Articles

When It’s Time to Expand Beyond the Base

Harvard Business Review

The new CMO of an extreme-race company is on the hook to come up with a way to further monetize the underexploited brand while also fixing customer pain points related to the registration process. She and the COO propose a premium membership that allows die-hard fans to buy early access to race registration, but tests on social media reveal strong animosity toward the program among some racers. Should the company pull the plug or move forward, potentially upsetting the company’s most loyal customers? This fictional case study features expert commentary by Michael Bolingbroke and Huib van Bockel.

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Put the Customers’ Money Where Your Mouth Is

Dear CEO: 50 Personal Letters from the World’s Leading Business Thinkers

Most enterprises strive to understand their customers and organise to deliver meaningful solutions. Market orientation as a management philosophy is excellent, yet even the most customer-loving ventures fail to take the logic full circle. When it comes to making money from the value they work hard to create, businesses often revert to old habits and, rather than taking a hard look at customers, they take a hard look at what they sell. This is clearly inefficient and, given today’s technology, likely a dangerous omission.

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A Novel Architecture to Monetize Digital Offerings

Journal of Revenue and Pricing Management

As commerce continues to shift to the digital domain, organizations respond by improving and evolving their approach to creating value for customers. When the time comes to convert digital anything into cash they can bank, however, the same organizations seem stuck in time. The purpose of the article is to highlight this inconsistency and, importantly, propose a solution. First, we leverage the literature on freemium and participative pricing mechanisms to lay the foundations for a revenue architecture fit for the digital economy. We argue in favour of three building blocks: empowerment, dialog, and reputation. Second, we describe FairPay as a promising configuration of these factors.

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Can one business unit have two revenue models?

Harvard Business Review

Peter Noll, a pharmaceutical company division chief, ponders the varying business models of two units that have just merged. Both have for years employed flexible, inventive strategies to good effect, but Noll is inclined to impose a single model on the combined entity. The two unit heads, however, make compelling arguments for being left to do their business as usual. What choice should Noll make? Expert commentary comes from Bodo Eickhoff, of Roche Diagnostics Deutschland, and Eric Achtmann, a tech investor and corporate adviser to Costa Coffee.

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Price Wars and the Managers Who Start Them

Business Strategy Review

Price wars are a fact of business life. While customers relish the opportunity to save some money for most companies they are an unwelcome, often unwarranted hazard that is best avoided. Yet, despite the apparent downside for business, intensive price competition is surprisingly common. So what is going on? Who exactly is to blame? Research by Marco Bertini sheds new light on their instigators.

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When Customers Help Set Prices

MIT Sloan Management Review

To many managers, the idea of involving customers in pricing decisions seems counterproductive. For most companies, pricing is a sensitive, private affair. But it may be time to re-examine those ideas. Letting customers have input on prices provides opportunities for customization and can promote greater customer engagement. Opening up customer participation also offers a way for companies to create a new sense of excitement.

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The Right Price, at the Right Moment, to the Right Customer

Business Strategy Review

Every company has to put a price on what it sells, but Tim Ham and Marco Bertini have found that most companies often fail at this important task in a manner that jeopardises long‐term value. And, there are surprisingly large rewards for those companies that invest in even the simplest of price optimisation techniques.

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The Price of Olympic Success

Business Strategy Review

Pricing almost eight million tickets for the 2012 London Olympic Games was a hugely complex challenge. How could those in charge of the Olympics, billed as ‘Everybody’s Games’, juggle the clashing objectives of the event’s many stakeholders? Marco Bertini spoke with Stuart Crainer about the challenge of Olympic ticketing and what it reveals about setting the price of all goods in the future, especially given today’s savvy consumers and the new technologies that are changing the way business is done.

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Pricing to Create Shared Value

Harvard Business Review

Many companies are in competition with their customers to extract as much value as possible from every transaction. Pricing is their weapon of choice, and consumers fight back by rooting out and disseminating pricing policies that seem unfair. The problem is that companies generally think of value as a pie that is rightfully theirs. But value is not fixed, and it neither originates with nor belongs solely to the firm. Without a willing customer, there is no value. Instead of using pricing in a way that turns customers into adversaries, companies can use it to enlarge the pie. That means viewing customers as partners in value creation–a collaboration that increases customers’ engagement and taps their insights about the value they seek and how firms could deliver it. The result can be new revenue, increased customer satisfaction and loyalty, positive word of mouth, and cost savings. The multiyear process to price the 8 million tickets to the upcoming London 2012 Olympic Games suggests five principles for using pricing to create shared value: Focus on relationships, not on transactions, by using pricing to communicate that you value customers as people; set prices proactively to discourage detrimental behavior and to encourage behavior that is beneficial to both your firm and your customers; allow prices to change in response to shifting customer needs; promote transparency by providing the rationale for your pricing; and make sure that prices and the processes by which they are set meet consumers’ expectations about what is fair.

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The Perils of Popularity

Business Strategy Review

The iPhone’s worldwide success would seem to be an unqualified win-win for Apple and the mobile operators that sell it. Not so, as Marco Bertini and Ricardo Cabornero explain, mobile operators must maintain a delicate balance between winning new customers and retaining existing ones. This task is made more difficult when their own brands can actually be diminished by selling the iPhone.

