce One-shot vs. Repeated Games • Transactions = one-shot game  zero-sum contest • Relationships = repeated games  win-win cooperation 18 (Buyer) 1. Set rules rules 2. Consume Accept/buy/ use (Buyer) Continue or churn? (Buyer) Pre-set offer & price (Seller) 3. Repeat game?Customer Loyalty Game

19. • Operations – UX/CRM/CFM/SM/chatbots… – Dialog • Essence – Value exchange – Value propositions • Dialogs about value – Talk at customer? – Hear from customer? – Transparency, trust Connecting the Value Exchange 19 dialog dialog dialog dialog dialog dialog business

20. Aligning Price with Value • Exchange of value as basis • Price as the monetary balance • Prices usually set by business – Consumers take it or leave it – Problems of uptake, churn …discounts, retention deals (=squeaky wheel; typically revert to one-size-fits-all) • What basis for price??? – Cost-based? – Competition-based? – Value-based? …“typical” or individualized? 20

21. 21 Set Prices Are So Last Century! (Watch video on YouTube)

22. Set Prices Are So Last Century! Now taken for granted, but unnatural! • Historically: Prices personalized (village market) – Personal negotiation – human buyer and seller – Personal contexts – needs, bargaining powers, relationships – Communal norms (win-win): caring, fairness, even generosity • Mid-1800s: Price tags / institutions (department stores) – Institutional sellers – mass market of “consumers” – Scalable – simple, operationally efficient – Exchange norms (zero-sum): take it or leave it, bargain hunting, exploitation • E-commerce: Mass-personalization? 1:1 marketing? – Why not price? – End race to the bottom, commoditization – personalize a fair price for value – How to do it fairly, effectively, efficiently at scale??? 22

23. Value-Based Pricing (for Consumer Markets?) • Prices based on actual performance/outcomes • Proven effective in B2B markets* – Win-win: Buyer and seller agree to share in the actual “value surplus” – as co-created – High economic efficiency, reduced pricing risk, transformative competitive advantage, customer-first – But: high cost/effort for custom analysis *See Value-Based Pricing Is Transforming B2B -- Now for B2C... and Finding Value in The Subscription Economy 23

24. “Pricing and packaging …for subscription businesses it is one of the most powerful growth levers you can have...” ... you're not pricing an object, you're pricing an outcome... customers may assign different value to the same outcome. ...But what happens when you get it right? …customer acquisition gets much easier …churn gets reduced. …value is translated into revenue...a virtuous cycle...You can create intuitive customer journeys... when your pricing model locks into that subscriber journey, …your business model locks into subscriber relationships, …a valuable company is born. [emphasis added] 24 (Zuora - SaaS for 900+ Subscription Businesses)

25. Usage-based Pricing …More value-based • "at its heart, usage-based billing is a way of quantifying value...how they actually use your service...a 'value metric.' Simply put, a value metric should do three things: – align to customer needs, – grow with the customer, – and be predictable (both for customers and the organization).“ • Based on Zuora customer data (900+ companies, B2B+B2C): – Fastest growth is neither 0% nor >50% usage-based. – Easy stop and start also contributes. – Referring to cable companies, "smarter usage-based billing...will make their video content services more responsive and valuable.” • Conventional wisdom: consumers dislike usage pricing • Is there a smarter way? 25

26. Through the digital looking glass The Paradox of Digital Abundance The Flawed Response: “Artificial Scarcity” Digital changes everything …including how we think about non-digital 26

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29. Monetizing: Digital Offerings in Networked Markets • Dilemma: Pricing for digital 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 creation (pay for future services) Balance value, ability to pay, cost, profit …How?... Hint: Consumers want to pay (...if you deserve it) 29

30. The Long Tail of Customer Demand Customers are not the same! Customer experience is not the same! 30 • Green revenue: capped at set price • Red head: lost surplus • Amber tail: lost sales …Dynamic and context-dependent (see Long Tail blog post) [You can lead the Long Tail of the horse to convert, but how do you keep it from churning???]

