ABSTRACT
The key to financial sustainability is to lower costs enough that customers’ willingness to pay will cover those costs and generate a small margin that, over a large volume of customers, makes the company sustainable. An example is Hippocampus, whose revenue model hinged on opening hundreds of early learning centers for achieving financial viability. With parents paying less than $5 per month, Hippocampus’s margins are miniscule. But they add up over large volumes. A differential pricing model provides the same offering to customers of different income levels, and it uses sliding-scale pricing so that some customers cross-subsidize others. This is most feasible in situations where low- and high-income customers have the same needs, and where a standardized high-quality offering can solve that shared problem. At Aravind Eye Care System, which provides cataract surgery in India, for example, arriving patients are given a menu of options at different price points.
