Now, in summary, revenue streams
might take the form of a whole series of potential strategies.
But what's interesting is inside of each revenue stream,
you may have different pricing tactics.
Let me say that again.
We just talked about revenue streams.
If you think about it, we didn't talk about how much to charge.
We talked about the potential ways to charge—
licensing and intermediation and direct sales, etc.
But how do you think about pricing itself?
How do you set prices?
Let's take a look.
Pricing is kind of the tactics.
The first thing you have to figure out is what's the revenue stream
I'm going to use for the customer segment.
But there are two types of prices.
One is fixed prices.
Fixed pricing is just like it sounds.
There's no haggling.
Here's how it is. It's the fixed price.
Now, fixed price you can decide, well, how do I set that price.
I'm going to take the cost of what it takes me to build the product,
and I'm going to add some fixed markup—whatever I think my profit should be.
It's very simple. It's cost plus markup.
This gets me to the minimum price in the market.
But you know what? I might know something that my competitors don't know.
Because I've been out talking to these customers for weeks or months,
and I know that they actually value my feature set, my value proposition,
more than my competitor's.
In an existing market, I will likely know something no one knows.
I know exactly how much they value what I will offer.
Instead of pricing based on cost,
I could actually price on specific customer segments
or on features I know they need.
There's a third type of fixed pricing, and that's called "volume pricing."
It might be that you want to encourage high volume,
because you have economies of scale.
So, you might price the product if you buy in quantities of 1-10 it's $1000,
but if you buy in quantities of 10-100 it's $900.
Therefore, you can keep stepping up the discount,
but if you buy in hundreds of thousands or millions,
instead of $1000 we'll charge $99.
Know who does that?
Go talk to Intel and the semiconductor manufacturers.
They want to encourage high-volume purchases,
and so they have stepped pricing that is oriented to create volume.
Cost plus market, value pricing, and volume price
are all examples of fixed pricing tactics.
But there's another type of pricing.
That's dynamic pricing.
Dynamic pricing is exactly what it sounds like.
Dynamic means it moves.
How could you have prices that kind of move?
I thought all pricing is written down on a piece of paper and never changes.
If you ever think about it,
pricing that you negotiate—yeah, we kind of have this price on paper,
but that's just the starting point of the conversation.
Negotiated prices is a dynamic price.
But airlines are now a great example of another type of dynamic pricing,
and that's called "yield management."
If you think about it, once an airplane takes off they can no longer sell those seats.
So, a month before the flight, those seats might be $500.00.
A week before, those seats might actually go up to $600.00.
An hour before, those seats might drop down to $99.00,
because that plan is leaving, and if we have empty seats, we're not getting any revenue.
So, yield management is actually pretty interesting based on experience, on time, etc.
There are software programs and industries like airlines and car rentals, etc,
that have perishable seats or time actually are quite good at doing this.
Another type of dynamic pricing is real-time markets.
The stock market is a real-time market.
Then auctions like eBay are another example of dynamic pricing.
Again, two types of pricing models—fixed and dynamic.
How do you know which one to use?
You've been out talking to customers.
How do they currently buy and what's the revenue stream
that's associated with these kind of pricing tactics?
You need to be constantly thinking what's the right revenue stream
for the right segment and, within that, what's the right pricing model.
Is it fixed or is it dynamic, and which one are you going to pick?