31. A digital “product”? • Valued as an “experience good” – a service – Not discrete, scarce “product” – Access, entitlements, usage – Personalized variations (items, time, intensity, volume, actions, …) – …all measurable – rich instrumentation in use – Cloud of Value New data on value for each consumer • Near-zero replication cost  “Free” “Free” as a selling tool (eliminate price risk to customer ) – Freemium, pay what you want, crowdfunding/tipjars, free trials …  Better: Embrace dynamic variability, control pricing risk 31

32. A key part of the answer… Separate the Sale from the Price! Post-Pricing 32 –Thanks to John Blossom, Shore Communications (ContentBlogger) “Pay as You Exit: FairPay Explores New Content Pricing Discovery Regimes” Watch video on YouTube (Relevant portion is 1:30-2:15, but all is amusing. If video is removed from YouTube, search by title for an equivalent version. Also may be available on DVD.)

33. A key part of the answer… Separate the Sale from the Price! Post-Pricing Why not price the experience after it is known?* • Remove the consumer’s risk discount (or rejection) • Unlike typical up-front offers (Pay What You Want, etc.) • Signal supplier’s value and trust (Timing aspects: packaging/bundling, usage levels, unit price schedules) _________ *= post-pricing = ex-post pricing = price in arrears = price as you exit = price it backwards 33 –Thanks to John Blossom, Shore Communications (ContentBlogger) “Pay as You Exit: FairPay Explores New Content Pricing Discovery Regimes” – Watch the episode

34. Relationship Business Models Fundamental Questions • Who takes the pricing risk? – Who decides the price? Seller (usual)? Buyer (PWYW)? Jointly? • Manage value and risk to each party • Apply fullest information on the experience – When do they decide it? Before selection/experience? At…? After…? • Knowledge of selection/experience reduces risk 34

35. FairPay A Strategy and an Architecture for Dynamic Value Discrimination Information wants to be free Consumers want to pay… (when they think it fair) 35

36. The Relationship Economy How can we center on value? (in B2C) 36 (See my journal article and/or this summary article)

37. Change the Game! • Conventional repeated game = Customer Loyalty: “Here is our monthly price, take it or leave it. We hope you will take the risk -- and be satisfied enough that you will continue this game.” • FairPay repeated game = Joint Fairness: “We will remove the risk and let you pay what you think fair for you after each month’s use -- but we will continue this game (beyond a few trial cycles) only if we agree that you are being reasonably fair.” 37

38. Change the Game! 38 (Buyer) 1. Set rules rules 2. Consume Accept/buy/ use (Buyer) Continue or churn? (Buyer) Pre-set offer & price (Seller) 3. Repeat game? Customer Loyalty Game 1. Set rules rules 2. Consume Accept/buy/ use & price (Buyer) Pricing fair to seller? (Seller) Pre-set offer (Seller) 3. Repeat game? Joint Fairness Game Conventional FairPay

39. Accept/buy/use (before pricing) (Buyer) Set “fair” price (after buy and use) (Buyer) Track price (Seller) Fair to seller??? (Seller) Gated FP Offer (selective privilege) (From Seller) Price it BackwardExtend it Forward? (after trial)(limit FairPay credit) FairPay Dialog Cycle An adaptive engine for Dynamic Value Discrimination 1. Set the rules 2. Set the price 3. Repeat the game? * * Can relax criteria in Voluntary Payment Mode ** Can restrict buyer pricing power for more conventional control ** Fairness?

40. FairPay Value “Sweet Spot” Discovery Engine Continuous journey of adaptation – Frame/nudge/track 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 (Paywall) 40 Value/FairnessOffers * * Can relax criteria in Voluntary Payment Mode – no paywall (positive nudges only) ** Can restrict buyer pricing power for more conventional control (Also a repeated game, but less cooperative and win-win) **

41. Seller Control and Predictability? Frame/nudge/track • Managed dialog – “choice architecture” – fully personalized – Seller: 1. Set the rules • defines the offer / reports usage • provides a suggested price personalized to that buyer’s usage • frames the pricing rationale, and nudges with incentives (+, -) – Buyer: 2. Set the price** • sets FairPay prices (as a differential from suggested price) • states reasons for their differential (multiple choice) – Seller: 3. Repeat the game?* • 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 • Start with those who will be delighted and fair… 41*Can relax criteria in Voluntary Payment Mode – no paywall (positive nudges only) ** Can restrict buyer pricing power for more conventional control

