Consequences of usage-based pricing in industrial markets

Abstract

In industrial sales providers often neglect the potential for revenues in the customer's usage processes after the actual transaction. However, innovative providers tend to shift revenues to the usage phase by setting prices according to actual service usage. In this article, we discuss the consequences of usagebased pricing in a twofold manner: First, we point out the potentials of usage-based pricing. Here, we show the additional value proposition when usage-based costs and risks are shifted from customers to providers as well as the opportunities and challenges of adopting that pricing scheme. Second, we analyze the profit impact of a usage-based pricing scheme in comparison with posted-price selling. The findings show that usage-based pricing can help discriminate customers by their usage intensity. With low usage-independent costs, usagebased pricing is more profitable than posted-price selling, even though providers must cover usage-based costs with that pricing scheme. With high usage-independent costs, providers should consider a minimum usage level or improve their advantage over customers in terms of usage-based costs.

Pricing and Profit Management Models for SaaS Providers and IaaS Providers

“…However, proper pricing can not only increase their profit but also help customers purchase cloud services efficiently [9]. To meet the fluctuating demands of cloud customers created by peak and seasonal demands, cloud providers charge services via on-demand pricing and reserve pricing [10]. The software industry is also heavily affected by cloud computing.…”