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How does FairPay work?

FairPay works through a very simple balancing dynamic:

1. Selectively empower the buyer to unilaterally set whatever value-based price the buyer considers fair -- after the sale, when the real value is experienced and known (= Fair Pay What You Want).

2. Track that buyer value-based price and determine whether the seller agrees that is fair, and use that information to empower the seller to decide whether to make further offers of that kind to that buyer in the future. 
(Unfair buyers are downgraded to lesser offers or fixed-price.)

3. Continue for future transactions, to build a relationship based on fair value exchange, that adapts and evolves over time.

This gives buyers a strong incentive to price fairly -- and enables sellers to limit their future exposure to those who do not.

See diagram at sidebar (click for diagram explanation)

FairPay finds the right price for each buyer in the context of an ongoing relationship.

  • FairPay looks beyond individual transactions to work over the course of an ongoing buyer-seller relationship (and is generally used in combination with conventional pricing alternatives).

  • FairPay is based on an ongoing dialog about the fairness of value exchanged in each transaction -- to lead to a fair exchange, and to adapt to variations in value and in opinions about value.

  • FairPay offers are treated as a privilege.  Buyers who engage in fair cooperative behavior can find this process to be liberating, flexible, and highly productive -- and a natural form of communication and teamwork toward a common objective of fair exchange. 

  • Buyers who are judged by the seller to fail to set and explain prices in a responsible way may find that privilege revoked.  They will then be limited to a conventional fixed pricing relationship.  It is incumbent on buyers to give reasonable explanations for their pricing, especially when prices are set below suggested levels...and on sellers to give reasonable consideration to such explanations from buyers.

  • This FairPay privilege can be framed as a "FairPay Zone" or "FairPay Club" that buyers are privileged to join, and for which they must remain in good standing. This may best be done as a complement, not a complete replacement to, conventional pricing plans.

What that enables

Instead of a fixed price (which is rarely "right" for that buyer), this process generates a cooperative and adaptive series of pricing actions, each based on feedback on how fairly the buyer sets his prices.

Using this buyer reputation feedback process enables sellers to go beyond freemium to offer adaptive hybrids of free and paid service that converge on the fairest price for each transaction.  Those who pay fairly, rise above the pay wall -- those who do not, must face it.

This win-win collaboration on value exchange can lead to more and happier customer relationships, and higher profits.  It enables dynamic price differentiation that works for both buyers and sellers. It is applicable to almost any continuing buyer-seller relationship (whether discrete transactions or subscription-based).

Making Pay What You Want ready for prime time

FairPay builds on the idea of Pay What You Want (PWYW), but uses Internet feedback to add a strong incentive to pay fairly.  Conventional PWYW is great for buyers, but often leads to free-riding and low prices that are unfair to sellers.  FairPay manages that problem.

  • By adding FairPay feedback, the seller gains reduced risk and indirect control.  The buyer develops a history--a FairPay reputation--that affects his future opportunities. 

  • That gives the seller the control needed to make FairPay offers only where his expected risk/reward profile is attractive.  Instead of static pay walls and freemium schemes, this process supports seamless and dynamic hybrid models. 

  • Also, because FairPay improvements on PWYW set prices after the sale, the buyer can have the product, use it, and verify its value, with no risk -- and then pay whatever he thinks fair, with confidence he will not have buyer's remorse. 

  • The result is that the buyer is given a strong incentive to pay fairly.

Why it changes the game

FairPay creates a win-win dynamic that can make both buyers and sellers much happier, and the economy much more productive. 

  • Sellers can profitably sell to everyone who sees a potential value, at a price corresponding to the perceived value to that individual buyer. 

  • Some will pay well, some will not.  But sellers can expect that many more people will buy, and they will pay a fair price because their FairPay reputation and privilege is at stake.

  • FairPay can be structured to ask buyers to set prices in terms of a differential from a suggested price (and to justify such differentials, and thus facilitate automated seller evaluation of fairness with respect to that differential) -- to give buyers pricing freedom, while giving sellers a reasonable degree of control and predictability.

  • FairPay can take many forms, and can enable free sampling and blends of free and paid that are more dynamically adaptive and effective than ordinary “freemium” models.

  • All of this can be done using automated processes that support mass customization of this new kind of pricing, with little or no human intervention.

The result is that total revenue, and total profit, might be significantly higher than with a fixed price (at least for products with low marginal cost, as with digital products and services) -- and that total value created can be maximized. 

The FairPay Reputation Database and The FairPay Platform Opportunity

FairPay tracking processes build a Fairness Reputation Database on customers (much like a credit rating database) that becomes a valuable asset. This database can range from simple forms to very rich collections of multivariate transaction-level data on many aspects of usage, price sensitivity, value perception, and willingness to pay.  This can be applied within any selling organization to greatly enhance all aspects of providing the right product to the right customers in the right context at the right price.

Fairpay can be applied by individual vendors at widely varying levels of scale and sophistication, but an even larger opportunity is as a platform service to multiple vendors.  This could be in the form of a specialized "Pricing as a Service" offering, or integrated into a full function merchant platform, such as one serving multiple sellers (or a content/service aggregator serving multiple content/service creators).

  • The obvious benefit of a platform offering is to spread the cost of developing and operating the back-end processes in support of FairPay transactions.

  • The less obvious benefit of a platform offering is that the Fairness Reputation Database on customers becomes even more valuable. Much like a credit rating database, it is valuable to advise vendors of the reputation of buyers who are new to them, but not to the database -- so that they can immediately make well-targeted, low-risk offers to new customers knowing which ones pay well for what. In such an environment, this database can offer a powerful first-mover advantage.

........................................

To learn more about FairPay
, please read

FairPay: The Future of a Radical Pricing Process

     
Harvard Business Review Blog
on FairPay Strategy
Presentation on FairPay
at MIT Enterprise Forum of NYC

...Slides and video now online
Press
HBR Blog on FairPay
Analyst on FairPay: "intriguingly powerful"

Blog:  The  FairPay Zone
...Current dialog and comments on FairPay and its applications

How Does FairPay Work?
Seeing the full power of FairPay, and how it works, takes a step outside conventional thinking...
-- please contact us for free consultation on how it can work for your business:  fairpay@teleshuttle.com





Diagrams and process explanation
 
Why would anyone pay
if they do not have to?
...and other FAQs

The answer is simple:  Buyers who do not pay
will not get further offers
. ...more

The Long Tail of Pricing: 
...Capturing Added Revenue and Profit


...A blog post explains this:  T
he green area shows the revenue under standard pricing -- The red and amber areas show potential revenue that is lost under standard pricing, but can be realized with FairPay.

A New Twist on The Invisible Hand
 ...to span ongoing relationships

...A blog post explains this:  FaiPay turns the invisible hand on its side -- to optimize the balance of supply and demand in terms of prices over time, with respect to individual customers.

FairPay Application/Market Segments
...Overview of major market segments in which the FairPay revenue model is readily applicable

A Sample FairPay Offer
...Explaining an offer, plus some buyer FAQs

Resource Guide to Pricing
...Annotated links and references on Pricing, Pay What You Want, and other related background
 

The  FairPay Zone  Blog -- Selected posts
Interview on FairPay
FairPay (as introduced in 2010):
The Future of a Radical Pricing Process

...A fuller introduction, with examples
 
 

Richard Reisman -- Bio
About Teleshuttle

Teleshuttle offers free consults on FairPay services
to potential partners and researchers.

Contact Information

Richard R. Reisman, President, Teleshuttle Corporation
20 East 9th Street, New York, NY 10003
(212)-673-0225
e-mail: fairpay@teleshuttle.com

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