Pricing for the Digital Age

Posted on by
1

Understanding the 4 Ps of marketing (Product, Price, Place, Promotion) has traditionally been critical to commercial success.

Theory has it that if you produce the right product for your target market, at the right price, make it available in the right place, and give it the right promotion, the market will buy it.

The model has worked well for both goods and services. But how is the model holding up in the digital arena?

In the Digital Age, a combination of technology, different transaction models and new marketing tools means that the Product (content), Place (internet) and Promotion (social media) not only co-exist, they are so inter-twined that in some cases they are almost one and the same thing: for example, a Justin Bieber video clip on Vevo, an in-app purchase for Angry Birds, BBC news headlines on Twitter. The boundaries are blurred between the content, the means of production, and the point of distribution and promotion.

So, how do content providers approach Pricing? If that’s the main point of differentiation, how do they compete on price (even though we sort of know that competing on price alone is often a race to the bottom, where nobody wins)?

In fact, even though the price of digital content sold via services like iTunes and Google Play is set by the content owner, they generally have to price according to set price bands and at specific price points determined by the retail platform – and often for particular territories (thanks to the practice of geo-blocking). The alternatives are to sell direct (which means creating a separate sales and distribution infrastructure) or via 3rd party platforms (which may not have the market presence of iTunes or Google Play).

With so much content available for “free” (as long as customers are willing to submit certain personal information, or are prepared to tolerate advertising) the current wisdom suggests that you have to give (some) content away in order to attract customers who might be willing to pay for it (over time). But is that a long-term strategy for success?

In my experience, pricing in the Digital Age is all about the 4 As:

  • Actual Costs – what are the costs of design, development, production and distribution (plus overheads)?
  • Acquisition Costs – what does it take to get new customers (and not just “followers” and “likes”)?
  • Adhesion Costs – what makes content “sticky” (and what will it take to keep your customers once they start paying)? Is it frequent new content? Is it service quality? Is it establishing brand loyalty?
  • Alternative Costs – what choices do your customers have (both traditional and non-traditional competition)? What are the switching costs?

Finally, when competing on price, especially if it’s not a like-for-like comparison, where are the acceptable customer trade-offs between your product and a competing service (e.g., do you know the customer drivers and the purchase decision processes)? What do your customers think they are paying for? Just because you place a high degree of value on some aspect of your content (e.g., exclusivity) does the customer value it the same way?

 

 

Integrity and the Acid Test: How Would it Look as Front Page News?

Posted on by
2

We have been hearing a great deal recently about allegations of political corruption in Australia, culminating in the resignation of a State Premier. This has raised questions about integrity in public office, given the steady stream of stories concerning dubious donations to election campaigns, murky business deals involving politicians and party power-brokers, misuse of trade union members’ assets by officials who were also prominent party figures, opaque political lobbying by industry, tawdry backroom deals to preference election candidates… oh, and the gift of a $3,000 bottle of wine.

Premier Cru-elled de Chateau ICAC?

I won’t dwell on the whys and wherefores of Mr O’Farrell’s resignation, except to say this: If the Premier genuinely believed he did not receive the bottle of wine in question, and his assertion was subsequently shown to be wrong, does this amount to giving false witness? Surely, the act of giving false evidence involves the commission of a deliberate lie, either with the intention of causing a deception or creating an erroneous version of events. It seems that had Mr O’Farrell, as a Member of the New South Wales Parliament, remembered to declare the gift on his register of pecuniary interests, but later forgot about it or failed to recall it when giving evidence, he might have been made to look merely foolish. However, failing to register the gift was either a costly mistake or a grave error of judgement, and by forgetting it altogether (including his handwritten letter of thanks) it reveals a certain level of incompetence. Yet, how many foolish and incompetent politicians manage to keep their jobs, and even get re-elected?

Some commentators have suggested that the nature of the Premier’s resignation showed real integrity – but the truth is, once the facts contradicted his evidence, his position became untenable, and he realised he had no choice in the matter. (The relevant inquiry had in fact already cleared Mr O’Farrell of any suggestion of wrongdoing in the matter under investigation, but now his reputation is probably tarnished by the implication or perception of corrupt behaviour.)

The big lesson from these latest events is that when we get wrapped up in process or get sidetracked by personal, political or financial outcomes, we can easily lose sight of the need to act with integrity and to exercise our authority and powers of influence with transparency. Otherwise, we end up colluding which allows the smell of corruption to permeate. Politics is not alone in these matters – religious institutions, professional sport and corporate boardrooms have more than contributed to the current malaise.

I experienced a small but significant test of personal integrity early on in my career, when I was working as a paralegal in local government. Part of my role was to provide impartial legal advice to local residents facing housing problems. At the time, the area was undergoing intensive gentrification, and many private tenants were being “persuaded” to move out by landlords and property developers. In many cases, all I could do was advise parties of their respective rights, particularly the tenants who had protection from harassment and unlawful eviction under the relevant housing laws. In some cases, the council could mount criminal prosecutions for more serious offences, but this was rare.

