Now in beta: The IoT Pricing Canvas™
Product manufacturers are increasingly transforming into service providers through the deployment of the Internet of Things. IoT monetization, however, is proving to be difficult not only because data acquisition, aggregation, and analysis create additional layers of pricing metrics but also most economic benefits are realized progressively, potentially causing the provider to leave money on the table.
A new approach to pricing in IoT is required because the business workflows, products and services that result from the data can vary significantly across customer types even when the data comes from the same sensor and is delivered through the same information infrastructure. As a result, an IoT vendor can charge more for some segments of the value chain with one customer and not at all with others even though the technology offering is the same. Here at Pricing Innovations, we have created an IoT specific pricing approach which enables IoT providers to monetize data, progressively.
From Value Chain to Value Stack
This is the new challenge IoT vendors face: value delivered is built on the analysis and actionable use of data and is thus flexible, customizable, and scalable. The value of the data is often relative between different customer segments as well as along the value chain. Accordingly, the better a vendor understands how the benefits of their offerings are realized by customers, the better they will be able to maximize the value captured from the IoT offering. Enter value stack analysis for pricing.
A value stack is exactly as it sounds – a stack up of economic values delivered throughout the customer’s engagement with the offering. The figure below shows how the warehousing value chain example as mapped into a value stack.
Here is how a value stack analysis can help:
The analysis forces an identification, sequencing, and quantification of the economic benefit for each value function across primary customer types.
The value structure is converted to an offering structure that aligns both cost and perceived value for the different segments thereby optimizing value delivery.
The offering structure then informs the pricing structure that optimizes customer adoption and profitability.
The value stack analysis not only aligns the value functions of an IoT solution for optimum value delivery but also supports the technical decisions for developing the most profitable offering, early in the development cycle. When the IoT monetization strategy adapts to the different segments, the provider finds their success metric tightly linked to those of their customers and growth becomes exponential with both number and growth of those customers.