Usage-Based Billing

A Dynamic Pricing Strategy Drives Marketplace Success

October 18, 2022

As you know, pricing is a key element in developing your business strategy. And in many situations, it is a primary consideration for prospects looking to make a purchase. Get it wrong and the growth you envisioned will wane. However, get it right and your software-as-a-service (SaaS) business will thrive! Today’s market landscape is constantly evolving, and customer expectations have reached an all-time high. Gone are the days of offering a single pricing model such as flat-rate pricing. Today, pricing needs to be flexible, adjust in real-time, align with the value of your offerings, and even be personalized. This is where a dynamic pricing strategy makes its entrance.

What is Dynamic Pricing?

Before diving into how a dynamic pricing strategy can drive business success, let’s look at what dynamic pricing is and how it compares to flexible pricing.

Flexible pricing provides the ability to support any pricing strategy. From basic models like recurring fees, consumption-based tiers, and various subscription models to more advanced combinations of your existing pricing models – and even innovative pricing models that have yet to be created. Basically, flexible pricing means that you aren’t limited to a single billing model or industry specific standard for rating, enabling your sales, marketing, and product development teams to quickly create new pricing packages. For instance, a colocation (carrier hotel) company that generally charges on a flat, subscription basis can easily shift to metered or usage-based billing and charge for resource consumption.

By adding dynamic pricing to the mix, you’ll automate changes in pricing methods and amounts in real-time – providing a powerful new dimension to your monetization strategy. Dynamic pricing builds on your current flexible pricing foundation, enabling you to price products and services contextually, like those found in packages or across a complex customer hierarchy.

The caveat to dynamic pricing is that it hinges on your billing system’s ability to separate product definitions from their rating methods and associated rates. Billing platforms providing this capability deliver increased monetization benefits like the ability to change monthly subscriptions to metered pricing when a predefined usage threshold is reached or when a package of products and services are purchased.

Additionally, dynamic pricing allows you to define rates in the context of an account hierarchy. With dynamic pricing, you can define a single corporate rate at the top level of a multinational account hierarchy, allowing all sub-accounts to inherit the corporate rates, while enabling overrides of certain rates for specific products at a regional level. Consider a multinational travel services aggregator who sells the same services to other large multinational companies. Rather than define and manage contracts for each subsidiary, the organization can define multiple, currency specific rates on a single corporate contract. The same can be defined for the travel services aggregator itself by providing the ability to define currency specific global rate cards that can be applied automatically across a multi-currency customer base using the billing currency of the specific customer.

Differentiate with Dynamic Pricing Across Industries

Regardless of the industries you serve, a dynamic pricing strategy enables you to easily adapt to market changes and monetize even the most complex pricing methods. To illustrate, let’s look at a few real-world dynamic pricing examples across a few industries.

Wholesale and retail industries inherently have complex billing scenarios and customer hierarchies. In many cases, intercompany and reseller billing requires advanced charge routing and splitting capabilities. This is where a single usage event rates multiple times across several related accounts with different rate structures. Dynamic charge routing can be used for customers within the intercompany or wholesale retail relationships to split a single line of data from a delivery or fulfillment system and rate the charge at both a retail and wholesale rate. Essentially, if you sell wholesale products to resellers who need to bill retail customers, you can offer an advanced differentiating suite of retail billing services with minimal effort. Additionally, dependending on your business model, a dynamic pricing strategy lets you easily change product level rates to model a set of default rates for different contexts like regions or customer entitlement levels.

Our next example looks at Voice over Internet Protocol (VoIP) service providers. Typically, these providers have millions of subscribers and need a variety of base rates defined for different customer types such as business and residential. Although residential customers are typically lower revenue subscribers, they represent a high volume of customers. A dynamic pricing strategy provides the ability to develop a set of global pricing plans that define rates for large subscriber groups and makes it easy to provision each customer from a self-service portal that allows customers to choose their preferred plan. These global plans can then be modified centrally for periodic rate changes without having to make adjustments for individual subscribers. In contrast, higher value business customers typically demand more specific, tailored rate plans, as well as a variety of product combinations. Given these requirements, pricing would not fall under a global or generalized structure. However, a dynamic pricing model provides the ability to generalize overall pricing, while overriding and adding specific rates to certain customers.

Drive Profitability with a Dynamic Pricing Strategy

Flexible pricing capabilities provide the ability to be more agile, reduce the time to launch new products and support evolving customer needs, but it’s no longer enough. SaaS businesses need the ability to quickly and effortlessly manage a diverse, multinational product and customer base and its variety of pricing strategies.

BillingPlatform delivers the power of dynamic pricing, enabling SaaS businesses to offer diverse products and services that can live and breathe within today’s evolving business ecosystem. Our underlying metadata platform, as well as the ability to define specific product and account elements used in formula-based rates or matrix-style pricing provides the rating and monetization intelligence needed to deploy creative pricing strategies in real-time. If you want to maximize your dynamic pricing strategy, reach out to our experts today.

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