42. Aligning Price with Value Pricing for the Co-Creation of Value Intuitive blend of diverse factors, emerging over the relationship  From provider to consumer (soft/fuzzy meter) – Value-in-use = experience + outcomes – Other “soft” value • Service / support • Participation / listening / responsiveness (comments, access to reporters, curators) • Social values / “triple bottom line” / ESG (investigative journalism, community)  From consumer to provider (“reverse meter”) – Monetary payments – Other currency -- “Consumer” as provider of value to “provider” • Attention to ads (customized levels) / Personal data to exploit (customized levels) • User-Generated Content / Co-creation (eg: participatory journalism) • Promotion / virality / leads • Volume/loyalty discounts Can extend through the ecosystem value chain – Even with ads, the user becomes the customer  value propositions matter – Designations of value share to creators/suppliers (vs. intermediaries) – Sustaining Bonus contributions (splits to creator/supplier/CSR) 42

43. Ad Models and Reverse Meters “Original sin of the Internet” – Facebook, Google, … • Attention/Data Value (vs “Engagement”) • Ad-blocking/Hostility, Disinformation “If you’re not the customer you’re the product” • Reverse meter, quantify value • Consumer  “the customer” Incentives for ads to be valuable, non-intrusive • Win-win-win …for advertiser, platform/publisher, and user 43

44. “Price Discrimination” - Buyer-accepted Economic optimum: price tracks to value • Buyer “self-discrimination”  Legitimacy (not imposed or hidden) • 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! when it is “value discrimination” 44

45. “What Lies Beyond Paywalls” (Theory X) vs. “Patron-izing Journalism” (Theory Y) • Opaque, one-sided dynamic pricing (current direction) – Transaction focus – Psych out “propensity to buy” – Secretly seek to hog value surplus for seller – Revert to set-price after teaser period – Breed distrust, zero-sum  risk CLV and VLV • Transparent, win-win dynamic pricing (FairPay) – Relationship focus – Dialogs about value – Transparently share value surplus – Breed trust, win-win  nurture value: VLV and CLV 45

46. Lifetime Value in Relationships Seeing through the Customer’s Eyes Both sides of the coin: • Customer Lifetime Value (CLV) – to Vendor – Not current sale, but lifetime value – Balance CAC (Customer Acquisition Cost) with CLV • Vendor Lifetime Value (VLV) – to Customer – Convenience, trust, real loyalty, communal norms – Dialogs about value (outcomes) -- “Value nurturing” – Procedural utility: “Not only what, but how matters” 46

47. From Invisible Hand to Invisible Handshake …Creating Shared Value along a relationship – a repeated game 47(see Invisible Hand, Invisible Handshake, and Customer Journeys posts)

48. Key Evidence and Enablers Consumers want to pay (…if deserving and fair) • Behavioral Economics and Game Theory – People are not heartless profit maximizers (eg: traditional, PWYW generosity) – Traits: Fairness, reciprocity, altruism, self-image, acceptance, … – Situations: Social/communal norms vs. economic/exchange norms – Repeated game: Invest in fairness reputation to gain continuing privilege – Treat me as a patron, make me want to be a patron • Computer-mediated dialog (AI) – Customer journeys – 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 + IoT + Predictive analytics (AI) – Cloud of Value – Use data to validate customer dialogs about value, incentivize honesty – Customize offerings and how they are framed – Show that you recognize and respect my desires as a patron  Adaptive, cooperative, “customer-first” relationships – “dialogs about value” 1. Segment based on fairness traits (social values) and value propositions 2. Foster social/communal norms (participation, dialog, transparency, trust) 3. Nudge buyers toward fairness, perception of value, sharing value surplus 4. Motivate a repeated game that is win-win 48

50. Climbing The Ladder of Value Relationships, Risk, Timing, and Participation • Relationship Perspective: Transactional Relational • Pricing risk: Will I get my money’s worth? – Sellers can reduce customers’ risk (if low marginal cost) • Value: Value-in-use is best assessed… – after use (timing = pre-pricing/post-pricing) – with recipient input (participation = seller/joint/buyer) • Price/Value depends on: – Packaging: who defines packages, before or after use? – Usage levels: does pricing depend on actual usage? (with fair volume discounts?) – Price schedules: set by seller?– buyer? – joint? – Ability to pay: fair to each buyer (and the seller)? FairPay points the way up the ladder* *Post-bundling as an intermediate example: post-packaging / discounted usage / seller-set price schedule. 50

