Georgetown-ESADE Global Executive MBA

MONETISATION: HOW TO TURN CUSTOMER VALUE INTO LASTING REVENUE

Marco Bertini
ESADE
Avinguda de la Torre Blanca, 59
08172 Sant Cugat del Vallès
Spain
marco.bertini@esade.edu

Introduction

Monetisation is an area of business that professionals seldom talk about with enthusiasm. In fact,
although most businesspeople understand that pricing decisions can truly make or break a
company’s bottom line, they tend to tackle markets without the aid of a carefully crafted
strategy. The actions that result are collections of tactics held together by questionable
assumptions and crude heuristics that, more often than not, put financial and brand health in
jeopardy.

This elective course is a pragmatic, action-oriented study of the different roles that monetisation
policies play in capturing, communicating and even enhancing a firm’s competitive advantage.
The objective is to equip you with the necessary confidence and skills to design and execute a
superior strategy, irrespective of current or intended professional orientation. We draw lessons
from economics, psychology and sociology, and step into the shoes of several organisational
functions, to introduce new approaches and useful frameworks for solving the most pressing
monetisation problems today.

While the emphasis is obviously on one element of the firm’s “go-to-market” repertoire, it is
important to keep in mind two considerations. First, monetisation decisions interact with those
about products, communications and distribution. A key challenge, therefore, is to embed your
strategy in the context of the firm’s overarching objective(s), and evaluate its effectiveness
accordingly. Second, monetisation decisions are not safe in the hands of marketers alone. To be
exact, marketers must have a say. However, the input of, at least, sales, finance and accounting is
critical for success. For these and several other reasons, I teach the course from the standpoint of
general management.
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Learning objectives

By the end of the course, you will have learnt to:

• Recognise and exploit the different roles that price plays in competitive markets,
• Address the constraints that shape a sound monetisation strategy,
• Design a revenue model that supports the strategic objectives of the firm,
• Determine the proper role of costs, competitors and customers in setting the “right” price,
• Calculate, sell and defend the (unique) value of a product or service to customers,
• Understand the impact of psychological and sociological factors on demand,
• Respond intelligently the forces of competition and commoditisation,
• Identify opportunities for tailoring prices that are palatable to customers, and
• Design sales promotion campaigns that benefit sales without hurting brand equity.

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Format and materials

The class sessions involve a combination of lectures (roughly 60%), case discussions (30%) and
exercises (10%). The goal of the case discussions and exercises is to examine important concepts
in different managerial settings, and to give hands-on practice in making decisions based on
qualitative and quantitative data. The lectures intend to complement this work by presenting
relevant frameworks, analytical techniques, practical insights and additional examples.

Note that there is no compulsory textbook for the course. If you are interested in buying a
general reference book, I recommend those by Dolan and Simon (1996), Nagle and Hogan
(2006) and Smith (2012). Please consult the references at the end of the syllabus for details.

All the required reading material (case studies and/or articles) is available on Moodle. I leave it
up to you to source the suggested material according to your interest in each topic—again, please
check the references for more information. Finally, note that I will upload the lecture slides
closer to the corresponding sessions.

Active participation in the classroom is critical to your learning experience (and graded
accordingly). The case studies are critical. Preparing a discussion means being familiar with the
key facts and formulating an intelligent response to the problem faced by the protagonist(s). Put
yourself in their shoes and try to see the situation as it appeared at that point in time. Remember
that the fundamental question you are trying to answer is always the same: “What should the
manager(s) do?” The articles are also important—some provide grounding in core concepts,
others are provocative pieces on topical issues. You should be familiar with all the required
material before the start of the session.

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Assessment of your work

Your final grade comprises two separate activities. If you have any doubt, question or concern
please contact me.

Class attendance and contribution (30% of final grade)

Attendance in every session is expected and recorded. It is your responsibility to comply with
this measure. Students who arrive 10 or more minutes after the scheduled start will not be able to
enter the classroom unless they sought prior permission. Critically, note that unexcused absences
reduce your score. In fact, two or more unexcused absences result in an automatic score of zero
and, in all likelihood, a fail mark for the course. In line with school policy, only truly extenuating
circumstances justify an absence. In these cases, class contribution is calculated over the
remaining sessions. The GEMBA Programme Office has final say on the classification of an
absence.

