Your pricing should encourage the behaviors that create value
By Steven Forth
One of the most important models when it comes to software design is that of BJ Fogg from the Persuasive Tech Lab at Stanford University. This model has been adopted by many product managers, but its importance to pricing is not widely appreciated. In general, people will only get value from your offer if they use it and they will only use it is easy to do so and they are well motivated. Almost all B2B software falls below what Fogg calls 'The Action Line.' As a result, it requires triggers to have people actually use the software. As Fogg summarizes this, behavior is the result of motivation to act, the ability to act and a trigger occuring in the same moment. Learn more here.
This behavioural model has been expanded by Nir Eyal in his Hooked model. This model covers long term adoption of software such that using it becomes a habit. The goal here is to create a virtuous circle in which Actions on the system, lead to some form of Variable Reward. Behavioural science has found that variable rewards have more impact on behaviour than consistent rewards. The result is a growing investment in the system which leads to Internal Triggers to take an Action, larger Awards, more Investment and so on.
Marketing automation systems are a good example of this. Systems like Pardot, Marketo and Hubspot have made an art of this. They use content marketing to make sure the External Triggers are frequent and often convincing. The systems have all sorts of Internal Triggers like notifications and reports. All of this activity builds a database that can be mined for insights and to which machine learning can be applied. These insights generate additional internal triggers and so the show goes on.
What do behavioural models have to do with pricing?
When designing pricing models we want to make sure that how we price does not discourage the behaviours we want to encourage and, in fact, rewards these behaviours. This can be the achilles heel of value-based pricing. The basic philosophy of value based pricing is that the price the user pays should reflect the value they receive, and that this value is relative to the alternatives available. So far so good. But it is possible to come up with pricing that discourages use, as a result that damps down the virtuous circle we are trying to achieve.
For example, imagine a system that uses notifications to keep people aware of their changing environment. This is an Internal Trigger in Nir Eyal's system and this functionality may support a number of important value drivers. One could put a price on notifications, or use them as a fence and only provide a fixed number per account. This is a silly example as noone (I hope) would be so silly as to do this. Reducing the number of triggers through pricing is dumb idea as it (i) reduces the value of the software and (ii) it will reduce the use of the software.
One place to consider pricing is by measuring the Investment, the store of information that has been collected by and about the users. If not properly used, this investment/repository can become a value sink (this is one reason so many companies are turning to better data analysis through AI, to surface the value in there repositories). Properly used it can inform the entire habit forming cycle (which one wants to convert into a value creation cycle). Pricing this investment can be a win, win. Properly used, the investment drives a return and both the vendor and the user should share in the benefits of these returns.
Generally speaking, do not price your triggers or the actions you want your users to take. Instead, price the investments that are the repositories of your systems value.
How do you apply behavioural models to pricing?
Build a Hooked model of your Triggers (Internal and External), Actions, Rewards, Investments.
Which of these are you pricing?
Does that pricing discourage actions that lead to value? (Pay close attention to any pricing of Triggers or Actions.)
Take a closer look at investment and work out all the ways that user investment is building up in your system. This includes the data being collected.
Is it being repurposed to create more value for the user?
How is the user made aware of that investment and the value being created?
Is there a way to price this rather than actions or notifications?
Ibbaka is happy to sit down with you and think through the ways in which behaviour and economics interact to create value for users. This is where real pricing excellence resides.