51. Phasing in… How much pricing power to yield to customers? • Can limit FairPay to a contained niche offering • Can build and apply in incremental stages Level 1: Voluntary Payment Mode (much like tipping) • Simple Pay What You Want  Pay What You Think Fair + Post-Pricing • Pricing unrestricted by fairness – no fairness gating – but soft nudging • Post-pricing (“as you exit”) based on value – makes PWYW more fair • Good transitional step for services that are currently free (or extras) Level 2: Enforced Fairness (nuanced seller control) • “Gated” by seller (minimum fairness threshold) – most of the cost, complexity • Manage thresholds adaptively -- loose or strict control by seller • A “repeated game” – to keep playing, invest in reputation for being fair 51

52. Phasing in…an 80/20 half-step Post-pricing only – maintains full seller price control The “Risk-free” Subscription • Many sellers fear yielding any price control • “Risk-free” “Post-bundling” – Gain post-pricing benefits, – Retain full seller price control • Less adaptable to varying experiential value or ability to pay, but still far more fair and flexible • For any kind of digital content/service (news, mags, TV/video, music, games, podcasts...) 52

53. A Risk-Free Subscription? “Pay-ramp” vs. “Pay-wall” 53 Compare to $5/mo AYCE*: • Run of house access • Month-end bill, on value of usage -- discounted • No use = $0 (not $5) • Increasing usage ramps up fee …but with volume discount (often <<$5) • Cap for high usage ($5+?) – no nasty surprises • “Quality Refund” -- button on each item • “Reverse meter” -- credits value of attention to ads (all/some/none)  Acquire and keep more customers More profit, even if lower average CLV  Or, if free now, introduce “pay-ramp” with no risk hurdle (*All You Can Eat)

54. TV/video Post-Bundling vs. Cable channel bundles • Price as a bundle -- after use • Buyer gets run-of-house access (by category/level) No need to pre-select standard/premium channels • Bundle price reflects volume discounts Align with unlimited usage plans, factor in premium items • Offer a price cap Limit upside risk, like unlimited, maybe a bit above…or lower • Discounting vs. flat-rate Pay Per View (micropayment) • Seller retains full control of price rate schedules “Risk-free” to consumer 54

55. The money-back guaranty Disappointing items are free • Quality Refund button on each item • Full or partial refund at user discretion • Optionally cap excessive refunds  A basic form of FairPay cooperative fairness

56. Value Metrics A design parameter • Consider item count and type, – plus: duration/dwell, sentiment, feedback,… • Weight based on heuristic Value Models

57. Vote with Wallet to Align Interests From Risk-Free toward Participative FairPay • Request “Sustaining bonus contributions” – Voluntary, with nudging (at selective intensity, based on value-usage, specific observed interests) – Consider “matching funds” to incentivize, align • To creator/author/artist • For Corporate Social Responsibility (CSR) • To provider/distributor

58. Aggregation? (Netflix, Apple, …) Win-win ecosystems • Customers seek value and convenience • Publishers seek direct relationship …as do loyal customers • Aggregators fill the gap when usage is sparse • AYCE: zero-sum battles: platforms vs. publishers • Risk-Free: facilitates finding win-win blend – Graceful transitions from casual/platform to dedicated/direct – Interoperable, prices combine proportionately – Fair, win-win sharing of revenue, data ownership 58

59. Changing Consumer Behavior Initial Sweet Spots Back to the Future – rebuild win-win social/communal norms and values • Partial steps up the ladder (post-bundling, reverse ad meter) • FairPay: small segments / value-focused tiers – low cost/risk • High generosity users – Superfans – loyal, perceive value – Deserving providers – High service / value-add – justify appreciation • High cooperation users – Thrilled to share price responsibility – Willing to bear burdens to do it right …The thin end of the wedge of behavior change 59