Class contribution is much more than simply showing up and fighting for airtime. The focus will
always be on the quality, not quantity, of your involvement (subject to a minimum threshold).
Contributing implies moving the debate forward to boost the learning experience of everyone in
the room, myself included. While good comments matter, insightful comments matter more.
Therefore, if you do only one thing to prepare, digest the preparatory material and come to class
on time and ready to voice your opinions. Please do not put the class in the uncomfortable
position where you are unable to help.

In general, as long as you complete the assigned readings, actively take part in pertinent
discussions, listen to others with respect and communicate your arguments convincingly you
should not experience problems. You are welcome to ask for more information on how I grade
class contribution or seek feedback on your performance at any time during the course.

Case study analyses (70%)

You are required to submit written analyses of the case studies “Can one business unit have two
revenue models?” (Sessions 2 and 3, 25 July) and “The upstart’s assault” (Sessions 7 and 8, 27
July). Each write-up is worth 35% of your final grade. Please use the corresponding TurnItIn
dropbox in Moodle to make the submissions. These are due no later than the beginning of each
class, and the dropboxes themselves will be accessible starting from one week prior.

Please note that there are no pre-assigned questions for this task—although the cases themselves
end with a “discussion starter” that you can take to anchor your work. As mentioned, always
assume the perspective of the protagonist(s) and be clear about the problem that you think the
firm is facing. The use of outside sources, either to support a conceptual argument or provide
empirical evidence, is strongly encouraged.

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The analysis should take up four pages excluding cover, tables, figures and references.
Moreover, please observe the typical standards of 12-point Times New Roman font, 1.5-line
spacing or less, and so on.

Late submissions suffer a penalty of 20% of the average class score per day. A TurnItIn
similarity index of 40% or greater overall, or 15% or greater from a single source, will be
flagged and reviewed for possible plagiarism. Failing to complete the assignment triggers an
incomplete mark for the course.

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Overview of sessions

This section introduces the sessions of the course and provides the required and supplementary
materials.

Session 1—What is a monetisation strategy?

25 July 2016, 9:00-10:30

“Take what you want, God said to man, and pay for it.” (Spanish proverb)

The opening session introduces the key elements of a sound monetisation strategy. The starting
point is a short discussion of the asymmetry between the value creation and value extraction
activities of the common business, and the potential that exists for improving the latter. We then
dive into the manager’s “to do” list. As we consider the different actions in that list, we make
several related observations. First, and perhaps most important, monetisation is interesting only
if you offer the market something that is unique and of value (from the perspective of the target
customer). Second, there is no strategy without a deep understanding of the constraints faced or
set by the firm. Second, managers must understand and exploit the different, and at times
surprising, roles that prices play in a market. Finally, technology is changing just about
everything—as it does, of course, in many other areas of business.

Required articles: How do you know when the price is right?

Three rules for making a company truly great
Suggested articles: Pricing myopia
The power of pricing

Sessions 2 and 3—Rethinking the revenue model

25 July 2016, 10:45-12:15 and 13:15-14:45

“Revenue is the oxygen that allows this company to continue breathing, to continue seeing
another day.” (Dennis Woodside)

Perhaps the most strategic element of monetisation is the decisions that executives must make
with respect to the firm’s revenue model. For example, every business needs to clarify what part
or parts of its offering it wants the market to pay for, when and how customers should pay, and
indeed what customer types bear the grunt of generating cash flow. These and other choices are
important because they shape the way the firm is perceived, the selection and behavior of
customers and the make-up and intensity of competition. Importantly, these two sessions aim to
reduce the complexity that is inherent to designing a superior revenue model to a small set of
guiding principles. The case study on the integration of two sales forces at Scherr
Pharmaceuticals identifies and debates the logic of these tenants. The lecture then reviews the
learning points and presents examples of businesses that, proactively or otherwise, have
disrupted their markets by taking a radical stance in engineering their revenue model.

