Disrupting Pricing Models — Reverse Auctions
Tipping the balance between demand and supply
Most companies and people have a set price and determine their offering based on their time and level of expertise. Their product is sold in a set price list that people can look at to decide whether they can afford it or not.
The benefit of this approach to both the consumer and the supplier is that people who can’t afford your services are filtered out before contacting you while customers don’t spend unnecessary time and money pursuing an offer they don’t know yet doesn’t fall into their budget.
It’s kind of like walking past a restaurant and looking at the menu before asking for a table rather than sitting down immediately only to discover that there is no vegetarian options available or that it is too expensive for what you had in mind. It’s a win-win for both parties.
The downside of this approach, however, is that an opportunity for bartering which might result in a much better value proposition is lost.
Money is not the only currency
Money, as a tool for value exchange, is a globally accepted and accessible tool that allows you to buy anything regardless of whether what you do has any value to the recipient.
In the days before money, goods were exchanged and — as an example — if you, as a carpenter, wanted a pair of shoes but the shoemaker didn’t want carpentry done, you were stuck and unable to get the shoes. Money solved that problem by being a general resource accepted by everyone.
However, in the old days there were no tax laws either, no banks with high bank fees and no currency exchange rules making it less and less viable to use money as a currency for exchange.
The origin of taxes (not land-ownership taxes but mandatory tax on income by government) came from a need within the community to better the standard of living for the community at large. When there was a need for war the rand lords were asked for a voluntary contribution to fund the venture. Only much later was it decided that taxes should become a mandatory contribution by the working class. The more it became the rule, the less it seemed to be used for the welfare of the people.
So how do you get more bang for your buck? How do you get more value with less money being spent? How do you afford things you think you’re not able to afford?
The answer is routed in another question. What do you intend to do with the money and how do you cut out this middle man?
Reverse Auction as Pricing Model
A problem with volunteering and the art of allowing as described in A Disruptive New Pricing Model is that not having a set price list can be very intimidating for the recipient of the service.
How much should they pay if you ask them for a donation? What is the going rate for something similar? Would it offend the recipient if you paid too little?
To make it less intimidating for both sides, the concept of a reverse auction as pricing model can be a great solution to the problem.
This is how it works.
1. Focus on the result, not the process
As consumer, contact the service provider and make an offer based on your budget. Be very explicit about what you need and what the problem is you are about to solve. Refrain from getting too specific about what you want or how you want it delivered and rather focus on why you want it.
For example, you want a gamestorming workshop because you want an innovative idea that will make you more marketable is a better request than asking for someone to facilitate a lean coffee. A lean coffee might be what you need, but more often than not it’s not going to solve the problem.
Don’t ask for a tri-fold flyer design with a list of everything that must be on it and specifying that it must be done in Microsoft Publisher. Offer the available resources but don’t force it. Allow the designer to ask for what they need in order to deliver what you want. Maybe Microsoft Publisher is not the best tool to use and maybe the information that you provided doesn’t bring the correct message across to help you solve your problem.
Rather state your problem and that you would like a flyer to raise awareness of a specific problem, or sell a specific product etc. without going into the mechanics of how this problem is to be solved.
“The problem can not be solved on the same level as what it was created on.” — Einstein
You’re paying for the expertise of the specialist, leave it up to them to solve the problem. Spend your effort in explaining the problem and the impact of the problem and let them see how best they can solve it.
2. Make an offer
Once you’ve explained the problem you need to solve and the end-result you wish to obtain, make an offer to the service provider.
Be creative. Offer money (because money does pay the bills in the end of the day) but also include other things that might be valuable to them, such as the use of the building after hours, the ability to use some of your services or exposure to their brand. Ask the following questions:
- What do you have in excess or abundance?
- What don’t you use optimally that can be shared?
- What do you have that you actually have no need for?
Come up with a unique offer that is as valuable to you as to the service provider.
3. Service provider sets the terms
Once the offer is made, the service provider has to accept the offer but they also have the right to set the terms. How much time are they willing to spend? How frequently will they engage? What artifacts and resources are they willing to contribute?
For example, based on the offer made — and taking the desired outcome into consideration — the service provider will decide that they are only willing to spend 3 hours and not 5 on a gamestorming workshop or that you have to provide the sticky notes and coffee.
Money is not the only currency and paths are made by walking. Rather than following in the path of everyone that came before you, try different pricing models that will allow you to get more value for money.
Disrupt by offering reverse auctions to get what you want. Want to try it? Make an offer!