Pricing Model

A Pricing Model is a business model component that is used to create pricing systems (that support price determination tasks).

• AKA: Price Structure, Pricing Strategy, Pricing Framework, Revenue Pricing Approach.
• Context:
  • It can typically determine how Businesses generate revenue from their product offerings.
  • It can typically calculate Price Points based on pricing factors.
  • It can typically support Value Capture through pricing mechanisms.
  • It can typically align with Market Position via pricing signals.
  • It can typically enable Profit Maximization through pricing optimizations.
  • It can typically form a critical component of Go-To-Market (GTM) Business Models.
  • ...
  • It can often include diverse strategies like Cost-Plus Pricing, Value-Based Pricing, and Competitive Pricing.
  • It can often adapt to Market Conditions using pricing adjustments.
  • It can often differentiate Customer Segments through pricing tiers.
  • It can often facilitate Purchase Decisions via pricing incentives.
  • It can often reflect Product Lifecycle through pricing evolutions.
  • It can often employ Psychological Pricing techniques to make prices seem more attractive to consumers.
  • It can often support Commercialization-focused Strategy implementation.
  • It can often be set to maximize profitability for each unit sold or from the market overall.
  • ...
  • It can range from being a Freemium Pricing Model to being a Premium Pricing Model, depending on its value capture approach.
  • It can range from being a Static Pricing Model to being a Dynamic Pricing Model, depending on its price adjustment frequency.
  • It can range from being a Uniform Pricing Model to being a Segmented Pricing Model, depending on its market segmentation approach.
  • It can range from being a Simple Pricing Model to being a Complex Pricing Model, depending on its pricing component count.
  • ...
  • It can influence Consumer Purchasing Decisions and market positioning.
  • It can integrate with Cost Structure for cost-based pricing.
  • It can connect to Customer Value Perception for value-based pricing.
  • It can support Revenue Management System for revenue optimization.
  • It can define how an Offerable Product is monetized in the marketplace.
  • It can incorporate LLM Cost-based Performance Measures for AI service pricing.
  • It can be used to defend an existing market from new entrants.
  • It can be used to increase market share within a market.
  • It can be used to enter a new market.
  • It can influence the Price Elasticity of products and services.
  • It can incorporate Price Prediction for future pricing decisions.
  • ...
• Examples:
  • Pricing Model Fundamental Approaches, such as:
    • Cost-Oriented Pricing Models, such as:
      • Fixed Pricing Models, such as:
        • Cost-Plus Pricing Model for markup-based revenue generation.
        • Target Return Pricing Model for investment-based profit planning.
        • Break-Even Pricing Model for volume-dependent profitability.
    • Market-Oriented Pricing Models, such as:
      • Competition-Based Pricing Models, such as:
        • Market Penetration Pricing Model for market share acquisition.
        • Price Matching Pricing Model for competitive parity maintenance.
        • Loss Leader Pricing Model for strategic customer acquisition.
      • Dynamic Pricing Models, such as:
        • Demand-Based Pricing Model for real-time market response.
        • Auction Pricing Model for buyer-determined price discovery.
        • Yield Management Pricing Model for capacity optimization.
    • Customer-Oriented Pricing Models, such as:
      • Value-Based Pricing Models, such as:
        • Premium Pricing Model for high-value product positioning.
        • Perceived Value Pricing Model for customer perception alignment.
        • Value Metric Pricing Model for usage-aligned value capture.
      • Segment-Based Pricing Models, such as:
        • Customer Loyalty Pricing Model for relationship-based price differentiation.
        • Demographic Pricing Model for customer characteristic-based pricing.
        • Geographic Pricing Model for location-based price variation.
  • Business Model-Specific Pricing Models, such as:
    • Subscription Pricing Models, such as:
      • Software Subscription Pricing Model for recurring software access.
      • SaaS Vendor B2B Pricing Model for enterprise software service provision.
      • Microsoft 365 Copilot Chat Pricing Model for AI assistant capability access.