60. 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 Premium “club”/“patron” segments (Eg: NY Times “Premier”/”Insider”) curation, early access, journalist access, archives, downloads/offline, extra features Retention offers (“Saves”) (Revenue recapture) low usage, low price Acquisition (=“Fuzzy Freemium”) (Revenue from day one) versions, tie-ins, gamification, membership ”club” 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 60

61. Concerns? • Too much cognitive load for users? – Analogous to tipping – Easy, intuitive, with rich multi-dimensional nuance – Happily pay more than you “need,” often generously – Can shift to autopilot once value patterns are learned • Why should that guy get it for less than me? – Apples vs. oranges – very different usage, value, ability to pay – Statistics can show that (multivariate) • Will customers psych it out & game the system? – Again, apples vs. oranges – variations hard to psych out – Implicit value signals can validate underpricing “reasons” – Some will try, but most will want to be fair – Segment by fairness and tune to motivate fairness 61

62. Platform and Database Opportunities • Single vendor – internal process solutions • Cross-vendor – added leverage, info – Shared infrastructure and processes = “Pricing as a Service” (PaaS) – New: FairPay Fairness Reputation Database • Across vendors and contexts (fairness ratings + details) • Like credit rating database (“FairPay credit line”) • Detailed data on value perceptions and willingness to pay • Offer selectively for high price, widely for market share? Database asset / “Data moat” -- first mover advantage • Interest by established platform vendors (Zuora, …) – Plug-ins / SaaS • Entrepreneurial startups??? 62

63. A New Cloud of Value • Implicit signals of value – Traditional + new IoT data (“E-Books are Reading You” example) • New: Explicit expressions of value – New, generate from FairPay “dialogs about value” – Validate consistency with implicit signals Adaptively win-win customer journeys • Focused, flexible value propositions – Match to customer perceptions, contexts, times – Sell value: a positive experience (not focus on price) – Build a relationship (not just customers, but patrons) 63

64. A Flexible, Extensible Framework Subsumes major alternatives • Coexist with conventional pricing (segment by fairness) • Tunable parameters (choice architectures) – Gating, nudging, warning, dispute-resolution – Up-selling, down-grading – Find sweet spot between tight or liberal control very tight = conventional <-------(FairPay)-------> very liberal = PWYW – Seek “late binding” (=optionality) on value propositions • Analogs of conventional methods, plus new ones, in any combination – Advertising (reverse meter) – Customized mix of customer revenue and advertising – Freemium, Paywalls (metered/soft), “Pay-ramps” – Tiers, segments, dynamic/usage pricing – … 64

65. Change the Game with FairPay From invisible hand to invisible handshake 65 • From: set prices  shop for “bargains”  commoditization • To: FairPay participative value exchange  shop for value, relationship  engagement, loyalty • Delight your customers – give pricing freedom, focus on value, gain loyalty • Start with those who will be delighted and fair  Emergent strategy  Pricing “legitimacy”  Higher profits + deeper market penetration (+ad $) (See Handshake post)

66. Thank You Call to Action • Questions? • Strategic cooperation? Trials? • Spread the word… (leads to businesses, platforms, researchers) • Climb the Ladder of Value Richard Reisman fairpay [at] teleshuttle [dot] com FairPayZone.com @RReisman, #FairPayZone ---------------------- Additional Commentary Follows… 66

68. The Elements of FairPay Important Variations 68 Elements of FairPay Use in Examples (Now) Full FP Voluntary FP Risk- Free Micro FP Foundational Elements Relationship-centered (repeated game) ? ✔ ✔ ✔ Part Individual-value-centered X ✔ ✔ ✔ Part Post-pricing (“risk-free”) (after the experience) X ✔ ✔ ✔ Part Basic framing and nudging; transparency and trust ? ✔ ✔ ✔ ? Amplifying Elements Participation of customer in price-setting X ✔ ✔ X Part Individual nudging based on reputation tracking X ✔ ✔ ? ? Enforced fairness / revocable privileges ("Gated FairPay") X ✔ ? X ? Flexible adjustment for ability to pay ? ? ? ? ?

