Not For Free: Revenue Strategies for a New World

Citation

Anand Mishra, A. (2012), "Not For Free: Revenue Strategies for a New World", Journal of Consumer Marketing, Vol. 29 No. 4, pp. 312-313. https://doi.org/10.1108/07363761211237407

“Business model disruption is rampant, not because companies have stopped offering products that people want but because consumers stopped being willing to pay for many products at the same levels in the same ways” (p. 1). Not For Free has been painstakingly conceived to address and proffer the urgency to find innovative ways to not only market products and services, but in reality to reinvent new revenue models with the customer and the business plan at the core so as to be in tune with constantly shifting digital landscape. Specifically, Berman submerges himself into confronting ways to integrate more “sophisticated behavioral segmentation”, innovations required in the pricing and packaging of products and services, and realizing who actually pays for these. This to me is the quintessence of the book.

Along with his personal experience, Berman builds a large majority of his rationale on the research conducted by IBM. Although the media industry has been chosen as the guinea pig, yet generalisability to a large extent, to other industries is ensured given the fact that every industry is susceptible to ubiquitous low‐cost disruptions originating from the rise of low‐cost communications, unlimited low‐cost bandwidth and low‐cost processing power as well as changing consumer expectations. To me it seems that there are instances of opposition to the contention put forward by another best selling book, Free: The Future of a Radical Price by Chris Anderson. While Free suggested that digital technology is changing businesses by offering content that are free and free is a much better price than near free, Berman contends that even if the end consumer is availing the content for free yet at somewhere the price for the content is being paid for by an advertiser or sponsor or so on. “When companies charge $0, they are effectively telling the customer that the product is worth nothing – who would ever want to pay even a nominal amount for an item signaled as worthless? So think first before setting an anchor price of zero if your plan involves any direct revenue streams” (p. 138).

Not For Free is split into four chapters that deal with different aspects of revenue model innovation. Berman has provided definitions of different revenue models with real time world examples while presenting the reality of the challenges and pitfalls faced by companies when implementing them. A “lessons” section is added in each chapter to offer suggestions to improve the probability of success. Finally there are a series of questions aimed to stimulate thoughts, actions and experimentations.

Chapter 1: “Segmentation”

“New revenue models need customers who are ready to abandon their old ways of doing things” (p. 22). Starting with the need to segment consumers the chapter moves onto a brief history of segmentation. Three broad behavioral consumer segments, namely, “Massive Passives”, “Gadgetiers” and “Kool Kids” are identified and revenue model innovations are woven around them. In depth analysis is done for such diverse industries as media, automotive, casinos, and grocery chains. “Delaying innovation in order to protect current revenue streams is simply capitulation to the faster‐moving competition” (p. 55). In short the pursuance of revenue innovation demands a change in strategy, operations, and infrastructure. “If you stick to traditional correlation‐based demographic or VALS segmentation and keep your eyes on the biggest chunk of the existing revenue stream, you are going to miss the shifts and opportunities that will allow you to grow” (p. 57).

Chapter 2: “Pricing Innovation”

“Pricing innovation involves rethinking the pricing model for a given product – in terms of both the amount of money charged and the point (or points) in time when the customer is required to pay” (p. 66). The focus in this chapter is on innovating on the various common pricing models, namely, subscriptions, variable pricing, pricing by parts, a la carte and bundle pricing, and rentals. “Companies that have not yet experimented with pricing innovation may look at the challenges and reject pricing innovation in an effort to protect what they have” (p. 98). Rapid digitization is eventually leading even established industries to innovate around their pricing models. “The long‐distance telecommunications market has experienced 80 per cent declines in revenue over the past eight years, as people migrate to VOIP applications like Skype and Google Talk rather than reach out and touch someone” (p. 102).

Chapter 3: “Payer Innovation”

“Payer innovation involves the creation of revenue sources that separate the end customer from the person who actually pays, so that there are at least three parties to every transaction instead of two” (p. 110). This chapter talks about innovations with regards to “ad‐supported revenue”, “fee‐based indirect revenue”, “social networking revenue”, and “white labeling revenue”. Taking a dig on advertisers the book says, “Advertisers now finally have a glimpse of which half of their dollar is wasted” (p. 115). The models discussed in detail have a lot to offer to those companies that want to test new avenues of revenue by shifting the payer for their goods, services, or customer information. “If you're going to experiment with payer innovation to generate new revenue streams, you need to be able to deliver highly targeted, context‐relevant ads, sponsorship opportunities, or active social networks” (p. 137).

Chapter 4: “Package Innovation”

“Package innovation involves competing more broadly across the value chain by changing what you sell – not the products per se, but what exactly the customer pays for” (p. 144). This chapter emphasizes on “componentization” or the dividing of existing products into smaller component parts that have a monetary value in a different form for different use. Second, “value integration” or the search for up‐ or downstream prospects inside the same value chain. Third, “value extensions” or the expansion of a brand or product into other markets so as to leverage the existing marketing prowess into parallel areas. “Package innovation requires an expansive view of what your products or product parts might be and where they could add value” (p. 169).

This book is very thought provoking and leads to re‐definition of a vast number of possibilities available in the near term. I thoroughly enjoyed this book and feel that it is a must have resource, especially, for the top level managers who are responsible for the growth of their businesses. As Berman has rightly advised, “The best innovation comes from doing, not reading” (p. 19).