The 5 Pricing Models Companies Need to Consider When Innovating

Published on January 19, 2023

Sometimes the best product innovation is the monetization model itself.

In the early 2000s, Michelin invented a new truck tire that, impressively, would last 20% longer than any other tire on the market. Under increasing competition and price pressure, the CEO was very happy with this development and asked his sales team, “How much more can we charge for this product?” The answer was, to his disappointment, somewhere around 5-6% more – a typical rate of monetization. This would have serious consequences for Michelin’s bottom line given new Michelin tires would need to be replaced 20% less. How could this conundrum be explained to the financial community

Michelin’s executives decided to revisit the company’s long-established monetization model. They found by switching from a price-per-tire to price-per-kilometer model, a classic pay-as-you-go approach enabled by GPS technology, 100% of the additional value from their innovation could be monetized – and they…

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