"Price is what you pay. Value is what you get." - Warren Buffett

The Internet of Things (IoT) is having a profound effect on the role of marketing.

As a keen runner, I use technology such as heart rate monitors, GPS, cloud-based performance analysis and tools to monitor my training and race performance – so connected devices are part and parcel of my life, both business and personal.

I recently entered a couple of longer distance cross country races…both the same distance, both similar terrain, both organised by local running clubs. One had a flat entry fee, the other asks runners to pay what they think the race is worth to them to enter as a donation (which allows the club to also claim gift aid…a smart move)…so fixed price versus value-based pricing. This got me thinking about pricing in the context of the Internet of Things.

In a recent blog I discussed the blurring of ‘what is a product’. Without clearly understanding what a product is, how can we possibly decide what its value is to the user, and therefore price it accordingly. But it goes further. The ‘product’ is now a device creating data. The data it creates also has a value to someone, but that value will be met by different components of the value chain. The device and user, also provide opportunities to sell associated services, based on the profile, characteristics and activities of the user, and how they interact with other people, organisations and devices. And this will be different for every user. So how do we sift through this deluge of data, extract the key elements and meet the customer’s priority needs, whilst demonstrating the extra value this precision profiling and targeting has provided – and charge a price that reflects the value.

Take music as an example. An artist still writes, records and produces a song, but the ‘product’ the consumer buys has radically changed…as has the way they access and use that product. Music was originally only available live. This was transformed in 1877 by the invention of the phonograph by Thomas Edison. Suddenly you could hear the music with no orchestra present. In 1922, the BBC was founded and people got used to consuming music through radio, and subsequently TV. Along came 78’s and 45’s which improved the quality of the recordings, and tapes meant you could customise your music and listen to it on the go. CDs made the music digital, then we had downloads which moved the consumer from owning a physical product. We now have music as a service through streaming which is a totally different business model. In essence, a product is now just a piece of data – but one with a value. You may be interested in my recent blog which discusses the re-emergence of vinyl in an IoT context. One of the key questions IoT will pose is - with so many companies owning different parts of the value chain, who will own what the customer values most and how will they be rewarded as part of a multi-value transaction? Indeed the other dynamic is that with as customers get more sophisticated and confident, they’ll start defining their own pricing strategy where they decide what they pay based on the ‘value’ they get, or they will go elsewhere.

It’s early days, but what is clear is that value-based rather than product-based pricing will be an integral part of IoT and the new business models it creates, both on a B2B and B2C front.

And to close, if you’re interested in the answer to my conundrum about how much, if anything, I paid to enter the ‘free’ race…well some knowledge of the time, effort and commitment to put on the race, the fact it’s a beautiful but very tough course, and the glass of fizz to all finishers at the end, meant its value was more to me than the fixed price race so I donated more!

Want to find out more about IoT, download a free copy of our IoT for Dummies Guide. And if you’d like to read any of CGI’s other IoT blogs visit http://www.cgi-group.co.uk/blog/internet-of-things.

About this author

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CGI's IoT Practice

IoT is driving innovations, such as smart metering, car telematics, remote health monitoring, mobile workforces and more. CGI is at the heart of this transformation. We help organisations across industries improve their processes, introduce new products and services, better respond to consumer and constituent ...

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