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Case study: Can one business unit have two revenue models?
Required articles: Capture more value
Suggested articles: A novel architecture to monetize digital goods
Adapting to the sharing economy
Digital ubiquity
Making “freemium” work
What is a free customer worth?

Session 4—The “right” price

26 July 2016, 09:00-10:30

“There are two fools for every market: one asks for too little, the other asks for too much.”
(Russian proverb)

This session discusses the economic underpinnings of setting prices. The first order of business
is to clarify the tremendous impact that a more rigorous process to find the elusive “right” price
has on profitability: when properly understood, the benefits gleaned dwarf those related to
improving costs or sales volume. Next, we build the “pricing thermometer” to highlight three key
sources of information: company, competitor and customer. An important point is that, while the
competent manager tries to navigate these supposedly hard constraints, in reality there is
considerable leeway to mold each one to the interests of the business. Moreover, we will see that
managers generally know that company, competitor and customer are inputs; but they do not
know how to handle them. In the end, it becomes obvious that setting a price is in many ways a
delicate balancing act that combines internal and external information.

Required articles: Financial analysis for profit-driven pricing

Suggested articles: Profiting when customers choose value over price
The CFO guide to better pricing

Session 5—Selling value to customers

26 July 2016, 10:45-12:15

“A cynic is a man who knows the price of everything and the value of nothing.” (Oscar Wilde)

At the heart of every monetisation effort lie the activities that businesses undertake to understand
and communicate how their offerings create meaningful value for customers. Indeed, there is
truth to the saying: “When the value of an offering is clearly understood by both firm and
customer, price is seldom a problem.” This session starts by justifying the need to quantify value,
and the logical process that gets it done. Then, the discussion turns to the problems a firm is
likely to encounter in practice. We make several points, but two in particular. First, a better
understanding of what the term “value” actually means to customers, and how the firm can be
true to its promise, gives a sense of calibration and confidence that helps fight off the pressure
imposed by clients and competitors. Second, a better process to sell value quickly improves the

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performance of the firm—and the improvement is enduring. The overarching objective of the
session is to agree on the tasks that managers should pursue in order to make the most of their
hard-earned differentiation. We introduce a five-step framework that tackles this goal, and
discuss how to apply it in practice.

Required articles: Customer value propositions in business markets

Suggested articles: Profiting when customers choose value over price
Tiebreaker selling
Why the highest price isn’t the best price

Session 6—Price, brand and the customer experience

26 July 2016, 13:15-14:45

“The bitterness of poor quality remains long after the sweetness of low price is forgotten.”
(Benjamin Franklin)

Marketing professionals believe that growing a business implies cultivating brands that foster a
deeper, more meaningful connection with customers. When it comes to generating revenue,
however, companies often implement policies that seem intent on destroying all the hard work
that goes into building a strong brand. One explanation for this inconsistency is that business
people think that sellers and buyers compete to appropriate whatever value is created in a
transaction: either the company earns revenue at the expense of the customer, or the customer
enjoys a surplus at the expense of the company. In this simple scenario, monetisation is little
more than a mechanical exercise in “running the numbers.” But value is seldom a constant sum,
and today’s technology-savvy social customers are certainly not the passive price takers of
yesteryears: they are quick to root out and very publicly expose any pricing tactic that seems
unfair. This means that price is in fact better than most other forms of communication at
advertising what a company stands for, what it truly thinks of its customers, and how it wants to
engage them in a relationship. Accordingly, firms need to break old habits and realise that they
relate with customers not just through their brands. This session makes this need, and the
“solution,” salient.

