by Josh Simi, on November 18, 2015
The following IoT strategies can be used to ensure an organization is focusing on value capture as opposed to merely going through a simple pricing exercise in which margin is added to a base cost:
Identify the payer.
When first figuring out your IoT business model, you need to determine who will pay for the connected product. It may be necessary to consider different models than those typically leveraged by the organization, like the two-sided market model in which customer access is free or reduced while a third party (perhaps an advertiser) pays for access to customer analytics.
Identify the price carrier.
The price carrier is the thing that you attach money to. Choosing the right price carrier can make a significant impact on how much value can be captured. Here are two examples to illustrate:
Price carrier as recurring metered utility billing service.
Agricultural grain bin monitoring is seasonal, and so charging for metered usage of cloud-based IoT platform services can be an effective price carrier since the customer most values the service for the periods of time they need it (right after fall harvest). For the grain bin monitoring system OEM, it costs money to install the sensors and equipment and also costs money to run the cloud service that monitors and controls it. However, by identifying the price carrier that matters most to the consumer (risk reduction on grain storage post harvest), value capture can be maximized.
Price carrier as pre-paid core product sales with bundled features included.
Residential thermostats in certain climates can also be seasonal. However, most consumers do not want to be bothered by another small subscription service fee. Instead, it has been shown that entities building an enterprise IoT strategy have had success charging a higher fee up front for a thermostat that has remote monitoring and control features included “for free.” In this case, although it costs the OEM money for the thermostat and also costs to run the cloud services attached to it, the price carrier is the thermostat and is treated as a bundled offering that includes the cloud services. This arrangement, which fits more closely to what the consumer values, has a better chance of maximizing overall value capture for the OEM.
Identify the timing.
In the razor blade or printer cartridge connected product model, cost of the base unit is reduced in exchange for more expensive accessories. This effectively shifts the timing of when money is transacted, lowering the barrier to adoption and increasing overall profitability.
To learn more about IoT business modeling and building an enterprise IoT pricing strategy, download our Monetization Strategies for Connected Products white paper:
