Tuesday, October 23, 2018

Vodafone Ponders Outcomes-Based Pricing

Vodafone is at least considering “outcome-based” pricing for IoT services, where customers are billed according to the outcome of the messages sent over the MNO’s network, rather than billed on a monthly cycle based around a usage limit.

A related idea is “output-based pricing,” essentially a cost per transaction, such as test scripts executed or tickets resolved. Many would argue that is related to, but different from, outcome-based pricing. Still, the logic is similar: tie pricing to business process results.

That would be particularly important when Vodafone operates as a non-facilities-based service provider in markets such as the United States, where it will not have inherent cost advantages over many of its competitors.

“Outcomes-based” charging is an idea that has become more common as products increasingly embody services as a key part of the value proposition.  

As understood in the pharmaceuticals business, outcomes-based pricing is about the notion that retail prices should be set in relationship to outcomes (perceived value).  

There are lots of challenges, not the least of which Vodafone and other service providers would have to argue there is a direct causal link between a service provider’s efforts and the outcome.

Actual outcomes-based pricing also is complex. It requires end-to-end control of any number of processes, each of which contributes to a completed outcome. It always is hard to attribute results in such instances.

What is the supplier responsible for, and in control of? How does one distinguish between outcomes enabled by the service provider and instances where the client did or did not do something essential for the service provider to fulfill on an outcomes result?

Also, cost predictability tends to be lost when real outcomes-based pricing is used. That is the same problem consumers encounter for any usage-based billing system, where there are no caps on total cost.

Full outcomes-based pricing is an interesting idea. But probably few observers think it will be too common, as the sole method for charging. More likely is the incorporation of some outcomes-based or activity-based charging on a more-standard contract based on usage.

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