Required articles: In praise of honest pricing

Pricing to create shared value
Suggested articles: Companies and the customers who hate them
Creating shared value
Finding the profit in fairness

Sessions 7 and 8—Managing the competition

27 July 2016, 09:30-11:00 and 11:15-12:45

“There is no victory at bargain basement prices.” (Dwight D. Eisenhower)

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Is there anything a manager can do, within the constraints established by the law of course, to
encourage rivals to “behave?” How can you stop a costly price war or, better still, avoid it
altogether? What does it take to become the (price) leader in a market? These are relevant
questions in many of markets, and an important step toward finding answers is realising that
competition typically results from three—rather than just one—forces. Certainly, part of the
blame rests on the dubious actions of the rival. In this instance, the task of the manager is to
influence that firm’s behavior. Aside from this, however, competition also comes from the
natural tendency of customers to lose interest in differentiation as markets mature, and from the
manager’s own uninformed and biased outlook on events. For the former problem, there are
countermeasures that slow down, and perhaps even reverse, the trend. For the latter problem,
psychological biases are generally hard (but not impossible) to treat because they occur below
the level of consciousness. A discussion of the case study “The upstart’s assault” introduces
these forces. The accompanying lecture presents several suggestions on what to do about them.

Case study: The upstart’s assault

Required articles: How to stop customers from fixating on price
Price wars and the managers who start them
Suggested articles: Competing against free
How to fight a price war

Session 9—One customer, one price

28 July 2016, 09:30-11:00

“If everyone is equal before God, then everyone is equal before price.” (John Wanamaker)

From the standpoint of monetisation, customers are not all equal. They are not equal because
some segments find more value in a given product than other groups do. A smart professional
spots this and understands that using a single price across the market is wasteful: in some
instances it leaves a good chunk of money in the pockets of customers rather than the coffers of
the company, while in other instances it prevents sales that still make financial sense at some
lower amount. This session explores the fascinating topic of price personalisation (when driven
by the company) and customisation (when driven by the customer) —otherwise known as “price
discrimination.” In particular, the session builds on the counterintuitive idea that leaving the
conventional “take-it-or-leave-it” approach to monetisation for something more participative not
only makes a business more efficient at turning competitive advantage into revenue, but also
introduces unexpected psychological benefits. The first challenge is to understand why customer
input is critical and to feel at ease with losing some autonomy. The second challenge is to choose
wisely among the different mechanisms available today that vary on the extent to which the
pricing task is “outsourced.” The session presents through examples a simple decision tree to
assist with the latter.

Required articles: Should you punish or reward current customers?

When customers help set prices
Suggested articles: Versioning: the smart way to sell information

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Session 10—Motivating the purchase

28 July 2016, 11:15-12:45

“Don’t worry; we’ll make it up in volume.” (Anonymous sales person)

Business people often remark that price discounting is equivalent to a potent and dangerous drug.
Many “give it a try” in response to pressure from peers. The bump in sales that follows the start
of the campaign gives great satisfaction. However, the drop that swiftly follows the end of the
campaign is agonizing. As time goes by, the concessions have to be deeper and more frequent in
order to maintain the attention of a customer who is increasingly accustomed to—and bored
with—receiving offers. One interesting aspect of this phenomenon is that, mostly, it is
predictable. This begs the questions: Are managers doing things right? Is there a healthier way to
entice customers, or should all firms with enough self-control and discipline abandon the tactic
altogether? This session aims to provide answers to these concerns by presenting criteria that
help managers distinguish between “smart” and “dumb” campaigns. These criteria make up a
useful checklist to audit how a business is currently performing on this dimension of
monetisation.

Required articles: Don’t let big data bury your brand

If brands are built over years why are they managed over quarters?
Suggested articles: A strategic perspective on sales promotions
The three faces of consumer promotions

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Faculty

Marco Bertini is Associate Professor and Department Head of the marketing subject area at
ESADE (Barcelona, Spain). He research, teaching and work with professionals focus on the
question of monetisation.

Marco holds a Doctor of Business Administration from Harvard Business School, a Master of
Business Administration from IESE Business School, and undergraduate degrees in Arts
(Politics and International Studies) and Commerce (Economics) from The University of
Melbourne. His research, which for the most part investigates the psychology of pricing
decisions, appears in the major journals for marketing scholars (Journal of Consumer Research,
Journal of Marketing, Journal of Marketing Research and Marketing Science) and management
practitioners (Harvard Business Review and MIT Sloan Management Review). This work
appears in print media and television—most recently in the BBC, Bloomberg BusinessWeek,
Financial Times, The Times and Wall Street Journal.

