The term ‘paradigm shift’ is somewhat overused these days, but it feels right for the emerging trend in how value exchange is being handled, particularly in the world of online content. Are we seeing the 'beginning of the end' for the traditional approach to transactional business? And is this new model of consume-first-pay-what-you-think-it's-worth-later (if you want to...) applicable to offline and physical offerings?
The traditional business model is well established. As a seller, I have my product (or service) held safely within my 'shop'. You can look, in some cases you can touch. Occasionally you’re allowed to experience a limited demonstration (either by trying it yourself or having it demonstrated to you). Only rarely do you get to actually use or experience it fully within its intended context.
You can see how great the TV looks in the store, but not in your the living room. You won’t know that until you’ve committed to the purchase and taken it home. Payment is based on predicted or perceived value, not actual experienced value. Money-back satisfaction guarantees do exist, but they're largely confined to web-based content, such online courses, where alternative approaches to the transaction paradigm are finding good traction.
Put simply, the traditional approach of paying before the value has been experienced (pay-before-value, PBV) makes for a poor buying experience. Prospective purchasers are reliant on the information provided by the retailer and producer – combined with their own past experiences – to determine value. And as more purchasing has shifted online, that information has in many cases become harder, not easier, to access. Limited product descriptions, incomplete specification data and limited views of the product are common examples, and are compounded by the inability to physically examine a product.
Now, some sellers have gone out of their way to overcome such limitations, but it's still generally based on satisfaction guarantees and full refunds, and there are tightly held boundaries. I can exchange a pair of trail running shoes if they don't fit when trying them on in my home, but once I've taken them for a proper test run in the mud, I'm stuck with them.
It's a lottery. The product (or service) might be unsuited to my personal needs for any number of reasons, and this risk strongly influences my buying decisions. In balancing the pros and cons of a purchase, the risk of it underperforming versus the cost (relative to my ability to pay) is a factor rarely considered in any marketing material. Yet it can be the deciding factor, particularly with online purchases.
The one obvious exception here is software as a service (SAAS) products, typified by the apps we download on our phones, tablets and computers. Many of these offer full version trials (free cut-down versions don't count), though too often requiring credit card signup to gain access. That's hardly putting the customer first! And just like the 100%-satisfaction-or-your-money-back approach, very few allow the user to determine the value to them and pay based on that.
The shadow looming over a more customer-centric approach is the fear of losing revenue from the less-satisfied, yet that shadow also obscures the potential for greater revenue where purchases perform beyond expectations. Sometimes I do buy something which performs so much better than expected that I would happily have paid more for it.
For the seller using a PBV approach, this additional value (as represented by potential revenue) is nearly impossible to capture. I might be more likely to buy again, or recommend the seller or product to a friend, but the opportunity for me to pay more for what I've purchased rarely exists.
In contrast, an approach based in paying after value has been experienced (pay-after-value, PAV) represents a complete reversal of this situation, and an opening up of opportunities for both the buyer and the seller. Donation platforms such as Patreon and drip have allowed many to explore the edges of this concept, but the connection between payment and value isn't particularly strong. There's no doubt, however, that the realm of online content is where much of the pioneering work is being done.
In terms of physical goods, it might sound unfeasible for a seller to supply a product and the consumer pay after use based on experienced value, but it's really just a shift in risk. The risk is the same (that the product will perform below expectations), it's just moved from the buyer to the seller. Think about that for a moment, and ask yourself why all the risk should be on the buyer, which it currently is in most cases?
Sure, with PAV, the buyer may choose to act unethically and not pay an amount matching the value experienced (in relation to their ability to pay). But in the PBV system, the seller can be equally unethical in supplying a product that doesn't match the value claimed. There are guidelines and laws in place to protect the buyer, but I'm not sure they've kept up with the needs of the online marketplace. Rather than tightening this existing legislation, maybe what's needed is to shift to a PAV approach, creating a new set of (lightweight) guidelines and laws to protect the seller and to make it clear to consumer what their obligations are.
One thing's for sure – the pressure to improve customer experience would be significant. For example, it would become increasingly important that anyone who's signed up for your online course actually completes it and implements the teachings, and so receives value from it. That's so much better for the customer than just continuing to drive greater numbers to sign up regardless of engagement!
For physical goods, it would encourage the development and manufacture of products that not only performed fantastically, but were also only sold to those who would value them fully (naturally eliminating what might be termed 'over-selling'). In addition, new players could more easily enter the market as there’s zero barrier to consumers trying the new offering, expanding opportunities, choice and competition.
And here's a critical point for sellers: the PAV approach doesn't limit the number of times that the 'experienced value' can be re-evaluated and potentially trigger payment. Running an in-person business workshop? Ask for payment on completion, maybe again in a month, six months, 18 months and so on. The seller can determine the cadence of prompts based on the context, and there would be clear benefits to developing a process that was also respectful of the buyer. Get it wrong and your opportunity for additional revenue would be lost.
All the power rests with the consumer, where it should always have been. It would be an incredible way to build a deeper relationship with customers, and create wonderful opportunities for direct feedback.
In the workshop example above, with PAV it's in the seller's best interests to provide awesome post-workshop support and ensure the content delivered actually generated real value for the attendees' business long term. For manufactured goods, the incentive would be to create products that lasted longer and could be repaired and updated, because additional value could be gained without the cost of manufacturing and shipping a new product.
Those with less disposable income get to consume within their available budget (even if that budget is zero), whilst others of greater means will likely contribute more to balance things out. There's potential to both gain valuable advocates who wouldn't otherwise be customers, and remove any limits on how much those experiencing enormous value can pay.
And taking this one step further, imagine the level of trust you could build if subsequent 'payments' could go either way? That workshop felt like it was worth $1,000 on completion, but six months later you've not managed to convert what you learnt into real value. Now it only feels like it's worth $600, so you claim your $400 refund. The incentive to ensure ongoing customer satisfaction is huge!
How far this new model can go remains to be seen. The dominant PBV system is firmly entrenched, and it's likely that many sellers would be reluctant to give up their position of power. But for the pioneers in this arena, the potential to generate customer loyalty is considerable, particularly if buyers can be retrained to honestly pay in line with experienced value.
For this trend to fully emerge, it needs to go beyond the independent content creators who've been forced to use a PAV-based approach because they have no choice. They’re not the brave ones, even though they’re at the leading edge of this shift. The brave and bold will be those who don’t have to use this new model, yet choose to do so because it’s better for the consumer, which in the long-run is also better for them.