I was struck by a recent article by 451 Group Analyst, David Horrigan. The opening read like this: DATAssimilate's PowerSearch brings PayPal-palatable pricing to e-discovery. The Canadian software vendor brings a novel approach to e-discovery pricing: download the software, cull for free, pay only for what you collect and make that payment with tokens purchased through PayPal or with a credit card.
I really enjoy seeing innovation like this. It's an example of price innovation used to create disruption in the market and to generate competitive advantage. Disruption is exciting, memorable, cutting edge, risky and difficult to deliver effectively. So much is focused on product innovation and technology disruption as the basis for entrepreneurial success. However technology is not the only source of a powerful disruptive force that an entrepreneurial company can use to turn the market in its favor. Another is its pricing model. Sometimes innovation in the pricing model can be leveraged individually. Often it's coupled tightly with innovation in the delivery model. Real power can be generated when these complementary variables are leveraged together. A disruptive price model may require an equally disruptive delivery model to generate the desired impact. Together they may be easier to develop and implement than technology and yield an equally powerful advantage.
A master of disruption is Apple. Much is written about their game changing consumer products. Equally important is how the company has used the combination of a disruptive price and delivery model to great success. Through iTunes, Apple accelerated the end of life for the CD by introducing the $0.99 per song price that could be previewed then immediately downloaded from the web site. The pricing model has spread to movie rentals with Red Box combining it with its own disruptive kiosk delivery model.
Pricing strategy is at the heart of a companys value proposition and is central to product positioning and differentiation. Pricing model innovation gives customers new choices in product or service selection and new choices in how and when they pay. When we talk about what M&A buyers value, a proven, disruptive pricing and delivery model can create significant enterprise value. It shifts the risk from market acceptance to execution and scalability. The sellers price and delivery model may also be transportable to the buyers other products and services.