Price models – how price agreements are structured and link payment to deliverables – has attracted surprisingly little attention by researchers and management writers. Most find the products being sold unproblematic and focus exclusively on their price level. There is a rich tradition from neoclassical economics and onwards discussing price options ranging from ”free” to full exploitation of consumer surplus.
However, this does not answer a range of pricing issues that confront most firms and many government organisations today, as well as consumers comparing such offerings:
- Use of multidimensional prices. A basic fixed fee plus variable payments for a range of extras, sometimes with some specified levels of consumption included, or levels where the variable fee changes. How select the parameters and set the fees?
- Duration and renewal. How long should a service agreement be, and how is continuity encouraged and rewarded?
- Price offerings and up-front costs. Suppliers and customers invest in their relationship through dedicated assets and practices. How does this impact price competition? Pricing practices influence business design – not just relationships but investments in capabilities.
- Price models and business models. Price agreements determine relationships not only with clients but also with suppliers, and when a firm partners with others. For instance, in opening up a new business which combines hardware and software from several suppliers there is a need for concerted action, where several price models will interact to determine value creation and sharing.
- Control of strategic pricing. Prices are set by numerous organisation members in their meetings with suppliers and customers, including internal agreements between different business units. To realise the latent benefits of strategic pricing, there actions need to be coordinated and desirable behaviours encouraged.
Our challenge is to encourage and assist innovative pricing which reflects present-day opportunities for innovative pricing.