1. Pricing Innovation: Looks at new ways to charge for your product – in terms of both the amount of money charged and the point (or points) in time when the customer is required to pay. Innovations around pricing use existing pricing models in nontraditional ways, such as a la carte pricing applied to the traditionally bundled cable industry, or they may add new twists on well-known pricing approaches.
2. Payer Innovation: Looks at finding customers who are not ultimately the consumers of the product or altering who pays for a given good or service. The most common payer innovation is the use of indirect payment approaches, such as advertising and sponsorship.
3. Package Innovation: Looks at new ways to expand product or brand value to different customer behaviors and segments or different ways of offering the product to the customer. Examples of new packaging options that have come about as a consequence of digitization include componentization and mash-ups. But package innovation also opens opportunities for companies to add value at different points along the value chain, or to extend their value proposition to adjacent markets.
The preceding categories are shown within the revenue model innovation diagram reproduced from “Not For Free”. Click on the diagram for an expanded view.
My first impression of this diagram led me to a few conclusions. First, the entire revenue model or concept, to include pricing is complex. Many considerations must go into determining the revenue stream of a business, one factor of which is price, which has many elements in and of itself. This diagram has given me the appreciation of the overall complexity and number of factors involved.
Second, the basis of revenue is consumer segmentation. Appropriately segmenting consumers will lead to an increased understanding of their behavior. Once their behavior is understood, the revenue model may be tweaked to optimize for consumer segment behavior. Without a proper understanding of segments, one runs the risk of creating a weak foundation. Again, this goes far beyond just setting a price for a product and rushing to market.
Finally, as with product offerings, digitization has led to a mind-boggling array of options in terms of value exchange. My guess is that the number of options will continue to increase as the world becomes further digitized. A challenge for the entrepreneur will be to not only develop innovative consumer products, but to continually optimize the revenue model to offer that personalized experience to the relevant consumer segments thereby aligning delivered value with perceived value.
1. J.R. Sedivy. Digitization:
1. Saul J. Berman. Not For Free: