Designing a business model: 10 questions for effective monetisation

Thousands of business people now reach for Strategyzer’s Business Model Canvas when looking to describe, design, challenge or pivot their business models. It lays out the 9 essential building blocks of a business model in a familiar one-page canvas.

The 9th segment leads many out of their comfort zone; Revenue Streams. It’s easy to acknowledge that effective monetisation underpins any successful enterprise but it’s far harder to know how to price effectively.

Here are 10 essential questions to discuss with your team when pricing your latest innovation.

1. How might we use pricing to encourage the right customers behaviours?

Your pricing is a set of signals so use it to drive the customer behaviours that will enable your innovation to thrive. Think about the most important things you want your customers to do and ensure your pricing incentivises them accordingly.

Uber’s use of ‘surge’ pricing is a great example. The price of a ride is inflated by up to 10x their usual rates during periods of peak demand. This capitalises on the customer’s heightened willingness to pay when demand is high but also becomes a powerful balancing mechanism, incentivising drivers to get back on the road when ride-seekers need them most.

2. How might we use pricing to tell the same story as our brand?

How you price speaks volumes about your brand as well as your intentions. Spotify’s freemium approach to pricing was the perfect fit with their early mission (spectacular user growth in a crowded music streaming market) as well as their brand (disruptor of industry norms). Your pricing has a persona so it needs to consistently tell the same story as your brand.

3. How might we use pricing to communicate the product’s value?

How you explain your pricing helps your audience evaluate the value they receive. Less is definitely more, if the top two or three features or outcomes from using your product are not convincing the next six probably won’t help.

Offering choices or ways to customise your offering can differentiate the value-equation for different customer groups who might have differing needs and preferences.

4. How might we use Pricing Psychology to influence customer behaviours?

People make purchasing decisions based on both rational and emotional factors. The layout, language and framing of pricing information is as powerful in influencing buying behaviour as the price-points themselves.

Giving customers all the right cues is surprisingly simple when you employ a handful of psychological ‘nudges’ when displaying pricing information (eg. anchoring, signposting, charm pricing). These techniques are low cost and incredibly effective in shaping customer perceptions and behaviours. These can be evaluated with focus groups or controlled A/B tests.

5. How might our approach impact how we change prices in future?

Changes to a product’s pricing tend to stack up over time as pricing decisions made in the past (say, free transactions or lower price points) will stick in the minds of longer term customers.

Think through what future adaptations to your pricing will and won’t make sense if your innovation is successful. How could you change the monetization model in future? How could you differentiate the product itself to justify a more sophisticated monetisation model in future?

6. How might we go about early validation of our pricing design?

Price is such an integral part of product design yet is often overlooked until an MVP has been fully formed and perhaps even road-tested. Examining willingness to pay as early as possible in the product development journey will radically improve the odds that your innovation will succeed.

Test your ideas for how to price as part of early customer validation work. This will also inform your decisions on what features and functionality the new product should deliver.

7. How can we ensure that pricing implementation is flawless?

Even after working out the perfect pricing strategy, implementation is an essential ingredient for fully realising your innovation’s potential. How should you structurally embed your new pricing approach in your organization?

Price implementation is a marathon, not a sprint. Customers are fairly unforgiving when pricing is involved and it requires a complex cross-departmental effort to deliver flawless pricing. Ensuring new pricing is communicated effectively and billed appropriately is just the start. Teams need to plan for related customer service queries, PR interest, changing customer behaviours and mitigation action if things don’t go to plan.

8. How will we know if and how to change our prices after launch?

This question can’t be answered without clear monetisation goals being set upfront. These should include the financial expectations of the innovation (revenue, margin etc.), the appetite for risk and the desired customer behaviours. Set up reporting “guard-rails” that alert the team to any deviations in expected performance and try to regularly evaluate customer sentiment.

Anything that changes the landscape (market dynamics, competitive product launches, shifts in customer behaviour) need to trigger a strategic review of pricing and its role in your innovation’s success.

Appoint a pricing Champion who is continuously accountable for questioning pricing effectiveness. Pricing is a highly strategic lever for any new innovation so needs to remain front and centre of any leadership review process.

9. How might we reduce risk of making the wrong pricing decisions?

Price decisions that are high impact and difficult to roll back are good candidates for initial piloting. Testing in focus groups, user interviews or phased rollouts can generate learnings that de-risk the wider product launch. A/B tests can give a scientific steer on elements of the user experience.

The questions listed above are all designed to prompt the level of internal discussion and planning that drastically reduces the risk of ineffective pricing. Common culprits include misalignment with strategic goals, misjudged customer value and poor implementation.

10. How might we inspire high levels of internal confidence in our pricing decisions?

Pricing is not an exact science so the path to “pricing confidence” is unique to each organisation and the individuals involved. Your aim is to build out the unique armoury of insights that will de-risk your specific price decision.

Start with your underlying hypotheses about what customers need and value. Then think through the data that could validate or disprove each hypothesis (you may turn to market data, competitor analysis, internal data or customer testing).

When your innovation launches, be sure to empower the team to react to any deviation from expected performance. Advanced planning for any mitigation action will ensure teams are already briefed for how to respond and internal confidence does not waver.

This guide was prepared by Jenny Millar (Untapped) for
Get in touch to find out more about effective pricing design for your next innovation. Contact us at [email protected].