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Case studies

Revenue Model Innovation at Roche Diagnostics

London Business School

This case study involves the merger of Roche Diagnostics’ Molecular Diagnostics and Applied Science business areas in Germany. The merger, which was initially motivated by a combination of converging needs among commercial diagnostic laboratories and research hospitals, product-portfolio synergies, operational efficiencies, improved customer management, and an increasingly competitive marketplace, brought to light potentials in the way Roche Diagnostics generated revenue from its products and services. While these go-to-market-strategies may have well existed for a number of years, the move to a single sales force calling on customers across the two business areas required the need for a sustainable, integrated pricing approach. One of the key questions occupying Doctor Bodo Eickhoff (Senior Vice President of Sales and Marketing for Applied Science and Molecular Diagnostics in Germany) and his team concerned the appropriate revenue model under the revised organizational structure.

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What’s the Deal with LivingSocial?

Harvard Business School

Tim O’Shaughnessy, the 29-year-old CEO of LivingSocial, is growing a revolutionary worldwide business of “daily deals”-in which retailers offer a heavily-discounted product or service available for purchase for brief (often 24-hour) windows. The case explores the complicated sharing of risks and rewards between LivingSocial, participating retailers, and customers, focusing on the return on investment in both the short- and longer-term for LivingSocial’s retail partners. In addition, given the rapid growth of the daily deals space and the accompanying proliferation of competitors including Groupon and Amazon.com, the case focuses on the need for constant innovation in product offerings to maintain differentiation from copycats.

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Barceló Hotels and Resorts (A)

Harvard Business School

Barcelo Hotels and Resorts must decide whether to allow its many hotels to continue to undertake separate promotional campaigns or to run, for the first time, a broad corporate-level promotion. Complicating the decision is the fact that the many hotels in its portfolio vary greatly in their character, clientele, positioning, and locations.

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Global Graphics: Pricing in a New Market

London Business School

It is October 2009 and Gary Fry, chief executive officer of Global Graphics, is faced with a tough decision. Global Graphics — a technology expert with 20 years experience in developing and selling printing equipment and software exclusively to original equipment manufacturers — is about to release a revolutionary desktop PDF application targeted directly at office workers. With less than two months before the official launch, however, there is still considerable debate on what the actual price of the product should be. Fry is adamant that the “right” price will help Global Graphics achievethe ambitious sales and customer acquisition objectives set by the management team. In addition, he understands the importance of establishing Global Graphics as a viable alternative to Adobe, the undisputed leader in the end user market for business software. What is the price point that best serves these seemingly conflicting goals?

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The London 2012 Olympic Games

Harvard Business School

It’s 2009 and Paul Williamson, Head of Ticketing, must finalize ticket prices for the 2012 London Olympic Games. Yet, there are many criteria to consider. First, given the importance of ticketing to the Games’ bottom line, he has a strong incentive to maximize revenues. Second, because the entire world will be watching, he wants to maximize attendance – not just at the Opening Ceremony and swimming finals, which are easy sells, but also at events such as handball and table tennis, which are not. Third, he wants to fill seats with the right people – knowledgeable fans who add to the energy and atmosphere of the event. Finally, tickets had to be accessible not only to the world’s elite but also to average Londoners, many of whom lived around the corner from the Olympic Park.

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BT Business: Responding to ‘Free Forever‘

London Business School

This case describes the actions taken by British Telecom’s business unit (BT Business) in response to the radical ‘free broadband forever’ offer introduced by The Carphone Warehouse (TCW) in April 2006. At the time of the campaign, BT Business held a dominant share of the lucrative (and fast growing) broadband market in the UK. TCW’s bold move clearly threatened that position. More important, BT Business was concerned that larger competitors (Vodafone, BSkyB, O2, etc) would follow suit, therefore initiating a price war that in all likelihood would erase profitability in the industry. The main learning points from this case involve pricing and competitive strategy. In particular, BT Business’ problem touches on a number of important questions, including: (1) maintaining price leadership; (2) managing price competition and the threat of customisation; and (3) designing product bundles that capture customer value and act to discourage competition. In addition, this case provides a good example of the challenges often faced by large firms (especially former monopolies) attempting to improve customer orientation. Prior to ‘free broadband forever’, BT had tried unsuccessfully on a number of occasions to shift its organisational structure away from product lines (fixed telephony, mobile voice and data, broadband, etc). Interestingly, they succeeded only in the face of a significant and immediate competitive that ‘helped’ generate the necessary motivation and momentum.

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Viagogo (A) (B)

London Business School

This is two-case series discusses some of the key marketing decisions faced by Eric Baker and the rest of his management team immediately before and after the launch of viagogo in the United Kingdom and other European markets. viagogo is an on-line marketplace where sellers and buyers can exchange live event tickets (sports, entertainment, etc) in a legal and secure manner. The underlying business model replicated the one introduced by StubHub in the United States, a company founded by Eric Baker and a fellow Stanford MBA a few years earlier. The first part of the case is set in June 2006, just two months before the official launch of the website. At that time, the case protagonists faced important decisions with respect to the company’s revenue model. In particular, they had to determine what level of commission to charge, how to split this commission across sellers and buyers, and what pricing mechanism(s) to use (ie, fixed price, auction, and / or declining price). Eric was also considering a potential partnership with a major football club in the UK. A deal was expected to generate considerable exposure for viagogo but, on the other hand, required significant investment and likely constrained the company’s promotional options. The second part of the case takes place in early 2008. Following a brief review of viagogo’s initial performance, a series of new challenges are introduced: (1) how to deal with increasing competition; (2) how to improve the general perception of secondary ticketing in the marketplace; and (3) how to scale the business up from start-up to middle-sized enterprise. Overall, the case highlights common challenges when launching a new business venture. It also questions the common belief that a successful business model in one country can be easily replicated in another. Finally, the case allows for a discussion of how business models tend to change as industries ‘mature’ and new opportunities arise.

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