69. Participative alternatives Pay What You Want (PWYW) Crowdfunding / Patronship / Tipjars • Spectrum of how voluntary • PWYW as one-shot game • Pre-pricing vs. post-pricing • Tiers and soft nudging • Value-based • 100’s of research papers on behavioral factors • But usually not: – Post-priced – Adaptive nudging – Disincentives for unfairness (carrot + stick) High pricing risk to seller 69

70. Other Interesting New Models… • Crowdfunding: Patreon, Kickstarter-Drip, IndieGogo-InDemand • HumbleBundle • Flatter (Soundcloud), Kachingle • Gumroad • PressPatron • PledgeMusic • BitTorrent Bundles/Now/BTT • Blockchain • PayTime • Blendle • LaterPay • Scroll • Medium • … 70

71. Blockchain and Cryptocurrency Transformative or not? • Micropayments • Smart Contracts • Distributed Ledgers • Fundamental change to relationships? – Trust/reputation/stake? – Data/privacy? – Operational efficiencies? • Micropayments • Ledgers 71

72. Some Rungs on the Ladder The FairPay Demon Challenge (Why can’t our model be more like FairPay?) • FairPay • Soft values as pricing factors • Subscription access – Value / Performance / Outcomes Pricing – Bundled (pre-bundled, post-bundled) – Usage-related (metered, tiered) – Freemium – All you can eat (AYCE) / Membership – Advertising • Unit sales of items 72

73. Alternative Paths Theory X or Y?* / make the shift X. Zero-sum – one shot games exploitation, alienation, lost value Y. Win-win – repeated games  cooperation, co-created value – Empowerment, Dialog, Reputation – Trust, Transparency, Loyalty – More good customers + more total profit – Single, real bottom line that is value-based – Really doing well by doing good (in a way that even Milton Friedman would love) [*Analogous to theories of negative versus positive employee motivation] 73

74. Business Contexts • Ongoing relationships – Subscriptions (ongoing services) – Item Aggregation (iTunes, Amazon, App stores, …) • Experience goods • Low marginal cost, perishable, promotions (Also, costly goods, using a minimum price floor) • “Deserving” sellers/producers (For profit … and non-profit) 74

75. 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) – Social media /communications – News / information / magazines – Music / audio / podcasts – 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, museums, events) – Costly goods with a minimum price floor + FairPay bonus 75

76. Fixing Facebook An 80% Solution that is Market-based • User revenue vs. ad revenue? Value (=customer) vs. engagement (=product)? • Affordability?  FairPay (or similar innovation) • Voluntary? • Regulatory? – Auto emissions model: set target, let firms determine how – 5% of Facebook revenue from users (or taxed away) – Then 10%, 25%, 50%, … 76

77. "Social Responsibility as a Service“ Who really pays for what Corporate Social Responsibility? • Customers pay implicitly for CSR (not shareholders) • Let customers pay explicitly for the CSR they value …with CSR bonus payments – “Would you be willing to pay an extra $4 for environmentally-friendly, biodegradable packaging and no- fossil-fuel shipping?” – “Would you be willing to pay an extra $1, $5, or $20 (select amount) to fund on-the-job training for ex-coal miners who seek to upgrade their skills to work in our factory in Appalachia, if we match your grant dollar for dollar?”  Adaptive market-democracy: Better for business, customers, and society 77

78. Today Digital… Tomorrow the World • AI and automation will make everything low marginal cost – (Except the human labor and scarce materials that cannot be automated or synthesized at low cost) • Low marginal cost services want to be free… 78

79. Usage/Value Pricing - Buyer-friendly • Deadweight loss of “all you can eat” unlimited subscriptions • Soften the “ticking meter” / no shocking usage bill • Price considering usage, but… – Buyer decides, factors in: • Usage history • Volume discounts (…with seller guidance) – Soften the extremes – average out – Suggest price caps Price tracks to value (with affordability) (Reduce risk of not getting your money’s worth) Warm and fuzzy, good feelings 79 Advanced Economics:

80. A Revenue Train Wreck and Consumer Nightmare The Celestial Jukebox vs. Subscription Hell • The vision: “Every record ever recorded” …anything you want, 1 click away • The reality: “Subscription hell” …subscriptions for every channel or publisher • The price: Flat-rate, all you can eat (wanted or not) …share of wallet vs. value obtained 80

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