Most modern organizations strive to take good care of their customers. They deploy market research to gather insights that can help them develop meaningful products and services that stand out from those of competitors. They also think about their customers’ journeys to a purchase, trying to engineer experiences that are at once practical and engaging. Finally, today’s organizations are constantly tweaking their internal structures and incentives systems to relate and respond better to the market.
All this effort is excellent. Yet, from where we stand, it is only half the battle.
While many businesses tout their innovative spirit and proudly claim to put customers at the heart of what they do, we seldom see the same determination and steadfast focus in the way they convert market potential into a financial return. If given the chance, customers would gladly pay for the solutions to their needs and wants, the “ends” they seek, rather than the means to achieve them. After all, they only buy products and services because they need or want something from them. Yet a combination of neglect, inertia, fear of change, and comfort with the status quo implies that most companies today still promise results but earn revenue on what comes off the factory floor, so to speak. In fact, in our experience, companies seldom challenge what they ask their customer to pay for (the revenue model question) and instead obsess over the secondary, far more tactical issue of how much customers should pay (the price question). It is as if the rules of the game in a market are inherited and immutable.
We came to write The Ends Game: How Smart Companies Stop Selling Products and Start Delivering Value because we are uncomfortable with this picture and want to shift the focus of the discussion. The rules of the game are far from immutable, and they certainly should not be taken for granted. This is increasingly true as modern digital technology delivers sharper insights into what products and services actually do to customers, empowering them to demand accountability. Business leaders and policy makers need a roadmap to develop and implement the right revenue model given this opportunity … and before it becomes a threat.
At the same time, we wrote The Ends Game knowing that our student and executive audiences are interested in understanding the motivation for, and difference between, alternative modes of generating revenue. The radical and disruptive recent changes across many industries are rooted in a conscious, technology-enabled shift in revenue models. Accordingly, this interest at times stems from the realization that new technologies can help them “shake things up” in a market, while at other times it stems from an imminent and present threat of disruption by a bold and nimble entrant.
As academics, our first intuition was to turn to the literature for guidance, but here we found excellent treatments of individual “business models” such as subscriptions (the membership economy!) and collaborative consumption (the sharing economy!) rather than a general theory capable of explaining why these models exist and, importantly, how to think about them as a whole and decide what model is best deployed when.
In many ways, The Ends Game is about the future of commerce. We argue that accountability is fast becoming the critical currency of competitive advantage. This change is taking place in just about any industry we can think of, albeit at different speeds and to different extents. As such, while all the revenue models that we discuss exist, they are not equally represented. For example, while subscriptions are all the rage at the moment, in our view they are a stepping stone toward other, more customer-focused revenue models rather than the final point. The same applies to collaborative consumption. Accordingly, the book describes a continuum of plausible revenue models that allows organizations to locate their position in the broader scheme of things and identify the way forward. While we are confident about the direction of change, the pace of that change is less clear.
The ideas that we present in The Ends Game are shaped as much by our shared perspective as they are by our individual backgrounds and training. We care about managerial decision making, and therefore this book clearly targets organizations: we want business leaders to understand the shifting landscape of competition as well as the threats and challenges that result, and prepare themselves to take a leading role. Yet we are marketers, and our discipline teaches that the root cause of growth, disruption, and decline in any market is the customer. As such, we build our theory from the perspective of customers, clarifying that, if they “suffer” excessively under a given revenue model, then so do organizations. Organizations should not be indifferent: a key message is that taking the traditional “I want to limit risk” position is actually risky as markets leverage technology to evolve.
Marco’s training is in behavioral economics, and he relies primarily on experimental methods to derive insights about how managers make pricing decisions or, in turn, how customers respond to the prices they see. Oded’s training is in operations, and he develops mathematical models to understand and explain firm actions and incentives. This unorthodox partnership sparked a healthy dialogue, at times more heated than others, singularly focused on understanding where commerce is heading and, of particular importance, why this is the case. In hindsight, the personal growth that resulted from the learning journey we embarked on was probably reason enough to write these pages, and one that we look back on fondly.
There are many individuals and institutions that helped us at different moments in time to bring The Ends Game to fruition. We are indebted to all of them, and hopefully we do not leave anyone out unintentionally.
First and foremost, we want to thank Frank Luby. We met Frank relatively early in the process, when we knew the general direction that we wanted to take but the ideas and messages were still raw. Frank helped us—if not coached us—through this initial phase, serving as the best sparring partner any author team could ask for. We drew on Frank’s experience as a consultant, journalist, and researcher at the onset and virtually across the entire project … including this acknowledgments section! His guidance was spot on, and this book is in many ways shaped by his contribution.
Next, we are grateful to our home institutions, ESADE Business School and London Business School, for encouraging us and giving us the freedom to think big thoughts. This freedom cannot be understated, as in many educational institutions this is probably not the case—or at least not to the same extent. In addition, we are extremely thankful to London Business School for direct financial support.
Our excellent former students and participants in executive education programs at our respective schools and across other parts of the world played an important role. Unbeknownst to them, they were often our guinea pigs, as we routinely brought new or developing ideas to the classroom for “testing.” More important, the passionate discussions with them on revenue models, technology, and everything in between helped us refine our arguments and examples. There is nothing like a room full of inquisitive, impatient minds to keep you on your toes. We thank our varied audiences for pushing us to think hard about the topic and give every angle or twist due consideration.
We also thank our many coauthors and colleagues for adding their individual perspectives: Eyal Biyalogorsky, Simona Botti, Bart de Langhe, Preyas Desai, Kristin Diehl, Sunil Gupta, Daniel Halbheer, Bruce Hardie, Rajeev Kohli, Anja Lambrecht, Natalie Mizik, Elie Ofek, Debu Purohit, Nader Tavassoli, Naufel Vilcassim, and Luc Wathieu. We recall countless discussions on topics that are relevant to what you read in this book and certainly shaped our thinking. Moreover, we want acknowledge the input from all the scholars that each year join us at the Pricing Symposium, a conference that we organize together with Martin Spann from Ludwig-Maximilians-Universität in Munich. Parts of the book were first presented at the inaugural meeting.
Just as many people in the education sector helped us to fine-tune the concepts that underlie The Ends Game, amazing professionals such as Mark Billige, Marieke Flament, Carlo Gagliardi, Yaron Kopel, David Lancefield, Robert Maguire, Amadeus Petzke, and Todd Snelgrove ensured that we kept our feet well and truly on the ground, insisting that our ideas match and serve reality. Their “touch” is particularly evident in part III of the book where we outline the actions that are critical for organizations to succeed in markets increasingly focused on accountability.
We are indebted to Danny Stern, Ania Trzepizur, and everyone else at Stern Strategy Group, who advised us on the processes of developing our ideas into a book and finding a like-minded publishing house that would support and complement us. The world of publishing was new to us, and hopefully this will be the first of many fruitful collaborations.
On that note, we want to thank Emily Taber at the MIT Press for taking a chance on The Ends Game. She understood what we wanted to say, and why it matters for organizations, from the onset. Equally important, we also want to thank her for the unwavering support. Emily’s feedback on drafts of the book was incredibly fast, constructive, and, importantly, right on the money. She was a pleasure to work with, and we look forward to a repeat performance.
Last, but clearly not least, we are grateful to our respective families. They have been only too patient with us, seamlessly shifting from role to role as supporter, contributor, or hardened critic as the need arose. The journey from idea to the book you now hold may have taken a little longer than anticipated, but hopefully it was worth the wait!