Co-Pricing: Co-Creating Customer Value Through Dynamic Value Propositions
Presentation at Naples Forum on Service 2015. Using co-pricing as a means for gaining deep customer insights offers much potential, ultimately expanding profitability and markets. Models of co-pricing could provide new basis for segmenting customers, based on their perceptions of value. Involvement in co-pricing decisions can also offer opportunities for enhancing relationships, building trust, fairness and commitment between a supplier and customer. A firm can develop value propositions and use them as part of a dynamic learning process that occurs between customer and supplier. Customer segments can be determined based on value perceptions, with each requiring discrete value propositions that are designed around relationship goals. Breakthrough opportunities relating to the special challenges of digital services are highlighted.
Published on: Mar 3, 2016
Transcripts - Co-Pricing: Co-Creating Customer Value Through Dynamic Value Propositions
University of Sydney, Australia
Teleshuttle Corporation, USA
University of New South Wales, Australia
Naples Forum, June 2015
Co-pricing: Co-creating Customer Value
through Dynamic Value Propositions
Co‐pricing: Co‐creating customer value through dynamic value propositions
Pennie Frow, Richard Reisman and Adrian Payne
Purpose: Recent scholarship suggests value propositions play a role in value co‐creation through
interactions (Prahalad and Ramaswamy 2004) and learning (Payne et al. 2008) between the
customer and supplier. However, the learning process remains largely unexplored. This paper
considers the role of co‐pricing as a tool that can assist in designing value propositions, which are
shaped through interactions and dialogue (Ballantyne et al. 2011). We suggest value propositions
are designed using the two‐way learning that arises when the customer is involved in determining
price, based on their sense of relationship value.
Design/Methodology/Approach: This conceptual paper draws upon value propositions (Lanning
1998; Frow and Payne 2011), customer management (Payne and Frow 2013), co‐creation (Vargo and
Lusch 2008; Payne et al. 2008) and co‐pricing (Bertini and Gourville 2012; Bertini and Reisman 2013;
Iansiti and Lakhani 2014; Reisman and Bertrini 2014) literatures, in particular exploring the concept
of ‘fair value’ in relationship building and learning. Using these ideas, we develop a conceptual
model that identifies how co‐pricing can play an important role in two‐way learning between a
customer and supplier. A value proposition communicates dynamically the outcome of this learning
Findings: Value propositions play an important role in establishing customers’ expectations of value.
A firm can develop value propositions and use them as part of a dynamic learning process that
occurs between customer and supplier. Customer segments can be determined based on value
perceptions, with each requiring discrete value propositions that are designed around relationship
Research limitations/implications: This study assists in clarifying the learning process that occurs
between customer and supplier, where value perceptions are shaped dynamically based on
expectations and recognition of value‐in‐use and ‐in‐context. Identifying how value propositions link
to co‐pricing decisions in a two way learning process offers much scope for further empirical
Practical implications: For managers, using co‐pricing as a means for gaining deep customer insights
offers much potential, ultimately expanding profitability and markets. Models of co‐pricing could
provide new basis for segmenting customers, based on their perceptions of value. Involvement in
co‐pricing decisions can also offer opportunities for enhancing relationships, building trust, fairness
and commitment between a supplier and customer.
Originality/value: This paper extends previous discussions of value propositions and contributes to
the growing literature on co‐pricing. Collaborative pricing as a learning mechanism offers much
potential for further research and managerial practice.
Key words: co‐pricing; co‐creation; value proposition; learning; relationships
Paper type: conceptual.
Ballantyne, D., Frow, P., Varey, R., & Payne, A. (2011). Value propositions as communication
practice: Taking a wider view. Industrial Marketing Management, 40, 202‐210.
Bertini, M., & Gourville, J. T. (2012). Pricing to create shared value. Harvard Business Review, 90(6),
Bertini, M. & Reisman, R. (2013). When Selling Digital Content, Let the Customer Set the Price,
Frow, P., & Payne, A. (2011). A stakeholder perspective of the value proposition concept. European
Journal of Marketing, 5 (1/2), 233‐240.
Iansiti, M. & Lakhani, K.R. (2014). Digital Ubiquity: How connections, sensors, and data are
revolutionizing business. Harvard Business Review, 92 (11), 90–99.
Payne, A., Ballantyne, D. & Christopher, M. (2005). Relationship marketing: A stakeholder approach,
European Journal of Marketing, 39 (7/8), 855‐171.
Payne, A. & Frow, P. (2013). Strategic Customer Management: Integrating CRM and Relationship
Marketing, Cambridge University Press.
Payne, A., Storbacka, K., & Frow, P. (2008). Managing the co‐creation of value. Journal of the
Academy of Marketing Science, 36, 83‐96.
Prahalad, C.K., & Ramaswamy, V. (2004). Co‐Creation experiences: The next practice in value
creation, Journal of Interactive Marketing, 18(3), 5‐14.
