4 Successful Pricing Strategies in the Sharing Economy
The sharing economy is projected to grow to $335 billion in revenue by 2025. This level of growth requires new business operating strategies, if these companies want to remain competitive. Pricing is particularly critical for success in the sharing economy.
“As rapidly evolving technologies and business models transform many industries, strategic pricing – a holistic approach to delivering value and capturing revenue in a way that maximizes profitability – has become a priority for many C-level executives,” according to Tom Nagle, senior adviser, and Georg Müller, managing director, at Deloitte Consulting LLP.
Evolving shared-services companies, which include notable entrants like Airbnb, Uber, and Rover, have introduced an ever-growing number of new strategies, some incredibly complex, others are hybrids of existing approaches, and still others remarkably simple in the user experience but complex in terms of execution. At BillingPlatform we support a number of shared economy companies. We see models based on premium pricing, consumption-based models, per-user subscriptions, and so on.
Sharing-economy companies do face some of the same hurdles encountered by other enterprising and innovative companies. Scaling for growth is a major hurdle for any company in a growth phase. Specialized billing models and functions, however, enable sharing-economy companies to manage these pricing-model challenges.
Irrespective of their pricing strategy, all of these new entrants need to access powerful and flexible billing capabilities that work with their unique business models and allow them to achieve their growth goals. Four of BillingPlatform’s clients, illustrated below, show the importance of aligning pricing strategies with billing capabilities.
Complex Pricing: Digital Media Platform
One of the most complex pricing strategies in the shared economy that we support belongs to a digital advertiser. The company acts as a digital-ad clearing house for a large mobile network company, delivering targeted digital ads to 170 million mobile phone and broadband subscribers. They achieve success by combining intelligent customer data with a huge library of content.
Their business model makes the shared advertising spaces of mobile and internet networks available to ad buyers for their audience. In a split second, the digital advertiser:
- makes ad space (essentially web sites with open space) available based on various filter criteria
- offers that space for bid (on a per-click or per-second basis)
- awards the ads to the highest bidder
Given the scope – and speed – of its operation, the advertiser’s pricing philosophy is understandably complex and ambitious. The company’s profitability rests on its ability to present and capture those opportunities that lie between sellers’ space availability and buyers’ needs.
Clearly, the 170 million-strong customer base presents a major opportunity, but the massive data volumes also present a huge challenge for the company. Consider: the advertiser completes one million transactions per hour, requiring thousands of accurate invoices to be generated. Because they offer pricing on both per-click and per-second terms, their rating engine needs to keep up with this volume.
Monetization is another challenge in the digital advertiser’s business model, and BillingPlatform provides a tailored and flexible solution that translates all of that data into billable usage. Billing activities account for thousands of sellers and buyers. BillingPlatform provides a “netting” capability that tracks how much space has been paid for and the amount of space sold. The netting function helps the advertiser make sense of everything within a subledger prior to moving the revenue to its general ledger.
Delivery-as-a-Service Tiered Pricing: Quiqup
Another pricing option within the shared economy relies on tiers of services based on a number of criteria. One customer, Quiqup, operates a last-mile delivery offering in London and Dubai. Quiqup offers tiered pricing to its retail and restaurant customers based on length of delivery and number of stops. Each customer can choose from a number of options, such as on-demand, same-day, and next-day delivery services.
Commercial and enterprise tiers are also available from the delivery service. Pick-up and delivery services are pay-as-you-go, for a one-time fee, and customers can sign up to Quiqup for free. There are no subscriptions. And there is no time commitment required. Instead, the delivery company relies on their service fees to support the business.
As stated earlier, tiered pricing at Quiqup is based either on distance or number of stops, and the specific data and business rules for each customer account are established at the outset. Supporting this business model means that BillingPlatform’s automated workflow engine must ingest this data and apply the correct pricing tier to enable timely, specific, and accurate billing.
Because of the variability of distance and number of stops, each transaction can differ markedly, even within the same account. BillingPlatform’s engine sorts through the data and, based upon the business rules, manages billing.
Dubai presents an additional, and uniquely specific, challenge as a large percentage of Quiqup’s business is cash on delivery. All cash received is sent back to Quiqup, which transmits a simple stream of information back to BillingPlatform, and cash-handling fees are segregated from the transactions.
Internet of Things Pricing: SmartBike
Many companies in the shared economy rely largely on data streams produced by innovative internet-enabled devices. We support a Bike-share company, SmartBike, that utilizes this strategy. SmartBike is a 20-year-old sustainable public transportation company that rents more than 25,000 bicycles in nine countries. With a business model built on Internet of Things (IoT) technology, SmartBike’s connected bicycles and rental kiosks provide direct, wireless communication with customers and core enterprise systems.
On the surface, its on-demand pricing strategy doesn’t appear groundbreaking or complex: Smartbike charges by distance and by the rental’s length of time. Daily passes are modeled as subscriptions and rides are treated as usage charges.
SmartBike is linked with other elements of each municipality’s transportation system – cars, trains, buses, etc. Consistent with “sharing philosophies,” the business model limits each ride to one hour with an assumption that the rider will switch over to another form of transportation. Equally important, SmartBike wants to keep a sufficient number of bikes in circulation for other riders. Riders who use the bikes for longer periods of time need to rent a new bike after each one-hour period, and rates generally increase with each subsequent rental.
In terms of billing, SmartBike collects, translates, and monetizes complex IoT data. The company’s bicycles transmit status notifications and geolocation data in real time so customer-management portals can track key metrics, such as ride durations, current statuses, and overall usage.
BillingPlatform provides SmartBike with a billing system that collects this data, tracks it for unique customers, displays it in the intelligent rental kiosks, and monetizes it all in one solution. This sophisticated solution mediates IoT data from many sources in order to create personal invoices for individual riders.
Flexible, Usage-Based Pricing: Car Sharing
Pure usage-based pricing is perhaps the surest strategy within the shared economy. Once a customer has signed up for a service, they simply pay for the amount of a service that they use. You often see this model for ride sharing and scooter rentals in major cities.
However, one BillingPlatform customer relies on usage-based pricing to offer a fleet of electric cars. The company manages and shares it’s fleet of 2,000+ cars via a mobile app. The car share company currently charges only for usage, but the company expects to explore the possibility of adding more product options such as subscriptions that include reduced rates and other options.
The basic rental is charged per minute with daily pricing caps, parking fees if they stop over at certain zones, such as airports, as well as a minimum insurance waiver. Additional invoices outside of the core rental process include supporting the ability to cover fines and penalties, such as traffic violations and parking fees.
While the usage pricing is the foundation of the car sharing business, there are a number of add-on services customers can purchase on a one-time basis as well.
In addition, BillingPlatform supports an easy go-to-market experience that will enable efficient expansion outside of its current region with the ability to support multi-region, multi-currency, and multi-language.
BillingPlatform Supports the Sharing Economy
BillingPlatform helps sharing-economy companies optimize their business models with automated pricing and rating capabilities.
Whether you deploy a disruptive – or standard – pricing strategy, our solution helps you reach your financial goals. Mediate any data for IoT applications and define custom events that fit your unique needs. We’ll make it work for you. Automate high-volume usage and rating for metered offerings and manage your sharing-economy model in one comprehensive, cloud-based solution.
BillingPlatform can scale with your user base as it grows and evolves with the organization as needs change. Without any custom coding or IT intervention, your finance team can monetize simple or complicated offerings. We help every company embrace disruptive technology and economic trends. Discover how BillingPlatform evolves the role of Chief Financial Officers by downloading our ebook, Cloud-based Billing Management Disrupts to Role of CFO.