So, one day, one of my “clients” (the advice service was free to the public) brought me a personal gift: a bottle of vodka and a bottle of champagne (probably no more than $50 in total value). I initially refused because I did not feel it was necessary or appropriate that he reward me in this way for simply doing my job. However, because my legal advice had enabled him to negotiate a lucrative payout from his landlord to vacate his home, and because he had been brought up to value displays of gratitude, he insisted I keep the gift and refused to take it back.

I could have just taken the bottles and not said anything to anyone, as there were no witnesses. But whether it was my conscience, or the thought that the client might have said something to a third party that may have compromised me, I immediately raised the matter with my manager. He acknowledged my honesty in reporting it (even though I wasn’t really sure what the council policy was on gifts), but said I could keep the present as it was of nominal value, and because I hadn’t sought or solicited a personal benefit. (He also said that if it was a bottle of gin, he might have taken it for himself… but I think he was joking?)

Nowadays, I’m not so sure that I would have got the same response, and over the years, having worked in some high-profile and highly regulated industries, I am aware that there is far more scrutiny around formal compliance, self-regulation, voluntary codes of conduct and business ethics. Of course, individuals need to feel comfortable about the organization they work for and the role they are expected to perform, to ensure there is alignment with their personal values. In addition, I’m often reminded of three questions you should ask yourself in corporate life whenever you have any doubts about the integrity of your actions:

  • Would you still do it if the CEO or Chairman was watching?
  • What might your clients or your shareholders think?
  • How would it look if it made front page news in the morning?

I think the problem for many modern politicians is that they hardly ever say exactly what they are thinking, for fear of letting slip a personal opinion that may differ from their public persona or their party’s stated policy position. (How often nowadays do Ministers resign on a point of personal principle?) Worse, it has been suggested that “loyalty to party” has been displaced by “loyalty to faction”. As a consequence, they are compromised because they forget about individual accountability; and they collude because they either prefer to toe the party line or hide behind the collective shield of cabinet, ministry or faction. In doing so they demonstrate a lack of personal integrity. Unfortunately, when even “benign” or “innocent” collusion emerges, corruption is never very far away.

 

POSTSCRIPT:

Since drafting this blog, I have heard several “wise after the event” comments from the chattering classes, which can be summarised as follows:

  • If the original enquiry was not interested in a bottle of wine, was the Premier “mere” collateral damage of the anti-corruption investigation?
  • How could he possibly have forgotten about such a significant gift, and his written note of thanks? What was going on? What was he thinking? What were his staff doing?
  • The 1959 Grange vintage is somewhat overrated (and well past its best drinking) – which might suggest it was worth less than $3,000 (NB: gifts under $500 do not need to be declared on the Parliamentary register of MPs’ pecuniary interests…)
  • On the other hand, bottles of 1959 Grange are being advertised at over $4,000 because the notoriety has boosted its value
  • It again raises questions about whether the electorate can trust any of our politicians – the backdrop being “lies” and “broken promises” over pre-election commitments

Publishers’ Choice: Be a Victim, or Join the Vanguard?

Posted on by
Reply

I recently posted a blog about saving the Australian publishing industry, prompted by some research I was doing on government-sponsored initiatives, notably EPICS and BISG. This generated a couple of (indirect) responses, one from the Department of Industry itself, the other from a long-time colleague in the industry. More on these later.

The future of publishing - circa 2000....

The future of publishing – circa 2000….

But first, some more industrial archeology, by way of demonstrating that book publishers are not shy about new technology – remember the first electronic ink? When I was working at the Thomson Corporation in the late 1990s, we were given access to a prototype version of what we would now recognise as an e-reader. It was about the size and thickness of a mouse pad but less flexible, and could only hold a small amount of data in its memory (content was uploaded via an ethernet cable). It was described as the future of book publishing, and was predicated on the idea of portability (it could be rolled up like a newspaper if the screen was thin and pliable enough), and updating it with new content whenever it was (physically) connected to a computer or the internet.

However, whatever their apparent appetite for new technology, publishers struggle to adapt their business models accordingly, or they are fixated on “old” ways of monetizing content, and locked into traditional supply chains, archaic market territories (geo-blocking), restrictive copyright practices and arcane licensing agreements; and unlike other content providers (notably music, TV and newspapers which have shifted their thinking, albeit reluctantly) the transition to digital is still tied to specific platforms and devices, unit-based pricing and margins, and territorial restrictions.

Anyway, back to the future. In response to my enquiry about the outcome of the BISG initiative, and the creation of the Book Industry Collaborative Council (BICC), the Department of Industry offered the following:

“A key outcome of the BICC process was to have been the establishment of a Book Industry Council of Australia, an industry-led body based on the residual BICC membership that would come to be a single point of policy communication with government, though following its own reform agenda in the identified areas and unsupported by any taxpayer funding. Terms of Reference and so forth were drawn up but as nearly as we can ascertain from media monitoring and contacts, the BICA was never formed. It appears the industry is waiting to ascertain what the current government’s policy priorities might be, as expressed in the outcomes of the current Commission of Audit and Budget, before possibly resurrecting the BICA concept and/or the policy issues identified in the BICC report.” (emphasis added)

My read on this is that the industry won’t take any initiatives itself until it knows what the government might do (i.e., let’s wait to see if there are any handouts, and if not, we can plead a special case about the lack of subsidies/protection and the threat of extinction…).