Reisman, R and Bertini, M (2014). A Novel Architecture to Monetize Digital Goods, Available at
Santana, S., & Morwitz, V. G. (2013). We’re In This Together: How Sellers, Social Values, and
Relationship Norms Influence Consumer Payments in Pay‐What‐You‐Want Contexts, invited for
revision at Journal of Marketing.
Vargo, S.L., & Lusch, R.F. (2008). Service‐dominant Logic: Continuing the evolution. Journal of the
Academy of Marketing Science, 36(1), 1‐10.
• Co-pricing: an opportunity for developing focused value
• New equity-based pricing models and especially monetizing
digital offerings : Co-pricing with the ‘FairPay’ model
• Conclusions and future research
Value propositions, co-creation and pricing
• “Firms can compete more effectively through the adoption of
collaboratively developed, risk-based pricing value propositions.” (Lusch, Vargo &
O’Brien, JR, 2007: Derivative Proposition 7)
• Both digital and conventional markets can benefit from value propositions
that seek to provide greater equity (i.e. fairness) to customers
• Co-pricing (Frow, Payne and Storbacka 2012; Reisman and Bertini 2014) offers an approach that can
assist firms in design of better risk-based value propositions.
• When customers experience the value proposition before payment AND
the customer then determines price based on their sense of value, a more
equitable distribution of value can be achieved
• Existing successful examples of collaborative pricing/co-pricing provide
impetus to development of more sophisticated highly scalable
Pay “What you Want”
download of album
according to their
perceived value of meal
Examples of focused value propositions:
Co-pricing: collaborative pricing activities
involving multiple actors that reflect their
joint perspectives on value, risk & pricing
New pricing models are needed
• Historically - prices were personalized
– Personal negotiation – human buyer and seller
– Communal norms of caring and fairness
• From mid-1800s – largely set formulaic pricing
– Institutional sellers to mass market consumers
– Scalable: operationally efficient; buyer ‘take it or leave it’
– Set prices typically leave profit on the table (‘the long tail’ of price sensitivity)
• Pricing in the digital 21st century
– Some useful research already conducted*
– Digital products (music, video, newspapers, magazines, ebooks, apps, etc.) represent
a major opportunity for new value propositions based on innovative co-pricing
– Co-pricing – represents an opportunity for a return to personalized pricing
– End ‘race to the bottom’ – personalize a fair price for value
– New co-pricing models are needed
*e.g., Bertini & Koenigsberg 2014; Chen et al. 2010; Chao et al. 2014; El Harbi et al. 2011; Gneezy et al., 2012a; 2012b; Isaac et al. 2010; Kim
et al. 2009; 2010; 2013; Mak et al. 2013; Santana et al. 2013).
“The shift of commerce to the digital domain has forced
many organizations to rethink their attitude to value
creation, at times backtracking to the very question of what
“value” actually means.
Electronic commerce facilitates and thrives on social
interaction, yet the way companies convert digital anything
into cash they can bank seems to be stuck in time, obeying
rules and practices that may have worked for physical goods
but make far less sense today.”
Reisman & Bertini 2014 (emphasis added)
Monetizing digital offerings
• Digital ‘products’ :
– have a near-zero replication cost
– are not discrete, scarce products
– offer access, entitlements, or usage
– are a service
• Digital ‘products’ represent an opportunity to:
– Exploit new power of computer-mediated relationships
– Co-operatively build relationships based on perceived value
– Learn the right price for each customer … each time
– Optimize price over the relationship
– Sell value: as a positive experience, rather than focus on price
– Build a relationship and get not just customers, but patrons
The long tail of price sensitivity
Increasing price sensitivity
• Green revenue:
(capped at set price)
• Red head: lost surplus
• Amber tail: lost sales
Separating the sale from the price as part of
the value proposition
Why not price the experience after it is known?
• Shift from typical up-front offers
• Remove the risk discount
• Signal value and trust
Set “fair” price
(after buy and use)
Fair to seller???
Gated FP Offer
Developing an equity-based value proposition:
Co-pricing with the ‘FairPay’ model
Price it BackwardExtend it Forward
(after trial)(limit FairPay credit)
The ‘FairPay’ co-pricing model
Seller Sets Price
(take or leave it)
Set-Price Offer ?
FairPay Zone (revocable privilege)
Conventional Set-Price Zone
The process involves frame, nudge and track – continuing adaptation
• Traditional pricing models are outdated and do not reflect the
customer’s dynamic perceptions of value
• Co-pricing offers opportunities for gaining deep insights
about customer relationship value, especially in the context of
• Using these insights, a focal firm can craft focused and flexible
value propositions that reflect a customer’s real willingness to
• A systematic review of how existing co-pricing models have
impacted revenue and profitability
• Exploration of how co-pricing models can provide a new basis
for segmenting customers, each with their own specific value
proposition, based on more granular perceptions of value
• Determine how customer involvement in co-pricing decisions
can offer opportunities for enhancing relationships, building
trust, fairness and commitment between a supplier and
customer – and deepen market penetration.
• Empirical testing of the ‘FairPay’ Co-pricing Model – we are
For more info see: FairPayZone.com
We would welcome your comments