In 2012, Marco was nominated for the Business Professor of the Year award, a global
competition administered by the Economist Intelligence Unit, and in 2013 he was recognised by
the Marketing Science Institute in the United States as one of the most promising researchers in
the discipline as part of its biennial Young Scholars programme.

Before joining ESADE, Marco was on the faculty at London Business School for eight years,
teaching in the school’s degree programmes and a broad range of open-enrolment and custom
courses for senior professionals. He has also collaborated with several academic institutions in
Europe (e.g., IESE, INSEAD, SDA Bocconi, Judge Business School at the University of
Cambridge and Saïd Business School at the University of Oxford), the United States (Columbia
Business School) and Asia (China Europe International Business School).

Marco is a frequent keynote speaker on topics related to monetisation and his clients have ranged
from Global Fortune 500 companies to entrepreneurial start-ups and government. He is also a
scientific advisor to several businesses and a member of the academic liaison committee of the
Chief Marketing Officer Council.

A native of Italy, Marco has also lived in Australia, the United States, the United Kingdom and
now Spain. For more information, please visit www.marcobertini.com.

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References

• Anderson, J.C., J.A. Narus, and M. Wouters (2014), “Tiebreaker Selling: How
Nonstrategic Suppliers Can Help Customers Solve Important Problems,” Harvard Business
Review, 92(3), 90–6.
• Anderson, J.C., J.A. Narus, and W. van Rossum (2006), “Customer Value Propositions in
Business Markets,” Harvard Business Review, 84(3), 90–9.
• Anderson, J.C., M. Wouters, and W. van Rossum (2010), “Why the Highest Price Isn’t the
Best Price,” MIT Sloan Management Review, 57(2), 69–76.
• Bertini, M. (2014), “Price Wars and the Managers Who Start Them,” Business Strategy
Review, 25(4), 52–5.
• Bertini, M. and J.T. Gourville (2012), “Pricing to Create Shared Value,” Harvard Business
Review, 90(6), 96–104.
• Bertini, M. and L. Wathieu (2010), “How to Stop Customers from Fixating on Price,”
Harvard Business Review, 88(5), 84–91.
• Bertini, M. and N. Kumar (2010), “The Upstart’s Assault,” Harvard Business Review,
88(7–8), 159–63.
• Bertini, M. and N. Tavassoli (2015), “Can One Business Model Have Two Revenue
Models?” Harvard Business Review, 93(3), 121–5.
• Bertini, M. and O. Koenigsberg (2014), “When Customers Help Set Prices,” MIT Sloan
Management Review, 55(4), 57–64.
• Bryce, D.J., J.H. Dyer, and N.W. Hatch (2011), “Competing Against Free,” Harvard
Business Review, 89(6), 104–11.
• Dolan, R.J. (1995), “How Do You Know When the Price Is Right?” Harvard Business
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• Dolan, R.J. and H. Simon (1996), Power Pricing: How Managing Price Transforms the
Bottom Line, New York, NY: Free Press.
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Promotions,” MIT Sloan Management Review, 48(4), W1–7.
Gupta, S. and C.F. Mela (2008), “What Is a Free Customer Worth?” Harvard Business
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• Marn, M.V., E.V. Roegner, and C.C. Zawada (2003), “The Power of Pricing,” McKinsey
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• Matzler, K., V. Veider, and W. Kathan (2015), “Adapting to the Sharing Economy,” MIT
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• Nagle, T.T. and J.E. Hogan (2006), The Strategy and Tactics of Pricing: A Guide to
Growing More Profitably, Upper Saddle River, NJ: Pearson Prentice Hall.
• Nalebuff, B. and I. Ayres (2003), “In Praise of Honest Pricing,” MIT Sloan Management
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• Porter, M.E. and M.R. Kramer (2011), “Creating Shared Value,” Harvard Business
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• Reisman, R. and M. Bertini (2014), “A Novel Architecture to Monetize Digital Goods,”
ESADE, working paper.
• Shapiro, C. and H.R. Varian (1998), “Versioning: The Smart Way to Sell Information,”
Harvard Business Review, 76(6), 107–14.
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