The FairPay Zone

FairPay: Adaptively Win-Win Customer Relationships -- Richard Reisman's blog (now a book) on win-win ways to reinvent business, resolve the revenue crisis for digital, and create more customer/vendor lifetime value for all. Seeking value-based, customer-first relationships. A one to one "invisible handshake" that brings commerce back to human values. A simple "risk-free subscription" that is far more win-win and efficient than flat-rate, all you can eat, for far more subscribers.

Friday, June 25, 2010

FairPay for Hulu? (or YouTube, or...) -- A better way to charge...

With the recent reports of a pay-to-view subscription (Hulu Plus, $9.95/mo.) planned to be added to Hulu's free (ad-supported) video plan, FairPay offers a very timely way to ease the pain all around. FairPay develops a buyer reputation for payment, based on Internet feedback, to go beyond freemium, to an adaptive hybrid of free and paid content. My article on FairPay explains this radical "Fair Pay What You Want" pricing process in some depth.

Here are some brief comments relating to Hulu, and how FairPay could be used as a complement to their planned Hulu Plus offering (as suggested in this diagram).

How it works:

1. Selectively offer to let the subscriber enter the FairPay Zone, where he can set any price he considers fair after each month of subscription (Pay What You Want, post-sale).

2. Let the seller track that price and use that information to determine whether to make further offers of that kind (FairPay renewals) to that subscriber in the future.

Those who pay fairly, rise above the pay wall -- those who do not, must face it.

First, an experimental program might be offered to a selection of Hulu users based on FairPay pricing. This might be aimed at heavy users, and offer ad-free access to both current and new premium content on a subscription basis on the following terms:

Ad-free* unlimited access is offered on a month-by-month basis upon subscription.
Before the start of the next month, the user decides on a FairPay price to pay for the current month ending (with a usage report provided to the user for reference, and considering both basic and premium content viewing).
Depending on the FairPay price set by the user for the previous month, Hulu decides whether the subscription offer will or will not be extended for the next month.
By coexisting with the conventional paid subscription model, users will have a reference price, and the usage report might indicate how their usage compares to averages (for basic and premium content).
FairPay might be applied just to basic content, possibly in an ad-free version, to allow for a more basic FairPay service to those who don't want or qualify for the premium version.

Once tested, this FairPay subscription plan might be enhanced and offered more broadly, with more varied levels of service:

Price setting might gradually be reduced to a quarterly or yearly cycle for established subscribers with good FairPay reputations, easing the hassle of price setting, and extending "FairPay credit."
Usage reports would be provided to assist in the pricing reviews.
Payments might be monthly (even if price setting is yearly), for better cash flow and flexibility.
The options offered to any user on each renewal/pricing cycle could be adjusted based on their payment history (with consideration of any relevant circumstances known or reported). Thus those who pay better than average might get added rewards, and those who pay less might get less.

Thus those who pay fairly get increasing levels of trust and other rewards, and float above the pay wall, but those who do not get kicked back down into the pay wall.

This benefits both Hulu, and users:

Users feel more respected and empowered by the added trust and flexibility.
Users might get ad-free basic content [as a future enhancement*], at some modest cost, presumably less than the $9.95/mo. Hulu Plus rate.
Some will pay less than $9.95 for the premium content, but some will pay more.
Relating pricing to usage might help get heavy viewers to pay more, compensating for those who pay (and/or use) less.
Many who might refuse the conventional Hulu Plus premium service might be willing to pay something reasonable for a FairPay basic service -- added revenue to Hulu and its content partners.
The details of the offers and the process can be individually and dynamically tuned to encourage good payment levels, and to send free-riders back into the hard pay wall of the standard Hulu Plus (or basic Hulu) plans.

Bottom line: more happy users; more revenue to Hulu.

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*Update 6/30/10: As announced, Hulu Plus is not ad-free. That does not materially change any of the points above --there is still a pay wall separating basic from premium content, and FairPay can rise above it, as outlined (simply ignore the references to "ad-free"). Future ad-free offerings might also fit in as described, as another premium segment, or as a bonus reward to those who pay better than average.

