In Pricing with Confidence, Reed Holden described the profit power of choosing the right, and sometimes innovative, pricing model. A stellar example of innovative pricing is when GE disrupted the market for aircraft engines. They introduced “Power by the Hour” which allowed airlines to pay for engine flight hours rather than allocating large capital sums to purchase engines up front. This innovation changed nothing about the high performance GE90 engines, but aligned with how airlines conducted business and reduced adoption risk by giving customers a predictable cost for what would otherwise be a large capital expense.
A modern day pricing innovator using a pay-per-use pricing model is Metromile, a California-based company in the auto insurance industry. Metromile offers a flat monthly fee with an incremental charge of pennies per mile. While appealing to low-mileage drivers, this model fits beautifully with three Holden tenets of smart, profitable pricing models:
- Aligned with value. The more you drive, the more you pay.
- Measurable and transparent. Both buyers and sellers can easily understand the price and determine why and how customers pay different prices.
- Scalable. The pricing model can be broadly applied without implementing new processes as the customer base grows.
Metromile also channels Rule 6 in Pricing with Confidence: Add New Products and Services for Growth to differentiate its offering and drive growth through smart product development and add-on features that most insurance companies can’t offer. A monitor integrates with your vehicle to measure fuel economy, miles driven, and monitor your car’s performance. This means you can cost-effectively plan your car’s maintenance, adjust your driving habits and commuter route to reduce your gas and insurance costs, and even find your car in a parking lot or get reminders to move your car before street sweeping. All of these features add up to real financial value to consumers and present true threats to traditional flat fee insurance models.
While Metromile is only available in seven states today, they are collecting data on customer interest to plan their next market entrances.
What overlooked industry pricing norm have you overlooked that can unlock the gate to new customers and deeper relationships?