New Product? How To Tackle Pricing.

Among the many challenges faced by entrepreneurs and innovators is the subject of pricing for something new. The only thing that is for sure is this: however you charge for your service or product, the first objection will coincide with your first sales call. Let’s look at two well-known business models that started out wrong to see what we can learn.

Photo courtesy of Greg Walters

When mobile phones became widely available (pre smart-phone era), manufacturers like Motorola expended considerable energy and creativity to design and manufacture better devices. The problem was that the carriers lumped the devices into the contract, so the cost of the device was not readily apparent. The device manufacturers realized this, and complained bitterly that their value was being buried beneath a laundry list of carrier fees.

For those of you who have recently purchased a new iPhone, you’re (ahem) well aware of the cost of the device. The device manufacturers are now in a better position to create value and charge for it.

The banks, on the other hand, came up with the idea of “free checking”. A colorful professor I once had would occasionally shout out the acronym “TANSTAAFL!” in class, which mean There Ain’t No Such Thing As A Free Lunch. What it lacked in poetry, it made up for in veracity. As the banks should have known, there ain’t no such thing as a free service.

But the banks built the lie upon the backs of NSF fees and the like, so now that those fees have been given a radical haircut by new regulation the banks are in a bind. After all, they’ve spent decades convincing us that checking accounts are “free”. What now?

We’ll leave them to their trouble. The key for us is to think about how to attack pricing when we’re getting started with something. A few ideas:

Gary Vaynerchuk Talks To Bankers

I am currently at the BAI Retail Delivery Show, which is an annual conference for those who sell retail financial services to consumers (translation: Banks and Credit Unions).  The tagline of this year’s conference is “Reimagine Retail Banking“, and digital marketing guru Gary Vaynerchuk was tapped as the person to walk on stage and help an industry that doesn’t exactly traffic in “imagination” engage in the process of reimagining retail banking.

For those who don’t know about Gary, here are the key facts:

  • Immigrant child who exhibited more entrepreneurial zeal before he was ten than most of us show in a lifetime.
  • Used the nascent social media space to grow his family wine business from $3M per year to $60M.
  • Was an angel investor in Facebook, Twitter, Tumblr.  Is also invested in Uber.
  • Runs a digital marketing agency, writes books, consults, and does presentations.

The apparent cultural chasm between new-world Gary and old-world bankers may have seemed fairly vast at first, but after a series of informal polls he conducted, the chasm may not be all that great.  Key points from his talk:

Payments And A Changing World

I’ve just returned from an annual trade show in the payments industry which first crossed the chasm from “aspiring show” to “established show”, then crossed another chasm from “established show” to “hot show”, and from what I can tell from this week’s 2014 event, it has now crossed into some rarified air best described as a “boondoggle”.

Money2020 is an event which, as the name implies, brings together aspiring innovators to shape what money will look like in the year 2020. Since this has been the name of the show for the past four years, here’s guessing that the name will eventually change as 2020 begins to appear closer in the rearview mirror.

I want to recap a few key themes for those of you who are not in the payments or financial technology space so that you can appreciate what key themes are emerging. After all, you have money and make payments, so the inevitable evolution of this space will impact you along with every person on the planet. There aren’t many industries that can say that, which likely accounts for the gold-rush mentality exemplified by the 7,500+ attendees and the mosh-pit of blue blazers and dress jeans trying to get into sessions.


I want to share a quote that stopped me in my tracks recently.

I was reading this terrific article in National Geographic called “Secrets of the Brain“. It explored the amazing insights that researchers have learned about the brain, and the many insights which are beyond us yet. Here is the quote from the article, centered around an interview with Dr. Van Wedeen, a physicist and radiologist at the Martinos Center for Biomedical Imaging at Massachusetts General Hospital:

When Wedeen first unveiled the grid structure of the brain, in 2012, some scientists were skeptical, wondering if he’d uncovered only part of a much more tangled anatomy. But Wedeen is more convinced than ever that the pattern is meaningful. Wherever he looks—in the brains of humans, monkeys, rats—he finds the grid. He notes that the earliest nervous systems in Cambrian worms were simple grids—just a pair of nerve cords running from head to tail, with runglike links between them. In our own lineage the nerves at the head end exploded into billions but still retained that gridlike structure. It’s possible that our thoughts run like streetcars along these white matter tracks as signals travel from one region of the brain to another.

“There’s zero chance that there are not principles lurking in this,” says Wedeen, peering intently at the image of my brain. “We’re just not yet in a position to see the simplicity.” (emphasis mine).