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"Anyone responsible for monetizing digital content in consumer markets should understand this radically new perspective on pricing and how to maximize lifetime customer value."

- Shelly Palmer, Business Advisor, Author, Commentator

"...an innovative and visionary methodology …what disruption could look like..."

- Lucila Pagnoni, News Corp Australia

"...groundbreaking..."

- Professor Pennie Frow, University of Sydney Business School

"...compelling ...promises to transform business..."

- Professor Adrian Payne, University of New South Wales Business School

"Highly recommended for digital business entrepreneurs, as well as established firms..."

- Jim Spohrer, IBM and ISSIP.org

Foreword by Adrian Payne

How FairPay Works
...over a relationship, as a repeated game
...through a deceptively simple balancing dynamic:

1. Set the rules (Seller). As usual, the seller sets the ground-rules of the game, but in this repeated game, the rules favor fairness, transparency, and cooperation on both sides. The seller decides to whom to make a FairPay offer, on what terms and conditions. FairPay offers are a privilege that can be granted or withheld.

2. Set the price (Buyer). Reversing traditional practice, the buyer is granted the power to set the price to whatever value-based price the buyer considers fair -- after the sale, when the real value is experienced and known.

3. Repeat the game? (Seller). This seller power is what makes FairPay work, balancing the power of the buyer to set the price. The seller tracks the price, and determines, in the context of the overall history, whether it seems fair enough to the seller to continue the FairPay game for another round.

The buyer knows this is a repeated game, and must consider the consequences when exercising his price-setting power. That motivates the buyer to price reasonably fairly. This builds a relationship based on fair value exchange, that adapts and evolves over time. The seller manages "dialogs about value" that frame the value that was delivered, and a suggested price for that -- and nudge the buyer to be generous by offering more value for more generosity.

This repeated game structure gives buyers a strong incentive to price fairly – and enables sellers to limit their future exposure to those who do not.

More broadly, it shifts the entire focus of customer relationships from short-term transaction price to long-term relationship value.

...See Overview for more

Consumers -- Pay only what seems fair to you:

Pay what you think fair for products or services – after you try them
Make every purchase on a trial basis – so you can always be sure to get your personal fair value for your money
Agree to set your price fairly – in your judgment – and explain why you think it is fair
Keep that privilege as long as you can convince the seller that you are being fair

Businesses -- Get the most revenue from the most customers by continuously learning what each one values:

Engage in real dialog with each of your customers and listen to their perceptions of the value they get from your products/services
Make a trial offer to every potential customer who sees potential value
Suggest a price after use that you think is fair for that particular customer, considering all relevant factors
Offer incentives, such as premium tiers and perks, to entice fairness, even generosity
Let your customers self-select into segments (based on usage, value perception, willingness and ability to pay, ...)
Limit your risk from those trial offers by tracking the results (fairness) for each buyer, and limiting future offers if you judge that buyer to not pay fairly
Retain set-price plans for those who refuse to play the game fairly
Learn how much freedom (FairPay credit) to extend (or what restrictions to enforce) to get satisfactory results from each customer segment
Continue to make every offer a trial...
...as long as each buyer continues paying fairly--in your judgment

Delight your customers: give them what they really want, at a price they really think fair.
Shift the conversation from price to value, and from transactions to relationships.
Empower them to engage with you and tell you what they value.
Make commerce a repeated game that drives value creation to build a profitable relationship with high Customer Lifetime Value (CLV).

Sample FairPay Offer

...This sample offer letter to consumers shows how a newspaper might frame FairPay as a privileged benefit to regular patrons – to enable them to participate in a win-win pricing process and personalize their value propositions – as an alternative to a standard freemium "soft paywall."

FairPay Application/Market Sectors
...Overview of major market sectors in which the FairPay revenue model is readily applicable

Why would anyone pay if they do not have to? ...and other FAQs
...The answer is simple: Buyers who do not pay will not get further offers.

Resource Guide to Pricing
...Annotated links and references on Pricing, Pay What You Want, and other related background