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Customers who group together, walk to a different location, or wait even half an hour to request a ride will likely see the price change based on how those conditions changed. For example, at the end of a concert or sports event, when hundreds of customers are requesting pickups at the same time at the same location, the cost of a ride goes up in line with that demand. Ride-sharing companies already use a version of such pricing in their day-to-day operations. They can calibrate value at the individual level, which means they can offer lower prices to previously unserved customers without endangering the higher prices they charge to customers who have always derived-and desired-a higher level of value. How Progressive Pricing Worksīecause progressive pricing offers unprecedented opportunities for companies to discriminate by segments of one and by markets in real time, those businesses no longer need to choose between gaining more customers or more money.
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Companies fuel more innovation by expanding their markets at higher profitability than under a traditional fixed-price approach, while customers enjoy an ever-expanding value surplus. In that sense, progressive pricing stretches familiar ideas on price optimization and yield management far beyond their current implementation, creating a win-win that continually improves for firms and for customers. The key element is a value-sharing algorithm that dynamically sets prices specific to the value an individual customer derives based on time, location, and occasion.
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Instead of optimizing a small number of price points, the firm optimizes a continuum of prices. What makes this possible are the properties of digital economics, built on the idea that added value is customizable at zero marginal cost. Progressive pricing enables that differentiation by pushing the logic of discrete price points to its practical limit, offering each customer a fair, personalized product and price point. But today’s technologies and the pervasiveness of data have put an end to “same.” Firms now can and do differentiate their products and services by individual customer and differentiate their prices accordingly. The prices align properly to value without penalizing customers-by denying access to some customers because of an artificially high price barrier or by charging some customers their maximum willingness to pay while others enjoy a big surplus (the difference between the value they derive and the price they pay).Īt first glance, progressive pricing seems to violate the rules of traditional economics, which assume that customers buying the same product or service will pay the same price. Each paying customer receives a proportional return on that investment. Think of the price that a customer pays as an investment in a desired level of value. But unlike taxes, the levels of prices under progressive pricing are value-based, not means-based. We use the term “progressive” as it’s used in contexts such as tax systems. Indeed, the relationship between firms and customers is shifting so quickly and fundamentally that this approach will soon be a competitive necessity, not merely an intriguing alternative, as companies make the measurement of discrete customer value a core competence. While progressive pricing might sound too good to be true-even a violation of the rules of traditional economics-technological advancements and the rules of digital economics are already making it possible. This innovative approach-already embedded in the sharing economy and in other sectors such as financial services-scales prices up or down on the basis of the value an individual customer derives. Progressive pricing is turning that idea into reality, one that more sensibly aligns with today’s digital products and services than traditional industrial-era pricing models could ever do. Seized to its fullest extent, such an opportunity would enable you to provide more value to more customers and still earn more money.
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Imagine if your company could measure, customize, and charge for-in real time-the value your products or services create for each customer. Technology, Media, and Telecommunications.