In my theory of business model, I propose three key concepts that need to be considered in each new business concept:
- the growth driver
- pricing model
Today's post is on pricing. There are sixteen pricing alternatives, as outlined in my book. Each alternative represents a different way to monetize a transaction or capture the value. The reason that there are so many alternatives for pricing is that there are so many ways to share value with a customer.
As Marco Bertini and John T. Gourville, professors at London Business School and HBS respectively, make clear in their excellent new article, "Pricing to Create Shared Value", pricing is not a zero sum game. "Companies have traditionally treated value in the marketplace as a fixed pie and have reasoned that they must compete with their customers to appropriate as much of it as those customers will relinquish." Thinking of the customer as merely a pocketbook robs the company of the opportunity to understand the customer need, build a better relationship and share the value created.
The notion of "shared value" presented by Bertini and Gourville is attributed to Michael Porter and this article by Porter. Personally I think they have a different notion of shared value from Porter or perhaps they have explained the idea better than Porter did. Bertini and Gourville's notion of shared value is consistent with my view of social entrepreneurship, wherein the company shares as much value with the recipient as possible while still achieving cash flow breakeven.