Building a Pricing Strategy for IoT Products Part I
by Josh Simi, on November 4, 2015
As if creating value with a connected product offering is not difficult enough, capturing value is yet another science to conquer. IoT business models, bundling options, and partnership strategies are all part of the effort to capture value. An in-depth discussion of pricing strategy is outside the scope of this blog, but it is useful to understand a few reasons why it can be a difficult exercise:
New standards of operation.
Connected products are increasingly becoming the new normal. This trend often requires companies to operate in a space outside their comfort zone and consider models and strategies they are not necessarily used to or do not fully understand.
Lack of buyer precedent.
In many industries, connected products are a relatively new exploit, and there is often no precedent about what customers will actually buy, making it difficult to understand how connected product features will affect sales volume.
Hidden value chains.
When looking at the value chain for connected products, there is often more value to be found in the middle than there is revenue to be had from the end user. Unraveling and identifying value points in the supply chain is a difficult, but key aspect of a successful connected product deployment.
Identify the payer.
Determine who will pay for the device. 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.
For companies launching their first connected product fleet, there is significant infrastructure and organizational alignment that must be achieved in order to design, development, launch, and support an IoT strategy. Much of this alignment can be leveraged for future connected product offerings and so represents more of a foundational shift for an organization to invest in. If not addressed properly, the business case for a connected product fleet can accidentally conflate business-wide concerns and product-specific concerns, which ideally would be modeled independently.
For more information in regards to the challenges posed around building a pricing strategy for IoT products, download our Monetization Strategies for Connected Products white paper: