How IoT will disrupt your pricing
There’s a lot of hype today about how the Internet of Things (IoT) will impact the way we work, play, and live our lives. One of the less talked about aspects of IoT however, is the powerful way in which it will disrupt how businesses price their offerings.
Historically, the primary pricing challenge for businesses has been not knowing whether they should price to drive profits or sales. The asymmetry of information between the suppliers and the market made it difficult for firms to align their offerings with their customers’ behaviors and willingness-to-pay. With IoT, firms can make split-second decisions to better align their offerings and prices, based on the data from the “things.” Here’s how.
Behavioral Pricing
Mobile technologies are enabling optimized pricing structures based on near-real-time capturing of demand. One of the most recent examples comes from the fitness industry; particularly from the specialty fitness studios. The consumer behaviors around near-real-time reservations followed by the immediate consumption of the experience are creating new behavioral pricing opportunities for specialty fitness studios. The driving force behind this new behavioral pricing model is the convergence of the time between the buyers’ purchase intent for an experience and their consumption of it.
The driving force behind this new behavioral pricing model is the convergence of the time between the buyers’ purchase intent for an experience and their consumption of it.
Demand-Based Pricing
The use of sensors in B2B enables new pricing opportunities that are similar to how Mcommerce enables new pricing opportunities for B2C. Data provided by IoT technologies enable firms to forecast demand more accurately and adjust their outputs more cost effectively. For example, IoT enabled sensors can help optimize outputs based on certain patterns in inputs, populations and user behaviors. When firms are able to predict outputs and outcomes with increased accuracy, they can then drive down their costs and consequently improve their margins.
Contextual pricing
IoT enabled technologies help firms align their product and service offerings by how their customers benefit from them. Different from the pay-as-you-go model, contextual pricing structures can result in better outcomes for adoption and profitability as they are tightly coupled with the customers’ outcomes and experiences. By using sensor and device data, firms can more accurately identify trends and patterns and offer context specific products and services. For example, home security providers can offer new services at prices that are coupled with the amount of risk eliminated for a location. Similarly, a new connected device offering can be priced commensurate with the economic value of the new utility that is enabled to the user. In both cases, the real pricing opportunity is that the offer can be made in context specific and almost-immersive ways that the value proposition to the buyer is more clear than it can ever be if the buyer was seeking out the same offering themselves.
In both cases, the real pricing opportunity is that the offer can be made in context specific and almost-immersive ways that the value proposition to the buyer is more clear than it can ever be if the buyer was seeking out the same offering themselves.
Ready for take-off?
The ability to receive real time customer and/or market response to an offering creates opportunities for firms to architect new or improved offers that are transformative - not to mention more profitable. IoT enables businesses with pricing and monetization opportunities that were never available before. As more companies adopt working with IoT data, we should expect to see an explosive pace of innovations in how they price their new offerings. Soon, even the leading pricing structures of our times will begin to look outdated and sub-optimal. Here at Pricing Innovations, we have braced ourselves for the take-off, have you?