That last line was the one that stopped me. A brilliant researcher says he’s unable to “see the simplicity” that he suspects is there.

Innovation Jujitsu

I am coming off of a whirlwind tour of payment related conferences, and am once again struck by the observation that innovators, when faced with the immense inertia of the status quo, can choose from one of two confrontation strategies: a frontal assault, or a jujitsu throw.

In military terms, frontal assaults are slow and bloody. The rule of thumb for armies seeking to displace an entrenched enemy – and this applies to companies as well – is that the attacking force needs to have a 3:1 resource advantage to have any chance of success (and at times, even that isn’t enough). Sadly, this is how many wars – and unsuccessful business initiatives – have been fought.

Jujitsu is a form of martial arts where an opponent’s momentum and energy is used against him. Wikipedia says that Jujitsu techniques “were developed around the principle of using an attacker’s energy against him, rather than directly opposing it”.

When it comes to innovating, I’m struck by how many plans are set up to be unsuccessful assaults on the status quo. Few innovators, after all, enjoy a 3:1 resource advantage in anything except, perhaps, headaches.

Deep in thought at the Innovation Project 2014.  #PYMNTS @Harvard

Deep in thought at the Innovation Project 2014. #PYMNTS @Harvard

Payments, Innovation, and Thoughts from the Road

I’m on my way home from a speaking engagement at the BAI Payments Connect Conference. I spoke on the Business Case of Mobile Photo Bill Pay (where you can enroll a biller into your bank bill payment service, or pay the bill itself, simply by snapping a picture of the bill with your mobile device). Joining me was the executive responsible for digital channels at BBVA Compass Bank, an innovative bank headquartered in the southeast and owned by Spanish banking giant BBVA. A couple observations that might be interesting to those of you who might not be in the payments world:

Source:  The Millennial Disruption Index

Source: The Millennial Disruption Index

  • A research project testing the preferences of the millenials (basically 18-33 year olds) found that banks were at the top of the list for perceived threat of disruption. Specifically, 73% of the respondents stated that they would be “more excited” about a new offering in financial services from Google, Amazon, Apple, Paypal, or Square than they would from a nationwide bank.  See other millennial perceptions on the right from the same report.
  • Get this: In the past 30 days, more Americans paid a bill using their mobile device than smoked a cigarette. I don’t know why, but that statistic really tells us something about how the world is changing, however I must point out that after my time in Las Vegas I suspect most of the smokers are currently walking around inside casinos.
  • We will be seeing a big battle as banks and billers duke it out to get your attention so that you pay your bills through them instead of the other guy. Watch for innovative technologies and applications to be offered by both to win your affection.  I wrote about this on our corporate blog here.

Last week, I participated in two panel discussions at the All Payments conference which was tragically held at the the exact same hotel/casino as this week’s show, leading me to observe that the only thing worse than going to Las Vegas two weeks in a row is to go two weeks in a row and stay in the same place. One of the panels was on partnerships in the technology space (something I’ve written on a few times in this blog, such as here and here). Key points:

21st Century Payments

Raise your hand if you’re flying in a spaceship or beaming information to others via your mind powers.

When you look at past predictions of what our lives would be like in the 21st century, it can be aggravating to realize that while we’ve outpaced predictions in some areas, we’ve hardly started in others.

Which brings us to the subject of money and payments.

Look at the plastic cards in your purse or wallet. Why is your entire 16 digit account number – plus your full name – printed on the front? How do the signatures you scribbled on the back of those cards – if they’ve even legible – assure someone that you are who you say you are? How do archaic, physical cards correspond to a virtual world, where many of your favorite merchants reside?

During the recent holidays, I read the Autobiography of Ben Franklin (highly recommended), and ran across this section from when he was a young man in Philadelphia:

Payments and Big Bangs

I’ve long been surprised by the great respect given to the field of economics.  To be sure, it is an important field of study filled with incredibly smart, engaged people.  But it doesn’t exactly rise to same level of the sciences, which emphasize reproducible results without human interference.  Economics, by contrast, is largely tied to the randomness of human behavior, which gives rise to trenchant observations like this one from John Kenneth Galbraith:  “The only function of economic forecasting is to make astrology look respectable.”

I also have enjoyed this quote about economics I heard years ago – I think from George Will:

“Economics is the study of single instances”. 

This captures the deep thinking that often follows, but infrequently precedes, economic occurrences.

And that brings us to mobile payments.