Pennie FrowUniversity of Sydney, AustraliaRichard ReismanTeleshuttle Corporation, USAAdrian PayneUniversity of New South Wales, Australia

Naples Forum, June 2015

Co-pricing: Co-creating Customer Valuethrough Dynamic Value Propositions

Co‐pricing:  Co‐creating customer value through dynamic value propositions  

Pennie Frow, Richard Reisman and Adrian Payne 

Abstract  

Purpose:  Recent scholarship suggests value propositions play a role in value co‐creation through 

interactions (Prahalad and Ramaswamy 2004) and learning (Payne et al. 2008) between the 

customer and supplier. However, the learning process remains largely unexplored.  This paper 

considers the role of co‐pricing as a tool that can assist in designing value propositions, which are 

shaped through interactions and dialogue (Ballantyne et al. 2011).  We suggest value propositions 

are designed using the two‐way learning that arises when the customer is involved in determining 

price, based on their sense of relationship value. 

Design/Methodology/Approach:  This conceptual paper draws upon value propositions (Lanning 

1998; Frow and Payne 2011), customer management (Payne and Frow 2013), co‐creation (Vargo and 

Lusch 2008; Payne et al. 2008) and co‐pricing (Bertini and Gourville 2012; Bertini and Reisman 2013; 

Iansiti and Lakhani 2014; Reisman and Bertrini 2014) literatures, in particular exploring the concept 

of ‘fair value’ in relationship building and learning.  Using these ideas, we develop a conceptual 

model that identifies how co‐pricing can play an important role in two‐way learning between a 

customer and supplier.  A value proposition communicates dynamically the outcome of this learning 

process.   

Findings:  Value propositions play an important role in establishing customers’ expectations of value.  

A firm can develop value propositions and use them as part of a dynamic learning process that 

occurs between customer and supplier.  Customer segments can be determined based on value 

perceptions, with each requiring discrete value propositions that are designed around relationship 

goals. 

Research limitations/implications:  This study assists in clarifying the learning process that occurs 

between customer and supplier, where value perceptions are shaped dynamically based on 

expectations and recognition of value‐in‐use and ‐in‐context.  Identifying how value propositions link 

to co‐pricing decisions in a two way learning process offers much scope for further empirical 

investigation. 

Practical implications:  For managers, using co‐pricing as a means for gaining deep customer insights 

offers much potential, ultimately expanding profitability and markets.  Models of co‐pricing could 

provide new basis for segmenting customers, based on their perceptions of value.  Involvement in 

co‐pricing decisions can also offer opportunities for enhancing relationships, building trust, fairness 

and commitment between a supplier and customer. 

Originality/value:  This paper extends previous discussions of value propositions and contributes to 

the growing literature on co‐pricing.  Collaborative pricing as a learning mechanism offers much 

potential for further research and managerial practice. 

 Key words:  co‐pricing; co‐creation; value proposition; learning; relationships 

Paper type:  conceptual. 

 

References 

Ballantyne,  D.,  Frow,  P.,  Varey,  R.,  &  Payne,  A.  (2011).  Value  propositions  as  communication practice: Taking a wider view. Industrial Marketing Management, 40, 202‐210. 

Bertini, M., & Gourville, J. T. (2012). Pricing to create shared value. Harvard Business Review, 90(6), 96‐104. 

Bertini, M. &  Reisman,  R.  (2013). When  Selling  Digital  Content,  Let  the  Customer  Set  the  Price, https://hbr.org/2013/11/when‐selling‐digital‐content‐let‐the‐customer‐set‐the‐price 

Frow, P., & Payne, A. (2011). A stakeholder perspective of the value proposition concept. European Journal of Marketing, 5 (1/2), 233‐240. 

Iansiti,  M.  &  Lakhani,  K.R.  (2014).  Digital  Ubiquity:  How  connections,  sensors,  and  data  are revolutionizing business.  Harvard Business Review, 92 (11), 90–99. 

Payne, A., Ballantyne, D. & Christopher, M.  (2005). Relationship marketing: A stakeholder approach,  European Journal of Marketing,  39 (7/8), 855‐171.    

Payne, A. &  Frow,  P.  (2013).  Strategic Customer Management:  Integrating  CRM  and Relationship Marketing, Cambridge University Press. 

Payne,  A.,  Storbacka,  K.,  &  Frow,  P.  (2008). Managing  the  co‐creation  of  value.  Journal  of  the Academy of Marketing Science, 36, 83‐96.  

Prahalad,  C.K.,  &  Ramaswamy,  V.  (2004).  Co‐Creation  experiences:  The  next  practice  in  value creation, Journal of Interactive Marketing, 18(3), 5‐14. 

Reisman,  R  and  Bertini, M  (2014). A Novel Architecture  to Monetize Digital Goods,   Available  at SSRN: http://ssrn.com/abstract=2530347 

Santana,  S.,  &  Morwitz,  V.  G.  (2013).  We’re  In  This  Together:  How  Sellers,  Social  Values,  and Relationship Norms  Influence Consumer Payments  in Pay‐What‐You‐Want Contexts,  invited  for revision at Journal of Marketing. 

Vargo, S.L., &  Lusch, R.F.  (2008). Service‐dominant  Logic: Continuing  the evolution.  Journal of  the Academy of Marketing Science, 36(1), 1‐10.   

