Innovation has become over the years one of the most important concerns for CEOs all over the world.
If someone ask you to think about what you consider as the most innovative company in the world you’re probably thinking about Apple, Amazon or Google. This shows that very often, when we think about innovation, we think about technology or high-tech products. However, innovation is much broader than just technology.
There are different types of innovations (product innovation, process innovation, managerial innovation) and several degrees of innovation (from radical to incremental and everything in between).
This is why innovation is such a polysemic word and why people don’t always think about the same thing when talking about innovation. Some people actually consider that only radical, extreme change should be called an innovation, while others think that a slight change, doing something a little bit different from the way it was done before, should also be called innovation.
This article is about innovation, but a specific type of innovation: the business model innovation, a specific form of innovation that is radical in its essence and occurs at the three components of the business model (value proposition, value architecture and profit equation).
Most often,it is the current business context that creates an urge to innovate for many companies (Michelin, AirBnB, low-cost airline companies) and to successfully combine this innovation with strategy.
A very good example is the TEATRENEU comedy club in Barcelona that shows how modifying the revenue stream can generate very innovative value propositions.
When the entertainment tax in Spain for theatrical shows raised from 8% to 21% resulting in the greatest loss of audience ever (30% drop in audience members in just one year), the independent comedy theatre company TEATRENEU decided to look at the situation with humour and creativity and came up with an innovative way of charging the customers, called “Pay per Laugh”.
The concept is as simple as it sounds: entrance is totally free; if the show produces no laughs you don’t pay anything; however, if you laugh you have to pay for each smile. So, rather than charging spectators per show, the comedy club decided to charge them per laugh.
For this, the seats are fitted with cameras and facial recognition software that detects the smile of the person seated behind. Each smile costs you 0,30€ with an upper cap of “80 laughs” or 24€ (so that people wouldn’t intentionally restrain from laughing or cry for having laughed more than they could afford).
At the end of the show, the spectators check their “laughter account” and can share it on social networks.
As the video accompanying the article mentions, each pay per laugh show produced 7,200 euros compared to 4,400 euros that was normally taken and 35% more spectators.
The system is now implemented in other theaters around Spain, and other countries have shown interest as well.
James Woroniecki, director of London’s 99 Club, said: “Sounds fun, just so long as all the facial recognition data doesn’t get forwarded to the NSA [US National Security Agency]. It’d be a big technical challenge – as people laugh so often at the 99 we’d have to install a cash machine by every seat.”
As a conclusion, price is definitely a key factor in the clients’ decision to buy and this is even more true with unfamiliar experiences. Thus, by modifying the revenue stream and reducing the clients’ costs, TEATRENEU successfully managed to overcome the “What if I don’t like it?” barrier and come up with a very innovative value proposition.
This leads to ask the following questions when exploring this direction of business model innovation:
- How can you get the client/ the user to pay in a different way?
- Can you offer a part of your product or services for free as to increase volumes?
- Can you reduce other peripheral costs incurred by clients?
- What pushes potential clients to refuse or ignore an offer?