OWP liVe REPORT

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M A R K E T S Is your pricing model fit for the digital market? Here’s how to start reaping the benefit of your digital strategy

Assess your business’s value constellation and you could monetize across it. Professor Stefan Michel, Dean of the IMD EMBA program, outlines the dynamics of pricing models in digital markets. Gone are the days when we had to book a holiday through a travel agent. In fact, the notion of presenting a random mediator with one’s holiday aspirations hoping they might return with some suitable options is an amusing blast from the past. Any individual with a smartphone and a vague plan can now successfully book flights, transfers, hotels, a few must-see galleries and couple of dinner reservations all in one afternoon. Such are the joys of the digital market.

Transactions that used to be linear are no longer so and businesses must take advantage of the digital landscape to not only gather more customers, but also to assess the ecosystems within which they operate for new revenue opportunities. Your ecosystem, or value constellation, is the cluster of all actors that exchange products and services, money, trust and other resources. These value constellations offer opportunities for establishing radically new pricing models. In too many companies, pricing is still considered a part of the marketing mix, the famous 4Ps (product, price, place, promotion). Within this framing, executives and entrepreneurs miss the opportunity to re-invent pricing in digital markets. Digital processes allow everyone to connect more easily. When this happens, they create new value constellations. While I see companies spending a lot of time on how they innovate the products Why does my business need to think about its digital pricing strategy?

and services and the ecosystem, what they don’t think about is how to innovate the pricing within those new ecosystems.

How is digital disruption changing pricing models?

There is a fundamental economic shift going on in many markets that has a disruptive impact on pricing. Instead of setting your price within the relationship to your direct customer, digital markets allow you to charge other players in the value constellation. I call them value constellations and not ecosystems because the reason for their existence is the exchange of monetary and non- monetary value. Assessing that value enables new pricing models that can generate revenue. For example, when I search on Google.com, I am not paying Google anything. At least, I am not paying money but I am paying ‘attention’. Google can sell this attention to advertisers. Some players are, therefore, willing to pay for their place in the constellation, others may hold a non-monetary value.

STEFAN MICHEL Dean of the IMD EMBA Program