 

 

 

 

Agenda

• Co-pricing: an opportunity for developing focused valuepropositions

• New equity-based pricing models and especially monetizingdigital offerings : Co-pricing with the ‘FairPay’ model

• Conclusions and future research

Value propositions, co-creation and pricing

• “Firms can compete more effectively through the adoption ofcollaboratively developed, risk-based pricing value propositions.” (Lusch, Vargo &O’Brien, JR, 2007: Derivative Proposition 7)

• Both digital and conventional markets can benefit from value propositionsthat seek to provide greater equity (i.e. fairness) to customers

• Co-pricing (Frow, Payne and Storbacka 2012; Reisman and Bertini 2014) offers an approach that canassist firms in design of better risk-based value propositions.

• When customers experience the value proposition before payment ANDthe customer then determines price based on their sense of value, a moreequitable distribution of value can be achieved

• Existing successful examples of collaborative pricing/co-pricing provideimpetus to development of more sophisticated highly scalableapproaches

n

Radiohead:Pay “What you Want”

download of album

Restaurants:Customers pay

according to theirperceived value of meal

Examples of focused value propositions:

Co-pricing: collaborative pricing activitiesinvolving multiple actors that reflect theirjoint perspectives on value, risk & pricing

New pricing models are needed

• Historically - prices were personalized– Personal negotiation – human buyer and seller– Communal norms of caring and fairness

• From mid-1800s – largely set formulaic pricing– Institutional sellers to mass market consumers– Scalable: operationally efficient; buyer ‘take it or leave it’– Set prices typically leave profit on the table (‘the long tail’ of price sensitivity)

• Pricing in the digital 21st century– Some useful research already conducted*– Digital products (music, video, newspapers, magazines, ebooks, apps, etc.) represent

a major opportunity for new value propositions based on innovative co-pricing– Co-pricing – represents an opportunity for a return to personalized pricing– End ‘race to the bottom’ – personalize a fair price for value– New co-pricing models are needed

*e.g., Bertini & Koenigsberg 2014; Chen et al. 2010; Chao et al. 2014; El Harbi et al. 2011; Gneezy et al., 2012a; 2012b; Isaac et al. 2010; Kimet al. 2009; 2010; 2013; Mak et al. 2013; Santana et al. 2013).

5

“The shift of commerce to the digital domain has forcedmany organizations to rethink their attitude to valuecreation, at times backtracking to the very question of what“value” actually means.

Electronic commerce facilitates and thrives on socialinteraction, yet the way companies convert digital anythinginto cash they can bank seems to be stuck in time, obeyingrules and practices that may have worked for physical goodsbut make far less sense today.”

Reisman & Bertini 2014 (emphasis added)

Monetizing digital offerings

• Digital ‘products’ :– have a near-zero replication cost– are not discrete, scarce products– offer access, entitlements, or usage– are a service

• Digital ‘products’ represent an opportunity to:– Exploit new power of computer-mediated relationships– Co-operatively build relationships based on perceived value– Learn the right price for each customer … each time– Optimize price over the relationship– Sell value: as a positive experience, rather than focus on price– Build a relationship and get not just customers, but patrons

7

The long tail of price sensitivity

Increasing price sensitivity

• Green revenue:(capped at set price)

• Red head: lost surplus• Amber tail: lost sales

8

Increasing price

Separating the sale from the price as part ofthe value proposition

Why not price the experience after it is known?• Shift from typical up-front offers• Remove the risk discount• Signal value and trust

9

Accept/buy/use(before pricing)

(Buyer)

Set “fair” price(after buy and use)

(Buyer)

Track price

(Seller)

Fair to seller???

(Seller)

Gated FP Offer

(Seller )

Developing an equity-based value proposition:Co-pricing with the ‘FairPay’ model

Price it BackwardExtend it Forward(after trial)(limit FairPay credit)

10

The ‘FairPay’ co-pricing model

Seller-gated

PremiumFairPayOffer

Seller-gated Basic

FairPayOffer

BuyerAcceptsFairPayOffer

?

BuyerTries

Product/Service

BuyerSets

FairPayPrice

SellerTracks

Fairnessof Price

High-Fair

Low-Fair

Un-Fair

Buyer

Seller Sets Price(take or leave it)

Buyer AcceptsSet-Price Offer ?

Buyer UsesProduct /Service

FairPay Zone (revocable privilege)

Conventional Set-Price Zone

11

Value/FairnessOffers

The process involves frame, nudge and track – continuing adaptation

• Traditional pricing models are outdated and do not reflect thecustomer’s dynamic perceptions of value

• Co-pricing offers opportunities for gaining deep insightsabout customer relationship value, especially in the context ofdigital markets

• Using these insights, a focal firm can craft focused and flexiblevalue propositions that reflect a customer’s real willingness topay

Conclusions

• A systematic review of how existing co-pricing models haveimpacted revenue and profitability

• Exploration of how co-pricing models can provide a new basisfor segmenting customers, each with their own specific valueproposition, based on more granular perceptions of value

• Determine how customer involvement in co-pricing decisionscan offer opportunities for enhancing relationships, buildingtrust, fairness and commitment between a supplier andcustomer – and deepen market penetration.

• Empirical testing of the ‘FairPay’ Co-pricing Model – we areseeking collaborators.

Future research

Pennie Frowpennie.frow@sydney.edu.auRichard Reismanrreisman@teleshuttle.comAdrian Paynea.payne@unsw.edu.auFor more info see: FairPayZone.com

Thank you!

We would welcome your comments