Will generative AI require new approaches to pricing?
Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talio.
Given the massive attention and investment flowing into generative AI it is worth exploring how it will impact pricing. Here the focus is on pricing best practices, and not just the pricing of AI driven innovation.
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There is a perception that pricing is falling behind the curve.
“Lack of pricing innovation presents an opportunity for the second wave of AI apps.”
Kyle Poyar in How AI Apps make money
“Most SaaS companies are missing the opportunity to monetize GenAI”
“Adoption is outpacing successful monetization”
“Over-reliance on traditional SaaS pricing models”
Michael Mansard in Monetizing GenAI: Why most SaaS companies are missing out, and how to fix it
Does generative AI require a new approach to pricing? We polled people in the Design Thinking, Pricing, SaaS and Product Management communities to find out. We asked
“Will generative AI lead to new approaches to pricing?
No, current approaches work
Yes, transformation is needed
Selectively, in a few cases
Too early to say
Poll opened June 1; data from June 4.
Almost 40% of respondents answered ‘Yes.” When people who thought there are some cases where a new approach will be needed that number increased to 73%. Just over 4% believed that the current approaches to pricing are sustainable.
Why might generative AI require new approaches to pricing?
Generative AI has the potential to transform the B2B software space.
There will be new ways to provide value
Applications will move from static configuration to dynamic configuration
User interfaces will transform to be more conversational
At the same time, the cost equation will change.
Development costs may go down
Customer support costs may go down
Operating costs will be much higher given the cost of compute and the cost of accessing the underlying models
Given this, how might pricing change? To differentiate pricing for generative AI from other approaches, like dynamic pricing or value based pricing, let’s give these new approaches a name, say ‘generative pricing. What might generative pricing look like? One could ask a generative AI application.
Concept Blending and Generative Pricing
A common approach to innovation is concept blending. In concept blending one takes two different domains and combines them to create something new. A classic example is ‘house’ and ‘boat’ to create a new thing, a house boat.
From Eppe, Manfred & Maclean, Ewen & Confalonieri, Roberto & Kutz, Oliver & Schorlemmer, Marco & Plaza, Enric & Kühnberger, Kai-Uwe. (2017). A Computational Framework for Conceptual Blending. Artificial Intelligence. 256. 10.1016/j.artint.2017.11.005.
For some ideas on how to apply concept blending to innovation see my article Some innovation patterns from concept blending.
Here is an exploration of concept blending applied to SaaS, GenerativeAI and pricing using Perplexity.ai.
The concept blend ‘SaaS’ + ‘Generative Ai’
Prompt
Create a concept blend for SaaS (Software as a Service) and generative AI (applications like Perplexity, Chat GPT and Microsoft Copilot). Focus on how this may impact B2B software. What new ways to create value are opened by this concept blend? For context on concept blending reference Steven Forth's article on LinkedIn https://www.linkedin.com/pulse/some-innovation-patterns-from-concept-blending-steven-forth/
Conclusion
The concept blend of SaaS and generative AI opens up a world of possibilities for B2B software providers to create value. By harnessing the power of GSaaS, companies can streamline content creation, enhance user experiences, offer personalized solutions, and drive data-driven innovation, ultimately providing their customers with a competitive edge in an ever-evolving business landscape.
Themes
Generative SaaS (GSaaS)
Automated Content Generation
Intelligent Virtual Assistants
Adaptive and Personalize Experiences
Data Drive Innovation
If you have a Perplexity account you can see the results here. The full text and the follow up questions give a lot of additional ideas.
The Concept Blend ‘Pricing’ + ‘Generative AI’
Prompt
Create a concept blend for Pricing and generative AI (applications like Perplexity, Chat GPT and Microsoft Copilot). Focus on new pricing metrics, new pricing models, new ways to asses pricing, new ways to optimize pricing. For context on concept blending reference Steven Forth's article on LinkedIn https://www.linkedin.com/pulse/some-innovation-patterns-from-concept-blending-steven-forth/
Conclusion
By blending the domain of pricing with generative AI, we can create innovative and adaptive pricing strategies that enhance both business outcomes and user experiences. This approach leverages the strengths of AI in data analysis, prediction, and personalization to revolutionize traditional pricing models.
Themes
New Pricing Metrics
Engagement-Based Pricing
Outcome-Based Pricing
Usage Intensity Pricing
New Pricing Models
Subscription Plus Performance
Freemium with Premium Features
Dynamic Pricing
New Ways to Assess Pricing
AI-Driven Market Analysis
Customer Sentiment Analysis
Predictive Pricing Models
New Ways to Optimize Pricing
Personalized Pricing
A/B Testing with AI
AI-Enhanced Negotiation
These are not transformative, but a lot more detail was provided that if you have an Perplexity account you should be able to access here.
At this point I think we can say that generative AI will lead to a new phase of innovation, that this will require new approaches to pricing and that generative AI will be used to generate this new approach to pricing. There is a lot of work to be done as this takes form, it is still at the stage of seeing ‘through a glass, darkly,’
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