This defeatist attitude is not just confined to Australia – my former colleague recently attended the 2014 Digital Book World Conference in New York. He commented:

“I was disappointed to see the general negativity of the publishing industry and the “victim” like mentality – also the focus on the arch-enemy – AMAZON! I see great opportunities for content – but companies have to get their head around smaller micro transactions and a freemium model. Big publishers are “holding on” to margins – it’s a recipe for disaster – [but] I think we can become small giants these days.”

There are some signs that the industry is taking the initiative, and even grounds for optimism such as embracing digital distribution in Australia, moving to a direct-to-consumer (“D2C”) model in the USA, and new approaches to copyright and licensing in the UK.

The choice facing the publishing industry is clear: continue to see itself as a victim (leading to a self-fulfilling prophecy of doom and extinction), or become part of the vanguard in developing leading-edge products and services for the digital age.

Show me the money! (or: Startup Anxiety…)

Posted on by
Reply

Last week’s Lean Startup Melbourne event was entitled Doubts to Dollars – dealing with early stage uncertainty in startups and drew a crowd of close to 400 people, making this regular forum as THE networking venue for the local startup scene.

Of course, the evening’s festivities would not have been possible without the generous support of our hosts, inspire9, and sponsors BlueChilli, Startup Victoria, the Startup Foundation and the Kussowski Brothers. To kick-off proceedings, Daniel Mumby from the Startup Foundation pitched at older would-be entrepreneurs (“those with responsibilities like families, jobs, mortgages…”) in support of his organisation’s new accelerator program, which kicks off this month, under the banner of “Think and Break Free”. Next, a team of successful entrepreneurs was assembled, to discuss key startup topics, including:

  • Idea
  • Team
  • Finance
  • Product/Market Fit

On the panel were:

  • Sydney Low, co-founder of former Australian ISP, Freeonline back at the dawn of the century. (Check out his YouTube channel for some marketing archeology from the early days of web surfing, when internet access was dial-up, iPhones were a twinkle in Steve Jobs’ eye, and “social media” meant the gossip column in your tabloid newspaper.)
  • Samantha Cobb, who is founding CEO at biotech AdAlta, and who has a background in IP commercialisation.
  • Justin Dry, co-founder at wine startup Vinomofo, and one of the people behind Qwoff, an online community for wine enthusiasts.

The initial discussion covered some of the basics to consider before launching your own startup venture, such as product testing, market analysis, listening to customers, getting honest with yourself, and protecting your IP. There was also a surfing analogy – about timing/positioning yourself to catch and ride the wave, rather than trying to paddle out to the breaker….There were also some very personal observations (including painful lessons) such as how to deal with failure (“keep pivoting, fail fast”), maintaining staff motivation when deals don’t complete, the importance of building prototypes (“even if it’s just a PowerPoint slide”), and the value of having confidants (on the board, and among key investors). However, the evening’s recurring theme, dear to many past, present and future startup founders and entrepreneurs, was all about the money – not just where it comes from in the early days of any startup (angel investors, venture capital and private equity); but how easily it can disappear.

The panel of speakers emphasised the importance of cashflow (i.e., “making payroll”), and knowing how fast or how far your money may need to go in early stage growth and the initial product development stages:

First, assuming you are not fully self-funding, you need to convince an investor of your idea. Both the team and the investors need to believe in the founders.

Second, really challenge your market/product fit – be open to telling people what you are doing so you can get validation. (Note to local startups: the Australian culture, whether it’s the tall-poppy syndrome, or a lack of trust, means people tend to hide new ideas…)

Third, work out what your cash burn rate might need to be. Stick to the capex budget as much as possible, manage the milestones (“next step of value”), and be prepared to double the costs/double the development time. Maybe spend more on marketing than on the product development – better to have an MVP that is bringing in revenue, than waiting for the perfect product that never ships….

Finally, a member of the audience wondered about the best route to establishing a startup: “should I learn to code, work for another startup, or get a job at a big firm?”. The succinct advice from the panel: “just do it.” While it may be tempting to do side projects to keep the money coming in, they may prevent you from making progress (or they become the startup). As one participant put it when describing his own new startup venture: “there is no Plan B; it’s Plan A or bust!”

POSTCRIPT TO JANUARY’S LEAN STARTUP MELBOURNE: In an earlier blog on Lean Startup Melbourne, I discussed some of the obstacles facing local startups in getting funding, and the challenge of engaging institutional investors in the startup community. Two recent developments suggest that debate on this topic is starting to gain some traction:

1) Catherine Livingston, incoming President of the Business Council of Australia, spoke on ABC Radio National about the need to connect institutional funds with domestic assets and investment opportunities that tend to get overlooked by local investors (at about 6′ 15″ into the interview).

2) Westpac bank has called for industry and regulator collaboration to provide better access to financial data on startups, and SMEs in general, in support of developing risk-based funding options for new businesses.