In today’s rapidly changing world, it is crucial for businesses to adapt and innovate continually. To remain relevant to customers, a company’s business model must be constantly reevaluated. A powerful tool for this purpose is the Business Model Canvas. One of the components of the Business Model Canvas is revenue streams. This blog discusses the benefits of applying innovative pricing models. Read the book Business Model Hacking to discover numerous innovative revenue models.

Why Implement Innovative Pricing Models?

Why is it relevant to consider innovative pricing models when applying the Business Model Canvas? There are several advantages to be gained:

1. Increase Profitability with an Innovative Pricing Model

The application of innovative pricing models can contribute to increasing a company’s profitability. By generating revenue streams in innovative ways, a company may be able to garner more revenue than what is possible with the industry-standard business model. A great example is Gillette.

Gillette introduced the “razor-and-blades” model, where they sold razor handles at low prices and made profits from the sale of replacement razor blades. By breaking away from the industry norm of selling complete shaving systems, Gillette significantly increased profitability.

2. Be More Customer-Centric with an Alternative Revenue Model

Different customer segments often have different needs and willingness to pay. By employing various revenue models, a company can better align its pricing and value proposition with specific customer groups. This increases the chances of customer satisfaction and loyalty. Fill out the Business Model Canvas for your company’s current situation and ask yourself “What-if questions.” Can your company create more value for new customer groups with alternative revenue streams? Or better meet the needs of existing customer groups?

A great example is iStock. At iStock, customers can pay in two ways: (1) by subscribing or (2) by purchasing credits. By offering credits, they cater to the needs of customers who want to purchase images and videos on a one-time basis or customers whose purchases are sporadic and difficult to predict. Subscription models are better suited for frequent users with predictable usage.

3. Gain an Unfair Competitive Advantage with New Revenue Models

Several companies have gained an unfair competitive advantage by implementing innovative revenue models. A good example is Amazon Prime.

The Amazon Prime program offers members free shipping, access to streaming services, and other benefits for a monthly or annual subscription fee. By connecting customers to Prime, Amazon has built a loyal customer base and kept competitors at bay.

4. Create Financial Stability with Innovative Pricing Models

Implementing a new innovative pricing model can help create greater financial stability. This is the case when a company switches from a transactional revenue model to a recurring revenue model. A good example is Microsoft with Office 365. 

Microsoft transitioned from selling individual software licenses (transactional) to offering Office 365 as a subscription service (recurring). This led to predictable and regular revenue streams, reduced piracy, and strengthened customer loyalty.

5. Adapt to Changing Market Conditions with Alternative Revenue Models

Markets can change rapidly, and what works today may become outdated tomorrow. By experimenting with different revenue models, a company can adapt more quickly to changing circumstances and seize new opportunities. 

The example of how Netflix responded to the decline of the DVD market and capitalized on the emerging streaming media market is noteworthy. Launching a subscription model for streaming movies and TV shows has made Netflix one of the world’s leading entertainment companies.

Do you want to learn how to strengthen your company with innovative pricing models?

Then, get started with the Business Model Hacking method. The method delves into numerous successful innovative revenue models and tactics to accelerate your business. The book is written in a practical manner and offers countless inspiring examples. It’s a great addition of the Business Model Canvas.

You’re lucky! Limited-offer: Subscribe to Business Model Hacking and get the digital version of the book and the cards for free.