      • Tiered Subscription Pricing Model for feature-based segmentation.
      • Freemium Pricing Model for conversion-focused user acquisition.
      • Usage-Based Subscription Pricing Model for consumption-aligned billing.
    • Advertising Pricing Models, such as:
      • Cost Per Action Pricing Model for performance-based advertising.
      • Cost Per Click Pricing Model for engagement-based ad billing.
      • Cost Per Impression Pricing Model for exposure-based ad valuation.
    • Platform Pricing Models, such as:
      • Two-Sided Market Pricing Model for platform ecosystem facilitation.
      • Freemium Platform Pricing Model for user base growth maximization.
      • Premium Access Pricing Model for platform feature monetization.
  • Technology-Enabled Pricing Models (for technology-enabled products), such as:
    • Digital Service Pricing Models (for digital service products), such as:
    • Cloud Service Pricing Models, such as:
      • AWS EC2 Spot Instance Pricing Model for dynamic compute resource allocation.
      • Azure EA for OpenAI Services Pricing Model for enterprise AI service consumption.
      • Reserved Instance Pricing Model for long-term capacity commitment.
      • Pay-As-You-Go Pricing Model for consumption-based cloud billing.
    • AI Service Pricing Models, such as:
      • OpenAI Product Pricing Model for AI capability access.
      • API Call-Based Pricing Model for service request billing.
      • Token-Based Pricing Model for language processing consumption.
    • Algorithmic Pricing Models, such as:
      • Machine Learning Pricing Model for data-driven price optimization.
      • Real-Time Bidding Pricing Model for programmatic market response.
      • Personalized Pricing Model for individual-specific price calculation.
  • Industry-Specific Pricing Models, such as:
    • Hospitality Pricing Models, such as:
      • Hotel Room Pricing Model for occupancy-based rate adjustment.
      • Restaurant Seat Pricing Model for time-based capacity optimization.
    • Transportation Pricing Models, such as:
      • Airline Seat Pricing Model for inventory-optimized revenue management.
      • Ride-Sharing Pricing Model for demand-surge pricing implementation.
      • Public Transit Pricing Model for accessibility-focused tiered pricing.
    • Entertainment Pricing Models, such as:
      • Video Game Pricing Model for platform-specific value extraction.
      • Streaming Service Pricing Model for content access monetization.
      • Live Event Pricing Model for experiential value capture.
  • ...
• Counter-Examples:
  • Revenue Models, which encompass broader financial frameworks beyond just price determination.
  • Barter Systems, which enable value exchange without using a monetary system.
  • Price Points, which represent specific price instances rather than pricing methodologys.
  • Discount Structures, which focus only on price reduction components rather than complete pricing methodologys.
  • Cost Structures, which focus on expense management rather than revenue generation.
  • Business Strategys, which include pricing approaches but cover broader organizational directions.
• See: Business Model, Revenue Model, Market Penetration Strategy, Customer Value Proposition, Marketing Mix, Monetization Strategy, Price Optimization System, Go-To-Market (GTM) Business Model, Cloud Service Pricing Model, SaaS Vendor B2B Ideal Customer Profile (ICP), Service (Economics), Product (Business), Price Prediction, Price Elasticity, Yield Management.

---

---

References

2020

• (Wikipedia, 2020) ⇒ https://en.wikipedia.org/wiki/pricing_strategies Retrieved:2020-12-9.
  • A business can use a variety of pricing strategies when selling a product or service. To determine the most effective pricing strategy for a company, senior executives need to first identify the company's pricing position, pricing segment, pricing capability and their competitive pricing reaction strategy.

    Pricing strategies determine the price companies set for their products. The price can be set to maximize profitability for each unit sold or from the market overall. It can also be used to defend an existing market from new entrants, to increase market share within a market or to enter a new market. Pricing strategies can bring both competitive advantages and disadvantages to its firm and often dictate the success or failure of a business; thus, it is crucial to choose the right strategy.

---