Successful pricing: options for optimally monetizing your services
Jonas Reuter
A pricing strategy is an important part of a successful business model. There are different ways that companies can monetize their products and services. In this blog post, we will take a closer look at some of them and consider their advantages and disadvantages in the context of the business model.
Subscription model
The subscription model, also known as the subscription model, is a pricing strategy where customers pay for regular access to a product or service. This can be a monthly or annual subscription. The model is particularly suitable for products and services that are regularly updated or renewed, such as software, music streaming services or online magazines.
One advantage of the subscription model is that it enables companies to generate a regular cash flow, as customers usually pay for a longer period of time. It also helps to increase customer loyalty, as you commit to keeping a subscription for a certain period of time. However, a disadvantage may be that it is too expensive for some customers, especially if they only use the product or service occasionally.
As a service model
The "as a service" model, also known as "X as a service", refers to a pricing strategy in which customers pay for the use of a product or service rather than for ownership. Examples include cloud computing services, software-as-a-service and infrastructure-as-a-service.
One advantage of the "as a service" model is that it allows companies to offer their products and services in a flexible and scalable way. Similarly, the customer does not have to rely on rigid offerings as it is just as flexible and scalable for them. Another advantage for companies is the opportunity to reduce costs, as they pass on the responsibility for maintaining and servicing the products and services to the customer.
However, a disadvantage of this model can be that it is difficult for companies to scale prices according to customer usage. In turn, it can be difficult for customers to recognize the true value of the services due to the small, regular payments.
Pay what you want model
The "pay what you want" model is a pricing strategy in which customers decide how much they want to pay for a product or service. This model has its roots in the music and art industry, but has recently been used in other industries as well.
One advantage of the "pay what you want" model is that it allows customers to assess the value of a product or service in their own way. It can also help to increase customer confidence in the company as it allows them to pay in a fair and transparent way.
A disadvantage of this model is that it can be difficult for companies to cover their costs as they cannot guarantee to achieve a certain price for their products or services. It can also lead to some customers tending to pay less if they have the option to do so.
Freemium model
Another pricing model is the freemium model. This model is a combination of free and paid use of a product or service. Customers can use the basic functions of the product or service for free, but they have to pay for additional functions or benefits.
One advantage of the freemium model is that it allows companies to attract a large number of users and promote their products or services. It also makes it possible to try out the product or service first before the customer has to decide to spend money. A disadvantage is that it can be difficult for companies to generate sufficient cash flow, as many customers may not be willing to pay for additional features or benefits.
Value-based pricing model
Another pricing model that companies can use is the value-based pricing model. It refers to the idea of determining the price of a product or service based on the value it offers to the customer. Unlike other pricing strategies that focus on cost or market value, the value-based pricing model focuses on the benefits the product or service provides to the customer and how much they are willing to pay for it.
This model allows companies to monetize their products or services in a way that is understandable and justifiable to the customer. It also helps to better communicate the value of the offer and make it more attractive to the customer. On the other hand, it can be difficult to articulate the value of the offer in a way that customers understand. Similarly, competition and other market factors, such as demand, always influence pricing.
The value-based pricing model has a positive side effect that is extremely beneficial for companies: it requires maximum customer centricity. In order to determine the value of a product for the customer, companies must work closely with their customers and understand their needs and expectations precisely. Therefore, value should be a focus from the early stages of product development. However, this approach should not be limited to pricing, but should be reflected throughout the company. Maximum customer centricity should be pursued by every employee to ensure that the company offers products and services that meet customer needs and provide high added value. By implementing a value-based pricing model, a company can not only increase profitability, but also improve its customer loyalty and market position.
The value-based pricing model should always be considered in combination
In many cases, it can make sense to combine the value-based pricing model with other pricing models mentioned above to develop a more holistic and flexible pricing strategy. For example, a company can sell its products or services based on value-based pricing, but use the freemium model to offer a free trial. This allows potential customers to recognize the value of the offer. Or it can simultaneously use the subscription model to generate a regular cash flow, but also use a value-based pricing model to charge higher prices for specialized or advanced offerings.
The combination of pricing models means that companies need to carefully consider and adapt their offerings and their customers' expectations. It also requires a good knowledge of market factors and competitors. This is the only way to ensure that the combination of pricing models is profitable for both the company and the customer.
The pricing model goes hand in hand with the business model
The choice of a pricing model will always influence the business model. Therefore, it is important to carefully evaluate and combine both in order to develop a successful pricing strategy.
With modern pricing and careful analysis of market factors and customer needs, a company can generate significantly more profit from its services and know-how by using the right pricing models and combinations thereof.
Ultimately, the choice of a suitable pricing strategy depends heavily on the offer and the target market. It is important to select a suitable strategy that clearly expresses the value of the offer to the customer and covers the company's costs. Companies should therefore take the time to investigate the various options and select the one that best suits their business model and target market. It is also important to regularly review and adjust the strategy to ensure it continues to be successful.
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MORGEN is a specialized management consultancy that focuses on the development of new business models for medium-sized companies. In particular, it supports owner-managed companies in their future-proof transformation. Knowledge transfer is at the heart of its consulting activities, which is why the MORGEN Blog regularly publishes articles on key topics such as digitalization, transformation, customer centricity and sustainability.