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Consequences of usage-based pricing in industrial markets

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Journal of Revenue and Pricing Management Aims and scope

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 usage-based 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, usage-based 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.

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Authors and Affiliations

  1. Faculty of Business Studies and Economics, University of Kaiserslautern, Kaiserslautern, Germany

    Eduard Stoppel & Stefan Roth

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  1. Eduard Stoppel
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  2. Stefan Roth
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Correspondence to Eduard Stoppel.

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Stoppel, E., Roth, S. Consequences of usage-based pricing in industrial markets. J Revenue Pricing Manag 14, 140–154 (2015). https://doi.org/10.1057/rpm.2015.6

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  • DOI: https://doi.org/10.1057/rpm.2015.6

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